Instead of constructing separate liquefied natural gas (LNG) projects, Shell International Gas Ltd. and Sempra Energy LNG Corp. announced last Monday their intention to form a 50/50 joint venture to build, own and operate a single LNG receiving terminal in Baja California, Mexico, in an effort to minimize the impact on the environment there.

The announcement came after Sempra earlier in the month signed a letter of understanding with BP and Indonesia for LNG supplies for the Mexican terminal.

The proposed $600 million terminal is to be located in Costa Azul on the west coast of Mexico, approximately 14 miles north of Ensenada and will be capable of supplying 1 Bcf/d of natural gas. Shell and Sempra Energy LNG, an affiliate of Sempra Energy, will share the investment costs of the terminal equally and each will take 50% of the capacity in the terminal.

Approximately 500 MMcf/d of gas from the terminal will be used to meet the growing energy demands in western Mexico, and any surplus gas will be earmarked for the southwestern United States, the companies said.

The joint venture will combine the two separate Baja California LNG import terminals proposed by Shell and Sempra Energy LNG into a single project, “significantly reducing the impact on the local environment,” they noted. Construction is expected to begin in mid-2004, with the terminal slated for operation in early 2007.

The news of the proposed joint venture came one month after a Mexican federal court temporarily suspended two of Sempra Energy’s key permits to develop its Baja California LNG project, The San Diego Union-Tribune reported.

Mexico’s Fiscal Justice and Administrative Court last month put Sempra’s LNG project on hold until the court can study the risks the project poses to tourism development and the environment, the newspaper said. The ruling suspended a permit issued by Mexico’s Energy Regulatory Commission to develop and operate the facility as well as an environmental permit awarded by Mexico’s Environmental Ministry.

The published report claimed “the court’s temporary stay could jeopardize Sempra’s project and place the company behind competitors in the race to build Baja California LNG facilities.” But Darcel Hulse, president of Sempra Energy LNG, countered that the suspension did not mean the permits had been revoked or that the project would not be completed by 2007. He was optimistic that the matter would be resolved in Sempra Energy’s favor.

“The decision to combine and develop a single successful project [with Shell] in Baja California blends the permitting, technical and logistical expertise required to get this project underway,” said Donald E. Felsinger, group president of Sempra Energy Global Enterprises, which oversees Sempra Energy LNG. “We also want to assure our neighbors in Ensenada and Baja California that both Shell and Sempra Energy LNG Corp. will continue to develop this project with the needs of the community in mind.”

The proposed joint venture will unite the strengths of the two companies, said Shell Mexico Country Chairman Peter Kidd. “Shell is the world’s largest private producer of LNG with interests in six projects globally and is a world leader in LNG technology. Our leadership in LNG combined with Sempra Energy’s experience and well-established natural gas infrastructure in Mexico is the making of a strong joint venture.”

Sempra Energy LNG signed a letter of intent in mid-December with BPMigas, Indonesia’s executive agency for oil and gas, and BP Indonesia to purchase LNG supplies from Indonesia for delivery to the planned terminal in North Baja. The deal was seen as the first step towards a 20-year purchase/supply arrangement with index-based pricing.

The agreement calls for 1.7 million tons of LNG to be delivered annually (equal to 600 MMcf/d) beginning in 2007 from Indonesia to the proposed import and regasification terminal near Ensenada.

In addition to the project in northern Mexico, Sempra Energy LNG is developing its proposed $700 million Cameron LNG project near Lake Charles, LA. The facility will have the capability to process 1.5 Bcf/d of gas.

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