The permitting and supply and pipeline contracting for the Quoddy Bay liquefied natural gas (LNG) terminal in Town of Perry, ME, has given its backers a chicken-or-the-egg conundrum, according to Project Manager Brian Smith.

In order to line up its LNG supply the project needs a permit from the Federal Energy Regulatory Commission (FERC). Before granting a permit the Commission wants to see that the project has downstream pipeline capacity. But before it can contract for the pipeline capacity the terminal backers need to show that they have LNG supply.

Some might throw up their arms and give up, but Smith said Quoddy Bay LNG will keep trying to build the “most flexible facility possible” to make everybody happy.

Among the features of the proposed Quoddy Bay terminal Smith touted to a Houston audience Tuesday is the plan for the facility to include a nitrogen plant, if needed, to offer Btu mitigation for the shippers of “hot” cargoes that want to offload at the terminal. Quoddy Bay also is planning for up to 10 Bcf of storage to ensure supply security should a cargo be delayed or diverted. As for pipeline capacity, Smith said Quoddy Bay will be seeking capacity on the Phase V expansion of Maritimes & Northeast Pipeline (see Daily GPI, June 1). Whether it all comes together remains to be seen since the project could still devolve into a diplomatic spat with Canada that goes nowhere.

Quoddy Bay filed for its FERC permits in December (see Daily GPI, Dec. 18, 2006). And not long after the Canadian government filed a formal protest with FERC to prevent the passage of LNG tankers into Passamaquoddy Bay off the coast of New Brunswick and Maine. Should tanker traffic be prohibited, it would quash plans for Quoddy Bay as well as competing project Downeast LNG.

However, the projects got some good news earlier this month when FERC rejected a bid by the province of New Brunswick to halt the terminals (see Daily GPI, June 5). The U.S. State Department has entered the dispute, asserting rights under international law for “innocent passage” of U.S.-bound LNG tankers through Head Harbour Passage (see Daily GPI, April 9).

What makes it all worthwhile for Quoddy Bay is the $1 premium natural gas entering New England can garner relative to the Henry Hub. New England also offers great potential for demand growth, Smith told attendees at World Trade Group’s LNG North America Summit 2007.

New England gas demand is about 900 Bcf/year currently, or 2.5 Bcf/d, he said. Expectations are that demand will grow 30% over the next 20 years, and there is an opportunity for natural gas derived from LNG to replace other fuels, such as coal, oil and gasoline, Smith said.

Quoddy Bay’s backers remain undaunted, even though they’ve witnessed Anadarko’s proposed Bear Head terminal fail for lack of LNG supply (see Daily GPI, Sept. 29, 2006), the Fairwinds terminal blocked by local opposition (see Daily GPI, Sept. 2, 2004) and the Weaver’s Cove terminal apparently felled by lawmaker opposition and a seemingly immovable bridge (see Daily GPI, June 6).

Smith said he thinks Quoddy Bay and Downeast both will get permitted, but Quoddy Bay will be the project that moves forward. He conceded, though, that the backers of Downeast would likely have a different view.

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