McMoRan Exploration said that it intends to follow through on a two-year-old plan to develop a liquefied natural gas (LNG) and compressed natural gas (CNG) import terminal offshore in the Gulf of Mexico. The $500 million, 1 Bcf/d Main Pass Energy Hub would be developed at a discontinued sulfur mining operation at one of the largest platform configurations in the Gulf at Main Pass Block 299, about 16 miles east of the mouth of the Mississippi River in 210 feet of water.

The project was originally conceived in 2001, and McMoRan already has completed the conceptual engineering for the project (see Daily GPI, Oct. 15, 2001). It plans to soon file an application with the U.S. Coast Guard for authorization to receive, process and distribute LNG, CNG and natural gas from the terminal.

The Main Pass Energy Hub and Deep Water Port also will have about 28 Bcf of gas storage capacity at an existing two-mile diameter caprock and salt dome storage field, which could be expanded significantly. In addition, the terminal would be in close proximity to existing pipeline infrastructure.

McMoRan said it expects to begin receiving about seven million metric tons/year of LNG starting in mid 2006. The Main Pass Energy Hub would be designed to have about 350 Bcf/year of throughput, an average of 1.5 Bcf/d of deliverability from storage, 3.1 Bcf/d of peak deliverability, 60,000 cubic meters of LNG storage and the ability to unload a standard 130,000 cubic meter LNG carrier in 24 hours.

Because it would be the first offshore LNG terminal in the nation, McMoRan is expecting premium value for its capacity. Based on $5/MMBtu gas prices, it sees incremental margins of $1.50-2.50/Mcf. The economics assume $0.50-1.00/Mcf of production costs, $0.80-1.00/Mcf of liquefaction costs, $0.90-1.10/Mcf of shipping costs and $0.30-0.40 of LNG receiving and regasification costs.

It also see a number of significant positives from its offshore location, including a significant permitting advantage over onshore LNG terminals, fewer security issues, a deep water port near major shipping lanes, excellent access to the largest U.S. markets, and close proximity to major pipelines and the Henry Hub. It also sees a significant advantage in the existing infrastructure on site, particularly the platforms and storage facilities.

The company expects to receive government approvals by Dec. 31, 2004, and be able to accept some gas shipments in the second quarter of 2005.

McMoRan said it is seeking commercial arrangements to form the basis for financing the project. It plans to pursue regulatory permitting and financing simultaneously “in order to position this project to be one of the first U.S. offshore facilities to receive, process and distribute LNG.” It expects to spend $8-10 million in the near-term to advance the permitting process.

It has formed an alliance with K1 USA Energy Production Corp., a subsidiary of Singapore investment firm k1 Ventures Ltd., and a joint venture company K-Mc Venture I, which acquired McMoRan’s Main Pass oil production facilities and has an option to buy the remaining Main Pass facilities and build the Main Pass Energy Hub. If the option is exercised, K1 USA is expected to contribute an additional $10 million in financing. The companies currently are negotiating additional financing arrangements and the future development of the LNG hub.

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