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First Deepwater LNG Import Facility to Be Retired

Gulf Gateway Energy Bridge Deepwater Port, the first deepwater liquefied natural gas (LNG) import facility of its kind in the world, will be retired just six years after it went into service in the Gulf of Mexico, Excelerate Energy LP has announced.

The floating LNG regasification facility, which is 116 miles off Louisiana's coast in 298 feet of water, was commissioned in 2005 (see Daily GPI, March 4, 2005). Gulf Gateway, which was reported to have cost around $70 million, was designed to deliver around 3 Bcf of regasified LNG from a ship into the pipeline grid via the Sea Robin and Blue Water subsea systems at a rate of about 500 MMcf/d.

Gulf Gateway was delivering gas to the Gulf Coast region when Hurricane Ike struck in September 2008, damaging the facility's two separate offshore pipeline systems. The actual floating LNG facility wasn't affected by the storm, but neither pipeline has been able to return to its prior level of service, officials said last week when they announced that the facility would be retired.

"Gulf Gateway has served us well, and was instrumental in confirming the viability of floating LNG regasification -- turning an innovative concept into an accepted industry solution," said Excelerate CEO Rob Bryngelson. "As Excelerate Energy looks to expand its operations and deliver flexible and efficient regasification solutions around the world, we are focused on markets with the greatest need.

"This focus, coupled with the surge in LNG importation capacity in the U.S. Gulf Coast in recent years, has reduced the need for Gulf Gateway and confirmed that its retirement is the most financially prudent course of action for us."

Gulf Gateway is to be decommissioned within 68 days of permit approval and "will have little environmental impact," Excelerate said. The decommissioning plan, which includes removing the facility and related components, is being finalized in coordination with the U.S. Maritime Administration and other regulatory agencies.

Excelerate purchased the proprietary Energy Bridge technology from El Paso Corp. in 2003 (see Daily GPI, Dec. 18, 2003). When Gulf Gateway launched two years later, it was unable to accept conventional LNG vessels, so Excelerate commissioned 138,000-cubic meter LNG vessels to allow deliveries directly into a special buoy that connected to existing offshore subsea pipelines.

Gulf Gateway "provided the means for establishing the technical and commercial viability" of the Energy Bridge Regasification Vessels (EBRV), which allow gas to be delivered directly into downstream markets, Excelerate noted. The successful launch led Excelerate in May 2005 to apply to build the Northeast Gateway Deepwater Port facility offshore Boston, which remains in service (see Daily GPI, May 13, 2005).

According to analysts with Pan EurAsian Enterprises Inc., "the initial 'hope' for the Gulf Gateway facility was that it would receive about one cargo a week. The first cargo arrived, loaded in Malaysia, in March 2005 and was landed at a reported price of $7.06/MMBtu. At that time the Henry Hub next-day price was around $7.17."

However, hopes for the offshore terminal were never realized, said Pan EurAsian in a note on Tuesday. The last use, according to its records, "was in August 2007 after the arrival of six cargoes." In addition to the commissioning cargo from Malaysia, "cargoes came from Trinidad, Nigeria and Qatar." Records indicate "a total of 17.7 Bcf of natural gas was delivered into the U.S. pipeline system from Gulf Gateway."

The Northeast Gateway facility, Pan EurAsian analysts noted, has received 11 cargoes since ramping up in May 2008, which have delivered a total of 21.3 Bcf into the U.S. pipeline system.

Excelerate said in the past seven years it has developed eight EBRVs, two Gateway offshore LNG import terminals and four dockside LNG import terminals. Pan EurAsian said Excelerate now either owns or has under long-term charter 10 LNG tankers, nine of which are equipped to work with the floating LNG system.

Excelerate's regasification systems have been "slow to take hold in the market," noted Pan EurAsian analysts. Excelerate operates Teesside GasPort LNG in the United Kingdom. Suez Energy North America in 2006 used the design to build its Neptune LNG facility offshore Boston (see Daily GPI, April 5, 2006) and considered it for its proposed Calypso LNG port offshore Port Everglades, FL (see Daily GPI, Feb. 27, 2009; Oct. 7, 2005). The Neptune facility "has not seen much use either," said Pan EurAsian analysts.

Excelerate in 2008 sold a 50% stake in its LNG business to German utility RWE Group for an estimated $500 million (see Daily GPI, June 3, 2008). And last year Excelerate said it was looking for a partner to market gas from the Gulf Gateway terminal (see Daily GPI, April 12, 2010).

Pan EurAsian analysts said "the critical impediment" to Excelerate's business model has been that only specially built ships are able to use the system. The system and additional equipment "adds significantly" to the cost...and is only useful for specialized trade." Excelerate, they said, has no dedicated sources of LNG and has been limited in finding LNG cargoes.

"The collapse of U.S. natural gas prices as production from the shale formations grew did not help much, either," said Pan EurAsian analysts. "The decision by Excelerate to abandon the Gulf Gateway facility and decommission it simply acknowledges reality."

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