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ConocoPhillips Cancels Beacon Port LNG Project

The predicted shakeout of Gulf Coast/Gulf of Mexico liquefied natural gas (LNG) projects is well under way, with ConocoPhillips adding its Beacon Port Clean Energy terminal offshore Louisiana to a growing list of projects that have been mothballed or canceled in recent weeks (see Daily GPI, March 23). Beacon Port's demise follows ConocoPhillips' other offshore LNG project, Compass Port, ExxonMobil's Pearl Crossing, BP's Bay Crossing/Pelican Island project onshore Texas and several others.

ExxonMobil said in August that it would stick with one onshore terminal, Golden Pass, and sell its Vista del Sol project planned near Corpus Christi (see Daily GPI, Aug. 22). BP said a few days later that it was putting its Bay Crossing LNG project near Galveston indefinitely on hold.

ConocoPhillips told the Coast Guard and Maritime Administration last Friday that it "no longer has a business need" for the Beacon Port terminal because of its stakes in the Freeport LNG terminal and Golden Pass terminals, both of which are on the Texas Gulf Coast.

"ConocoPhillips is committed to bringing new LNG supplies to the U.S. Gulf Coast," said S.L. Cornelius, president of ConocoPhillips' global gas division, in a letter to Coast Guard Admiral Thad W. Allen. "To accomplish this goal, in 2003 ConocoPhillips contracted for capacity at Freeport LNG, the first new LNG import facility in the mainland U.S. in 30 years. In 2004 and 2005 we submitted LNG deepwater port applications to the U.S. Coast Guard. Additionally in 2006 ConocoPhillips joined the Golden Pas LNG project, which began construction in September."

He also noted that since filing an application Beacon Port regulatory authorities have approved a number of new LNG import projects and expansions of existing or proposed facilities in the western Gulf of Mexico. "With our capacity at Freeport and nearby Golden Pass, ConocoPhillips no longer has a business need for an LNG terminal off the coast of Texas at this time," said Cornelius.

He did not mention the impact of Gulf Coast state opposition to the open-rack vaporization process, which Beacon Port planned to use, as a reason for the cancellation. Earlier this year Louisiana Gov. Kathleen Blanco vetoed Freeport McMoRan's Main Pass Energy Hub because of its use of the open-rack process, which takes in hundreds of millions of gallons of seawater each day to warm the LNG and bring it to a gaseous state. Freeport McMoRan was forced to refile an amended application for the project with a much more costly closed-loop vaporization design, which uses a portion of the LNG for regasification.

ConocoPhillips said previously that switching its offshore LNG terminals to the closed-loop process required by the states would make its terminals uneconomic (see Daily GPI, May 26). "Do we go down a path with a terminal that no supplier would ever want?" asked Steve Lawless, manager of LNG permitting at ConocoPhillips. He said a shift to a closed-loop system, which uses gas to heat the LNG, would cost the company $20-30 million initially and $30-40 million during each year of operation given $5/MMBtu gas prices. That's an $830 million cost increase over a 20-year period that would be passed on to LNG suppliers.

"If you are already in an offshore environment, which is much more expensive on a capital cost basis to begin with compared to onshore, you are now asking a supplier to pay for the additional offshore expense and the additional operating expense of a closed loop. Now the terminal does not look that attractive anymore," said Lawless. "If you don't have the supply, you don't have a project." As a result, it's pretty clear why Beacon Port is no longer a viable alternative.

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