News from major liquefied natural gas (LNG) players Distrigasand Sonat combined with a recent Department of Energy (DOE) reportof a major LNG import increase in the first quarter of this yeardominated headlines Wednesday, but Gordon Shearer, Cabot LNG CEO,told NGI this will be as active as the LNG industry will get forsome time.

“I think your seeing the peak of LNG spot import activity rightnow. Next year will be the peak of long-term contracts fulfillingthemselves. After that, however, there could be some seriousfall-off.”

The main reason for Shearer’s pessimism is the LNGtransportation situation. “There aren’t enough ships now, and manyare scheduled to be decommissioned by the end of next year,” hesaid. The average cost to build an LNG transportation vessel is$170 million, and many companies shy away from doing so without aguaranteed long-term contract for the ship’s usage, he added.Presently 90 LNG vessels exist worldwide, and only four are withoutlong-term contracts.

Reports of a burgeoning LNG import market, such as the recentDOE report, should be taken with a grain of salt, according toShearer. The DOE said LNG imports were up 56% to 39 Bcf in thefirst quarter of 1999 compared to the same period in the previousyear.

“What people have to realize is that LNG imports were startingfrom a very small base. Compared to last year, this year’s importswill look very dramatic. Next year, I think it will increase aswell, but that’s only because it started from such a small base.LNG is still only a small sliver of the overall amount of gas usedin the US.”

Shearer was nonetheless excited about Wednesday’s announcementof the deal between Distrigas, a Cabot subsidiary, and El PasoEnergy, which agreed to buy 45 MMcf/d from the Distrigas LNG importterminal in Everett, MA, for New England power generation.

The gas will be used to fire a Berkshire Power Co.-owned 272-MWpower plant in Agawam, MA. Berkshire Power is a joint venture ownedby El Paso and Boston-based Power Development Corp. The gas will bedelivered to the plant by Tennessee Gas Pipeline. Financial termswere not released.

“The Berkshire contract is significant because it is one of thefirst major commitments of LNG to be dedicated to a merchant powerproducer in the New England market,” said Richard L. Grant, COO ofCabot LNG Corp.

The contract was signed just days after Distrigas received itsfirst cargo from Atlantic LNG Co.’s Trinidad and Tobago processingfacility. Cabot is a 10% shareholder in Atlantic and holds a20-year purchase contract for 220 MMcf/d to be delivered to theEverett facility.

In total, Distrigas can deliver up to 450 MMcf/d throughpipelines and another 100 MMcf/d by truck. Imports come chieflyfrom Trinidad and Tobago and Algeria. Shearer said most of the gasis consumed by New England, with other main markets in New York andNew Jersey.

If Sonat has its way, the Elba Island facility will also receiveimports from the Atlantic terminal in the near future. TheAlabama-based company filed for reinstatement of the Elba Islandmarine receiving terminal, which has been dormant since 1982, onWednesday. If approved, the facility would begin operating inmid-2002.

As a result of a controversial open season (See Daily GPI, June 30), Sonat Energy Services, Sonat’smarketing affiliate, was awarded a 22-year contract for all of ElbaIsland’s capacity, which amounts to 80 Bcf per year. The facility,which is located near Savannah, GA, has a peak send-out rate of 540MMcf/d and a baseload send-out rate of 330 MMcf/d.

“Sonat Energy services was one among many bidders. People werebidding on a regulated price, so they could either bid the fullprice or below it. Sonat Energy Services bid the full price for thelongest period, so it got the capacity.”

Shearer doesn’t think the reactivation of Elba Island willimpact Distrigas. “They are focusing on power generation in theSoutheast, and we very rarely send gas down that way anyway. On thesupply side, the fact that we both will get gas from Trinidad willhave no effect, because there is just a ton of gas over that way.”

Elba Island’s reactivation is subject to US and Trinidadiangovernmental approvals, final agreement executions and thefinalization of shipping plans.

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