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Columbia to Restart Cove Point Imports; LNG on the Rise

Columbia to Restart Cove Point Imports; LNG on the Rise

The role of liquefied natural gas (LNG) in the U.S. gas supply mix continues to grow. Last year's third quarter saw a significant percentage jump in LNG imports, and that trend likely will continue with LNG import facilities being reopened in Maryland and Georgia.

Last week saw Columbia LNG Corp. go ahead and buy the other half of the Cove Point LNG Limited Partnership it did not already own from Potomac Electric Power Co. unregulated subsidiary Potomac Capital Investment Corp. An affiliate of Columbia LNG Corp. paid $40.7 million. The sale gives Columbia total ownership of the Cove Point LNG terminal. Cove Point LNG plans for an open season next month for bids on import capacity. Pending approval by the Federal Energy Regulatory Commission, Cove Point plans to reopen its LNG marine terminal facilities by late 2001.

Located in Lusby, MD, the Cove Point terminal includes LNG storage and terminal operations, and an 87-mile gas pipeline that connects with pipelines in northern Virginia. It is able to send out up to 1 Bcf/d. The Cove Point LNG terminal currently provides peak shaving services to meet high-demand periods for customers in the mid-Atlantic and southeastern regions. PCI and Columbia had owned the facility equally since 1994.

"The completion of this sale will allow PCI to focus its capital resources on its high-growth telecommunications strategy," said John D. McCallum, PCI President.

Columbia LNG President Michael Bridges said, "Columbia saw a good business opportunity here with the LNG import business. There's clearly a renewed interest in LNG imports into the United States." He cited recent LNG import activities by Coral Energy and Enron, among others and said his company has talked to a number of potential importers who have expressed "strong indications of interest" in Cove Point with an eye toward serving Mid-Atlantic markets.

"Most companies recognize that Cove Point being up on the East Coast is a very strategic location."

Meanwhile, Southern LNG Inc. won Department of Energy approval last week to begin importing up to 82 Bcf/year from Trinidad and Tabago over 22 years to its currently idle Elba Island, GA, terminal. Last month FERC gave Sonat preliminary authorization to recommission the terminal at a cost of $26.2 million after nearly 20 years of inactivity. The plant will have a baseload sendout rate of 330,000 Mcf/d and a peak-day sendout of 540,000 Mcf/d.

Sonat recently had a successful open season for a revitalization of the of the mothballed Elba terminal. The winner of all 4 Bcf of capacity was Sonat Energy Services (see NGI July 5).

The FERC authorization was good news not only for Southern LNG but also for Atlantic LNG of Trinidad, which owns the liquefaction plant in Trinidad that would supply LNG to Elba Island. Atlantic LNG plans to proceed with an expansion of its Trinidad LNG facility, while an overseas consortium --- known as the NCMA Developers --- plans to develop offshore gas reserves to be liquefied by Atlantic LNG and shipped to the Southern LNG terminal facility.

Increased demand for LNG in the United States is being driven by a number of factors, according to Bridges. Obviously, demand for gas is growing, for power generation in particular. However, the LNG picture also is supply driven. "There are gas reserves all around the world. There are a lot of companies looking for ways to monetize their reserves and looking for ways to get them to market. LNG is a very viable way to get natural gas to the marketplace. The United States is a very attractive market." He cited gas price transparency in the US that attracts LNG sellers from around the globe.

In the short term, there is excess LNG capacity worldwide, thanks mainly to the economic downturn in Asia, Bridges said. As Asian markets start to pick up and new markets for LNG develop in India and China, some of that will begin to dry up, Bridges said. Long term, he expects LNG to come to Cove Point from the Atlantic basin and other areas. Deliveries from the Middle and Far East likely will be on the spot market. "LNG by its nature isn't going to dominate a market like pipeline gas might."

According to the U.S. Department of Energy's Office of Natural Gas & Petroleum Import and Export Activities, total gas imports grew by 15% in the third quarter of 1999 over the third quarter of 1998 while LNG imports were up a strong 221% over the same period.

During the third quarter of last year, four companies --- Distrigas; Duke Energy; CMS Marketing; and Coral Energy Resources --- imported 11 spot LNG cargoes from five different countries: Algeria, Australia, Malaysia, Qatar, and Trinidad. The imports totaled 23.7 Bcf. The period marked the first time LNG has been imported from Malaysia with a cargo brought in by Coral in August.

Under long-term LNG contracts, Distrigas imported 2.5 Bcf from Algeria at $2.36/MMBtu and 16 Bcf from Trinidad at $2.24/MMBtu. Duke imported 7.92 Bcf from Algeria at $2.00/MMBtu. And 16.9 Bcf of LNG was exported to Japan from the United States at $2.90/MMBtu (delivered).

Under short-term contracts, Distrigas brought in 5.9 Bcf from Trinidad at $2.12/MMBtu. Duke imported 5.6 Bcf from Algeria at $2.25/MMBtu. CMS imported 2.3 Bcf from Australia at $2.04/MMBtu and 7.4 Bcf from Qatar at $2.40/MMBtu. Coral brought in 2.6 Bcf from Malaysia at $2.15/MMBtu.

Looking at the first three months of 1999 and comparing them to the same period of 1998, the DOE found LNG imports grew by 109% over the period to 120.9 Bcf from 57.9 Bcf.

Joe Fisher, Houston

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