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North Baja LNG Likely to Back Out Canada, Permian Gas, Pipe Exec Says

While the debate rages about when, and if, there will be another liquefied natural gas (LNG) terminal sited along the West Coast, particularly in California, a TransCanada Pipeline executive Tuesday raised the hypothetical question of whether the West really needs a second LNG terminal at this time. Jeff Rush, vice president for TransCanada's GTN and North Baja pipelines, made his remarks to The LDC Forum: Rockies & West in Los Angeles.

Essentially, Rush projected ahead 15 months to initial shipments of LNG at Sempra Energy's Costa Azul facility, assuming up to 1 Bcf/d of gas is suddenly onshore on the West Coast, and speculating where it would go: 300 MMcf/d might cross the U.S. border into California, 400 MMcf/d could stay in Mexico for existing and expanded power plants, and the rest (300-400 MMcf/d) would push up to the California-Arizona border at Ehrenberg, AZ, where Rush argued there is no market for it, so Western Canadian and Permian Basin supplies would necessarily have to be backed out.

TransCanada holds the old Pacific Gas Transmission interstate pipeline system in the Northwest and the U.S. portion of the North Baja Pipeline with Sempra units. On the North Baja line, gas supplies now flow from the Southwest to electric generation plants in Mexico, along the international border.

"When the first LNG shipments come in, that pipeline flow will be reversed," said Rush, noting that his company and Sempra have applied to the Federal Energy Regulatory Commission to reverse the flow, along with two other applications -- one to build a lateral to El Centro to fuel a power plant and another request to loop the North Baja pipeline with up to 42-inch-diameter pipe, depending on the results of market response.

A glut of gas in the Southwest may not materialize in the 2008 time frame as other speakers and participants at the LDC Forum pointed out that there are increasing delays in some of the liquefaction facilities proposed in the supplying nations, such as Russia. Half of the initial 1 Bcf/d volumes through Costa Azul are supposed to come from Shell from its own LNG development in the Sakhalin field in Arctic Russia, but no definitive supply contracts are in place, and more recently Russia's Gazprom has rejected bids by U.S. firms to develop LNG in the Shtokman project, a $20 billion venture with vast supplies, some of which U.S. markets were counting on.

In addition, some of the 500 MMcf/d of LNG Sempra has contracted for from Indonesia through marketing arms of BP and Japan's Sumitomo Corp. can be diverted at any time if it can fetch a higher price elsewhere in the Pacific Basin. "That may not be a problem for Sempra," said an executive connected with a competing West Coast LNG developer.

It also was expected that the other 500 MMcf/d would come from Sakhalin and other Russian sources. would be available in 2008 and 2009, but the competing executive said there have been no clear agreements or delivery dates made public. "Contractually, they might have to plan on 1 Bcf/d in that time frame, but whether it shows up is still in doubt."

Similarly, Sempra has been silent on specific plans for expanding the North Baja facility by doubling its capacity, the LNG executive said.

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