Although two competing pipelines, designed to bring up to 1.7 Bcf/d of gas to Florida from LNG terminals in the Bahamas, already have completed the regulatory process in the United States, El Paso Corp. proved last week that its Seafarer Pipeline project is not out of the picture just yet.

But will southern Florida really need 2.5 Bcf/d of new pipeline capacity and gas supply in the 2007-2008 timeframe? The answer probably will come from the state’s largest electric utility, Florida Power & Light, whose affiliate, FPL Group Resources, last Wednesday executed a binding precedent agreement for about 800 MMcf/d of capacity on the El Paso Seafarer project.

“Demonstrating market support is a key issue with state and federal regulatory agencies as they evaluate projects to meet demand for natural gas markets in the southeastern United States,” noted John W. Somerhalder, president of El Paso’s Pipeline Group. “We believe these agreements [with FPL Group], along with clear technical and environmental advantages, should place Seafarer in the lead to win a competitive process to provide additional natural gas supplies to Florida Power & Light, as well as securing long-term contracts with other utilities and wholesale natural gas consumers in Florida.”

With the FPL agreement in hand, El Paso has initiated the pre-filing process with the Federal Energy Regulatory Commission for its project, which would bring gas from the proposed High Rock liquefied natural gas (LNG) import terminal in the Bahamas.

All three companies, AES, Tractebel and El Paso, have proposals to build LNG terminals in the Bahamas with pipelines to southern Florida. In January, FERC approved the AES Ocean Express project, which would include a 54-mile U.S. pipeline leg and a Bahamian pipeline leg that would transport 842 MMcf/d of regasified LNG to Broward County, FL. AES plans to build its LNG terminal on its own man-made 90-acre industrial island, called Ocean Cay. AES has a binding precedent agreement with its marketing affiliate for the entire capacity on the pipeline.

Three weeks ago, FERC also granted a certificate to Tractebel Calypso’s $132 million 42-mile U.S. jurisdictional pipeline. Calypso would transport up to 807 MMcf/d of gas from an LNG terminal in Freeport, Grand Bahama.

Tractebel and AES also received final authorizations from the state of Florida last week for their projects. The state of Florida voted to grant Sovereign Submerged Lands Easements to the competing pipelines and to approve the issuance of Environmental Resource Permits to the projects by the Florida Department of Environmental Protection.

While Seafarer is far behind in the regulatory race, it may be ahead in capturing a market because of its contract with FPL Group. Florida Power & Light is expected to begin a request-for-proposals process for gas supply within the next month or two because the state of Florida will need significant additional natural gas over the next decade to fuel rapid development of gas-fired power generation. The result of the utility RFP likely will determine which project(s) move forward.

Mark Futrell, an economic analyst with the Florida Public Service Commission (PSC), said Florida Gov. Jeb Bush concluded at [last] week’s cabinet meeting that only one of the pipelines would end up being built. “It’s obvious we need more gas supply,” said Futrell. “We are projected to go from about 25% of our electricity production from gas to about 50% in 10 years. Gas requirements would go from 462.9 Bcf in 2002 to 969 Bcf in 2012, so it’s almost doubling.”

He noted that Florida Gas Transmission is fully subscribed at 2.2 Bcf/d. The Gulfstream Pipeline, which brings gas from Mobile Bay, AL, to southwest Florida is about 65% subscribed so there’s about 0.4 Bcf/d of capacity available. But there will need to be additional capacity in the future.

“What we don’t know is what’s the best option for adding new capacity; what’s the most cost effective alternative,” said Futrell. “[The PSC is] not required to make that determination — we don’t have the information to do that, but it looks like we do need more capacity.”

From his perspective all three pipelines from the Bahamas are very similar. He said El Paso’s project may have some slight environmental advantages because it will come into Florida in Palm Springs, north of the sensitive offshore reef in Broward County. Seafarer will come in near FPL’s Riviera Beach power plant about 10 miles south of West Palm Beach.

“We’re definitely going to need one of these three pipelines. Maybe in the coming years another one will be needed or what’s here will have to be expanded,” said Futrell. But he noted that the PSC will have no role in determining how this all plays out.

The government in the Bahamas has the real power to determine the fate of these projects. None of the LNG terminals nor the international portions of the pipelines have received final authorization yet from Bahamian prime minister and his cabinet.

“It looks like this is going to be decided by the Bahamian government and the lending community” as well has the marketplace, said Futrell.

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