Houston-based El Paso Corp. signed a letter of intent this weekto purchase liquefied natural gas from a new Australian LNGproduction facility to be built by Phillips Petroleum Co., whichwould provide up to 4.8 million tons of LNG beginning in 2005 forNorth American markets. El Paso and Phillips expect to complete adefinitive agreement on the deal by mid-year.

The LNG would be shipped into North America to be re-gasifiedand sold as approximately 680 MMcf/d, offering an “importantpotential new source of natural gas for growing California marketsand emerging markets in Mexico’s Baja California,” El Paso said ina statement. To support the project, El Paso is negotiating withseveral customers on long-term sales arrangements. No other detailsregarding the sales negotiations were provided.

Currently, El Paso and Phillips are jointly developing a new LNGreceiving facility that will be located along the Pacific Coast,which would receive, store and regasify the Australian LNG. Theyare working with Mexican and U.S. authorities to establish the siteof the new terminal and acquire regulatory permits. Existingpipelines would be used to transport the natural gas. Service fromthe planned terminal would begin service by 2005, when the LNG isscheduled to arrive.

“El Paso is committed to being a leader in providing new sourcesof gas to both California and Mexico,” said William A. Smith,executive vice president of El Paso Corp. “This important projectwill use our marketing and risk management skills to createattractive long-term energy solutions for California and Mexicocustomers, and for the owners of Australian gas reserves. Inaddition, our proven project financing sills will minimize ElPaso’s capital exposure and generate significant new earnings forour shareholders.”

The project is part of El Paso’s announced goal in February,when it said it would become a leading U.S. LNG merchant (see DailyGPI, Feb. 6). Currently, El Paso holds long-term terminal capacityat the Elba Island, GA and Cove Point, MD LNG terminals, which arebeing reactivated, and it is importing LNG at CMS Energy’s LakeCharles, LA terminal. El Paso said it also has begun negotiationsfor long-term LNG supplies for other terminals under development.

Phillips’ Australian facility will be built in Darwin using itsOptimized Cascade LNG Process, now used at a Phillips-operated LNGplant in Kenai, AK. The Australian LNG facility will be suppliedwith gas from the Greater Sunrise fields in the Timor Sea. Thesefields contain gas reserves of approximately 9 Tcf.

Bill Parker, Phillips executive vice president of worldwideproduction and operations, said the El Paso deal “validatesPhillips’ vision for Timor Sea gas development.” He said that withPhillips’ “future gas sales to this LNG project, the Timor Sea willbecome a new center of production for Phillips, commercializingsignificant quantities of gas and condensate reserves.”

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