With its Equatorial Guinea liquefied natural gas (LNG) project well along, Marathon Oil Corp. should have a “definitive supply agreement” by the end of this year for the equivalent of 3.4 metric tons of LNG annually over a 17-year period, according to Clarence Cazalot, Marathon’s CEO, who spoke Wednesday at the three-day Lehman Brothers Energy/Power Conference in New York City.

As part of a strategic objective to maximize the company’s integrated gas strategy involving LNG supply projects at Elba Island, GA, and a proposed terminal in Baja California Norte, Mexico, Cazalot said “significant progress” has been made, citing the initial letter of agreement for New Guinea LNG signed last April.

With government approvals and final financing agreements expected in the first quarter next year, Cazalot said this would be “the fastest LNG project from inception to final financing to date.” In addition, he was bullish about the cost of the gas regarding its competitiveness with Henry Hub price equivalents.

“Because this project has very low-cost gas, it has very strong economics,” the Marathon CEO said. “This project will yield over 15% after interest/taxes return based on a 2007 Henry Hub gas price of about $3.75/MMcf, escalating to about $4.45/MMcf by 2013 and staying flat thereafter. So with what we would clearly think of today as acceptable Henry Hub gas prices, this project has very strong economic returns.”

With its acquisition from the Enron bankruptcy of about 160 MMcf/d throughput rights at Elba Island’s LNG receiving terminal, Marathon now has options for what supplies it wants to run through that facility, Cazalot said. “We see a lot of commercialization options. This is a highly attractive capacity to put either spot cargoes or long-term cargoes through, and we’re working on those options now. We see a lot of opportunity to create a lot of value in the investment we made at Elba Island.”

Cazalot called the Baja project “truly beneficial… — not only to Mexico, but to Southern California as well.” Acknowledging that the company’s primary competitors — Sempra Energy and Shell — also have received LNG terminal siting permits from the federal Mexican energy authorities, he said “the race is on to line up LNG supplies and secure additional approvals.”

A fourth project that is part of the integrated gas strategy is still “in its infancy,” said Cazalot. It involves the world’s largest concentration of natural gas offshore Qatar. Marathon is doing some preliminary studies on a potential gas-to-liquids project with the government in Qatar in the 900 Tcf northern field. Cazalot said Marathon hopes to determine by the end of this year “whether or not this is a project to move forward on.” He said the scale is huge — the equivalent of 90,000 to 120,000 barrels/d of gas-to-liquids products.

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