El Paso Unveils New Game Plan, 6 LNG Facilities
Strengthened by its merger with The Coastal Corp. earlier this
month that made it the fourth largest U.S. energy company, the
former El Paso Energy Corp. unveiled an impressive show of strength
last week as it began a two-day analysts' conference in Houston,
showcasing a new energy trading floor, new corporate identify and
details to grow earnings at least 25% in the coming year.
The company also announced last week that it would substantially
grow its liquefied natural gas business, spending $1.5 billion in
the next five years to build six LNG terminals to serve the North
Now doing business as El Paso Corp., the company has a new logo,
which CEO William A. Wise said reflects the company's "emergence as
a leader in all phases of the natural gas industry." Wise said that
the "combination of closing the Coastal merger, announcing yet
another year of record earnings, simplifying the company name and
presenting a new face to the world creates an unrivaled platform to
sustain El Paso's track record of success."
Wise and members of the company's management team laid out a
detailed blueprint for its earnings backbone, the Merchant Energy
segment, which now includes the company's North American natural
gas and power merchant operations, international assets and the
petroleum assets and trading. El Paso said it expects to generate
$1.7 billion of net income this year, about $3.25 a share, which
will match First Call/Thomson Financial analysts' averages for the
year. Long-term growth will exceed 25%, Wise said.
The growth will be tied to success is several areas, with a lot
of hopes in trading activities, which now will be hubbed in a new
80,000-square-foot energy trading facility in downtown Houston,
adjacent to the company's headquarters. The facility supports more
than 500 commercial, trading, risk management and administrative
staff to manage marketing and trading activities, including natural
gas, power, natural gas liquids, crude oil, refined products,
weather derivatives and related commodities.
Ralph Eads, president of the Merchant Energy Group, called the
completion of the facility and next-generation trading platform,
dubbed THERMS, an important step in El Paso's move to the front of
the line in energy marketing and trading.
The long anticipated telecommunications strategy, first promised
last July, also was detailed by the company's Global Networks
segment. El Paso, which has already started acquiring fiber optic
cable assets and building cable throughout the United States, plans
to leverage its knowledge of commodity and capital markets with
telecommunications market skills to "identify and capture value" in
the young industry --- a market in which El Paso's Houston
neighbors Enron Corp. and Dynegy Corp. already are succeeding.
In the next four years, the Global Networks segment plans to
pour about $2 billion into its multi-pronged strategy that will
leverage El Paso's pipeline network --- "end-to-end liquidity" ---
using three major components:
Access to fiber across metropolitan markets to aggregate supply
in major U.S. cities;
Use of fiber rings and key points of interconnection of major
carriers and service providers to allow for liquidity to develop in
major markets; and
Installation of a high-capacity, fiber-efficient national
The first step is its home base, Texas, where El Paso is
finalizing its deployment of an extensive fiber optic network in
the state's major markets. Once the Texas network is completed, El
Paso will branch out across the United States.
Using the business model that CEO Wise asserted has made El
Paso's Merchant Energy platform a leader, he said that the Global
Networks segment would bring a "unique vision" to the bandwidth
industry, duplicating success already found in the natural gas and
"We expect this business to generate positive operating cash
flow by the end of 2003, but more important, we firmly believe that
El Paso Global Networks has created $7 billion to $10 billion of
current value based upon opportunities that have already been
To capitalize on the growing North American LNG market (see
related story), El Paso plans to spend $1.5 billion over the next
five years to build projects, including three in the United States,
two in Mexico and one in the Bahamas, with five serving the U.S.
Eads said the company predicts that LNG will grow at a rate
between 10% and 15% for the next 10 years --- a faster rate than
any other energy business. To be worth the expense, however, Eads
said that natural gas prices would have to stay above $3/Mcf for
the next 10 years as well, something analysts predict will occur.
Sites for the new projects now include a proposed plant in a
remote region of Baja California to feed the San Diego and Mexican
gas markets, and another in Florida. El Paso also has options on
land in the Bahamas and is finalizing its options on a site in the
Carolinas. Other potential sites include Baja, San Diego and San
Francisco. A terminal already is scheduled to be built in Altamira,
Mexico for the Mexican market.
The terminals would cost between $250 million and $350 million
each, according to El Paso.
As if to underscore how important it thinks the LNG market is
becoming, El Paso's Tennessee Gas Pipeline last week announced an
open season for firm natural gas transportation service from CMS
Trunkline LNG's terminal in Lake Charles, LA into Tennessee's
system, coinciding with a planned deliverability expansion at the
Trunkline plant, which would add up to 300 MMcf/d.
The open season for Tennessee Gas Pipeline from CMS Trunkline
began last Monday and closes at 2 p.m. CST on Friday (Feb. 16). The
open season is concurrent with the final two weeks of CMS Energy's
current open season for LNG terminal services at the facility.
Service is scheduled to begin in the fall of 2002.
Interested parties may obtain a detailed information package,
which includes guidelines and subscription forms, by contacting Bob
Fleming at (713) 420-3740 or by sending a fax request to (713)
420-5225. The guidelines are also available on the Internet at
El Paso now is also free of at least a few of the legal hassles
that have pursued it in recent months. The Federal Trade Commission
finalized a consent order against El Paso and Pacific Gas &
Electric Corp. to remedy the "likely anti-competitive effects" from
El Paso's Jan. 27, 2000 announced acquisition of two PG&E
subsidiaries, PG&E Gas Transmission Teco Inc. and PG&E Gas
Transmission Texas Corp. [No. C-3997, Jan. 30]. In those purchase
agreements, El Paso proposed acquiring the subsidiaries for $840
The FTC had ordered the companies to divest themselves of
certain properties because it said the original agreements would
reduce competition in three natural gas transportation markets: the
Permian Basin, Central Texas and Matagorda Island offshore.
The order, which will allow El Paso's acquisition to proceed,
requires El Paso and PG&E to divest to Duke Energy Field
Services LLC the PG&E Teco stock. The Teco pipeline is three
segments of natural gas pipeline that runs from the Permian Basin
through Central Texas to a market trading area in Katy, TX near
They also were ordered to divest interest in the El Paso Oasis
Pipe Line to Oasis Pipe Line Co., Aquila Gas Pipeline Corp. and Dow
Hydrocarbons and Resources Inc. and to divest to Panther Pipeline
Ltd. the PG&E Matagorda Pipeline system.
Carolyn Davis, Houston