Liquefied natural gas (LNG) opportunities continue to hold sway at El Paso Corp., and the plans announced last year to build more storage terminals in North America remain on track, the company said during an analysts’ meeting Wednesday. Already holding significant regasification capacity at all the major U.S. LNG terminals, El Paso said it plans to build a similar network globally and link its supplies to build out an energy network fueled by natural gas, power and petroleum.
While focused on its strong natural gas network, the company also plans to take advantage of more opportunities opening up in the power generation field, and expects to add North American assets in the long-term, “when the time is right,” said CEO William A. Wise. Some of El Paso’s merchant opportunities have come at Enron Corp.’s expense, he said, with a huge market emerging in risk management services.
“We think that deregulation in one form or another is moving forward and is going to continue in the United States,” said Wise, but added that there will continue to be “a lot of stress and distress” in U.S. power generators for “some time.”
In a strategy that El Paso calls “global BTU convergence,” Ralph Eads III, president of the Merchant Energy Group, said El Paso seeks “scale in gas, power and petroleum globally” that lead to “network economics.” By putting together a strategy with diversified assets in each group, he said the Houston-based company will take the “inefficiencies” out of the system and “basically source gas from any place in North America.”
El Paso had announced one year ago massive plans to build six LNG terminals in North America (see Daily GPI, Feb. 6, 2001). The proposed projects included three in the United States, two in Mexico and one in the Bahamas, with five serving the U.S. marketplace. While not reiterating how many terminals it now expects to build, company executives remain committed to expanding their presence in the LNG market. Said Wise, “we think it’s the fastest growing energy source in the world,” and offers some of the company’s best growth opportunities.
El Paso’s LNG opportunities will be keyed toward cooperative projects, said Eads. The majors, like Shell and Exxon Mobil, are limited in how they position themselves with LNG, he said, and El Paso’s strategy will be to add marketing value through partnerships. El Paso and Phillips are working on some joint ventures together, and El Paso also is interested in expanding its Trinidad base, where U.K.-based BG Group holds about 26% of the market.
“Three is a strong interest in LNG,” said Eads, “and if we had additional terminal capacity, we could get the supplies to fill them up. Now, we have inadequate terminal [capacity] in North America.” Despite the weak market conditions, Eads said, “at the end of the day, gas is the fuel that makes sense for the future…and it is important to diversify where the supplies come from.”
The LNG business, said Eads, is transforming from a base load commodity to a key commodity, which increases the value of natural gas. He said LNG at $4/Mcf is a “value product” in the long run when natural gas is $2.75-$3/Mcf as a peaking product. “We see some significant opportunities to take a market share in North America and Europe,” he said, adding that El Paso sees LNG’s long-term potential as adding $1 billion to its earnings.
As the only company with capacity at all of the North American LNG terminals, Eads said, “our strategy is to own more terminal capacity.” He said the company then could contract for flexible supplies at market sensitive prices. “The next chapter is to add terminal capacity in North America, Europe, the Atlantic Basin and the West Coast of the United States.”
Already on track to revamp its balance sheet, Wise said the company is moving “aggressively toward that goal” by divesting of assets that offer no value to the company and adding others. Tuesday, El Paso reached an agreement with El Paso Energy Partners LP, its master limited partnership, to sell some Texas midstream assets as part of its divestiture plan (see Daily GPI, Feb. 20). “I’m absolutely convinced that having a strong balance sheet is the way to gain market share,” Wise said.
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