El Paso Corp. has sold its rights to a 17-year supply (2.4 billion cubic meters or 1.8 million tons per year) of Norwegian liquefied natural gas (LNG) and about one-third of the import capacity at the Cove Point, MD LNG terminal to Statoil for $210 million.

Statoil will assume a long-term (2006-2023) agreement with the Snohvit consortium, which is building the first LNG export facility in Europe. The facility will tap huge volumes of gas deep beneath the Barents Sea, pipe it ashore on the northern coast of Norway, cool it down to a liquefied state and then ship the LNG by special carrier to Spain and the United States. Shipments are scheduled to start in 2006 and continue for more than 20 years.

In the related transaction, Statoil North America Inc., an affiliate of Statoil, will assume El Paso’s capacity at the Cove Point LNG regasification terminal. This transaction secures Statoil direct access to the U.S. gas market starting next year.

“The terminal is well located in this heavily populated area, with a concentration of large gas customers. Gas delivered into this region receives attractive prices in the market. Availability of LNG receiving capacity is scarce,” Statoil noted in a statement, adding that the anticipated customer groups will be power utilities and local distribution companies.

“Both of these transactions are in line with our LNG strategy,” said Statoil CEO Olav Fjell. “Access to the high-value gas markets on the U.S. East Coast represents an attractive opportunity for Statoil. We have improved our position for future expansion of our LNG activities in Norway and internationally.”

Fjell said the El Paso agreement represents an important step in the further development of Statoil’s North-Atlantic LNG strategy. In addition, Statoil has been invited to bid for operatorship in the development of LNG production from the Plataforma Deltana area off Venezuela. A feasibility study also is under way for LNG production from the Statoil operated Nnwa field off Nigeria.

El Paso said the LNG sale does not represent a change in its strategy. “Through this transaction, El Paso is recognizing a fair value for the LNG supply contract with the Snohvit Project,” said Greg G. Jenkins, president of the El Paso Global Petroleum and LNG Group. “We are very optimistic about our LNG opportunities and will deploy the proceeds from this transaction into other projects that are under development.”

This transaction with Statoil is a perfect illustration of how valuable LNG has become in the last few years. In an interview with NGI, Jenkins said that El Paso paid nothing for the Cove Point capacity and Snohvit contract. “We and two other companies bid for that [Cove Point] capacity and received terms that called for us to pay a demand charge over the life of the contract for the access to the capacity. There was no up-front cash for it. Equally so with the Snohvit, we paid nothing up front for the rights to that supply. We were in a position here where the combination of that supply and that market access presented a very compelling picture to the Statoil people, and we recognized that would imprint value on our broader LNG activities. Getting full and complete value from them in that situation when we had paid nothing for the assets was a motivating deal.”

Jenkins said El Paso continues to focus on a strategy of developing land-based regasification terminals in North America, Europe, and Asia, as well as the EP Energy Bridge offshore delivery systems, which use shipboard regasification technology to deliver competitively priced natural gas to growth markets in North America and other regions worldwide. According to the Energy Bridge concept, special ships equipped with regasification equipment would pull up to offshore buoys and unload their cargo directly into the offshore pipeline grid. El Paso’s first of four Energy Bridge buoys will be stationed in the Gulf of Mexico (start-up in late 2004), and it hopes to station a second Energy Bridge about 10 miles offshore New York.

As previously announced, Daewoo Shipbuilding & Marine Engineering Co., a Korean shipbuilder, has been contracted to construct the initial EP Energy Bridge vessels for use by El Paso. The first of the three ships is expected to be delivered in the fourth quarter of 2004. Additionally, El Paso is working with LNG producers in Africa, Europe, South America, the Middle East, and Asia to secure supplies for North American and other markets worldwide.

El Paso also owns the LNG regasification terminal at Elba Island located near Savannah, GA, which provides access to natural gas markets in the Southeast region. That facility and Cove Point were recently re-commissioned as import terminals. Elba Island currently receives LNG deliveries from Trinidad.

In addition, the company is continuing the development of LNG terminals in the Bahamas and Mexico to enhance its market access capabilities. El Paso plans to make its final investment commitment in the next few months on the Bahamas and Mexican Gulf Coast LNG projects, according to Jenkins.

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