Forget Ducks and Gators its Open Season on LNG Pipelines in Louisiana

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The BG Group (LSE:BG, NYSE:BRG) (Reading, United Kingdom) is driving to develop their LNG interests in international energy markets, and has just announced that they are "launching an open season" for a proposed new $60 million pipeline to be constructed in Southern Louisiana.

As the specifications for the proposed pipeline appear to be backed by solid strategic thinking, Industrialinfo.com asked the company's Reading head office if the pipeline was a definite, or was the open season ("an open and transparent process, seeking to determine customer demand for firm natural gas transportation services using the proposed pipeline"), a market dipstick test, or were they looking for contractual commitment from future pipeline users before BG proceeds with the project. The answer from the BG spokesperson was clear and unequivocal that they were looking for "expressions of interest" and the project was not as yet confirmed.

Hats off to a well articulated marketing idea by a company looking to consolidate and endear its position with the good gas transmission folk. We may be pushing it a bit with "endear" in the energy market, but maybe one day it could be, when the trials and tribulations of the energy industry have been resolved and have been seen through, as in 'transparent'.

The open season will run from June 6 to June 16 this year and Lake Charles Express (LCE), a wholly owned subsidiary of the BG Group, is targeting the third quarter of the year to submit a formal application to the Federal Energy Regulatory Commission (FERC) for approval.

The proposed 84 kilometer pipeline would extend from Lake Charles LNG import terminal to Texas Eastern Transmission's Gillis Compressor Station in Beauregard Parish.

LCE may establish intermediate connections with Transcontinental Gas Pipeline Corporation in the same parish and Tennessee Gas Pipeline Company, Florida Gas Transmission Company, and Texas Gas Transmission Corporation, which are all in Jefferson Davis Parish.

BG's Lake Charles chief executive, Elizabeth Spooner says, "Liquefied gas is becoming an increasingly significant part of North America's energy mix. This proposed pipeline would provide increased operational reliability and flexibility for importing liquefied natural gas through the Lake Charles terminal. With the planned expansion of the Lake Charles terminal approved for 2005, this pipeline will support the development of an LNG trading hub in Southern Louisiana with the market access to the east coast via interconnecting pipelines."

At this stage, the pipeline project plans two sections. There is a 40 kilometer, 36-inch section and a 24 kilometer, 30-inch section. The minimum design capacity is for 1.2 billion cubic feet per day and LCE will consider design modifications based on customers' requirements. If the feedback from the open season is positive, and if FERC then gives the OK, BG says that the pipeline will be operational in early 2005.

Last week BG announced two deals to bring natural gas supplies gas to the U.S. (Lake Charles) from West Africa looking to feed rising demand. Department of Energy (DOE) figures estimate that imports of gas will rise by an aggregate of 3.2 percent over the period up to 2025, and total supply will rise from 22.61 trillion cubic feet per annum in 2000 to 34.6 trillion cubic feet in 2025. Consumption will grow from 23.46 trillion cubic feet per annum to 34.93 cubic feet per annum. In the same period LNG supply to the energy market will grow by 11 percent and net imports of LNG will grow 3.2 percent. DOE's estimates show total gas growth of 1.7 percent and gas consumption at 1.8 percent for the period.

In a deal with Marathon Oil, BG will bring in 3.4 million tons per annum from Equatorial Guinea starting in 2007. In the other deal, 2.5 million tons per annum will be brought in from Nigerian National Petroleum, which is in partnership with Shell, TotalFinaElf, and ENI. For a perspective on the 5.9 million tons LNG that BG will be shipping into Lake Charles its worth noting that this represents more than 50 percent of the volume of LNG presently being shipped to the U.S. from Trinidad and Tobago, which the market currently perceives as a high profile supplier. BG and partners have just bought a 3.4 million tons per annum (mtpa) third train of Atlantic LNG (Trinidad and Tobago) into production thus increasing output to around 10 mtpa. Development of a fourth 5.2 mtpa is under discussion with the T&B government.

In January 2002, BG took 78% of the capacity at Lake Charles, which is the largest operating gas import terminal in North America. The terminal has the capability to receive, store, vaporize, and deliver and average daily output equivalent to 4.7 mtpa. From September 2005, BG will take 100% of the terminal capacity. FERC has given approval for the expansion of the terminal to 8.9 mtpa and construction is expected to be complete by 2005.

BG newsbriefs cover LNG vessel fleet enlargement and production deals in the Middle East, Indonesia, India, Italy and other key production/consumption areas through associate deals. It has just sold off its Caspian Sea oil holding, presumably as a non-core activity.

On school "open days" everything comes in line with the chairperson's ideas. Association members whose kids have won prizes and games and really know that the chairperson knows best support her/His benign killer-chuckle. It could be that some pipeline people feel the same about "open season." If not there is still time before FERC for some PTA sponsored remedial teaching.

I would not bet against the pipeline happening and sincere thanks to BG for a lively idea in a neo- post-suits market.