Major LNG Terminal Projects Lining Up for Gulf and Pacific Coasts to Feed California and Mexico

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Researched by Industrialinfo.com Industrial Information Resources, Incorporated; Houston, Texas). Gas pipeline and LNG terminal activity continues to mount in the Gulf of Mexico and off the country's west coast. The planned serial launches of projects is driven largely by the rising demand for LNG in the U.S. energy market.

Shell (LSE:SHL) (London, UK) is active in both areas having just received authorization from Mexico's energy regulator CRE (Comision Reguladora de Energia) for re-gasification and storage permits for planned projects at Costa Azul in Baja California (65000292), where they will build storage plants, and at Altamira, Tamaulipas state (PEC 65000291), on the Gulf. The total investment in the projects could be around $1.1 billion. Shell's affiliate, Terminal LNG de Baja California, S de R.L de CV, is developing the project.

With various companies such as Sempra Energy (NYSE:SRE) (San Diego, California)(PEC 65000308), ChevronTexaco and Marathon at different stages with plans for LNG terminals on the Pacific coast, Shell is being careful not confirm that all the regulatory hurdles have been taken, including a land-use permit from the local municipality. The company is not expected to be able make a final decision before the end of 2003, or the beginning of 2004. Shell has signed a letter of understanding with Australia's Gorgon LNG to supply the terminal and intends to finance the project through its own equity.

The receiving, storage, and re-gasification and storage tanks planned for the Costa Azul terminal would have the capacity to supply one billion cubic feet per day (bcf/d) to north Baja and California. Commercial operations in the $747 million project could start in 2007.

By planning to export some of the gas to California, Shell hopes to obtain economies of scale that are needed to achieve a relatively low re-gasification tariff. As the Baja California market grows in time, Mexico will receive the benefit of gas supplied the terminal at lower unit costs. The regasified LNG would be transported through a new gas pipeline to link up with the existing gas infrastructure in the north of Baja California.

The CRE is due to announce its decision on Shell's Altamira bid in early September. Shell was the only company to present an offer for a 15-year gas supply contract to CFE, the state energy company. The $307 million project would have two storage tanks and an initial capacity to supply 425 million cubic feet per day CFE's combined cycle plants in northeast Mexico. Total capacity of the plant when fully developed could be 1.3 million cubic feet of gas supplied per day. Shell could be looking to Nigeria as a source of supply for the plant.

In the same tranche of approvals, Sempra Energy's Energia Costa Azul LNG receiving terminal was granted a storage and regasification permit by CRE. The local municipality also granted the project a land use permit making it the first LNG project in Baja California to receive all three key approvals.

After CMS pulled out of the project due to lack of funds Sempra took total control, but is open to partnership proposals for the $600 million plant, to be built on the Pacific coast 22 kilometers north of Enseda, will receive, store and regasify one billion cubic feet of gas per day.

To the east, Sempra is awaiting the final Environmental Impact Study (EIS) before FERC approval is given to start construction for a new LNG terminal (PEC 02004677) at Cameron on the Calcasieu River between Houston and New Orleans. The $700 million project will have the capacity to process 1.5 billion cubic feet of natural gas per day.

Both Sempra facilities are expected to begin construction in 2004, with operations targeted for 2007.

Darcel Hulse, president of Sempra Energy LNG Corp said, "In the face of declining domestic gas production, we need to look for other sources of supply. These two facilities represent a significant part of a new network of facilities that will be required to import LNG into North America. We are strategically positioned with one site on the West coast and one on the Gulf coast. Cameron LNG and Energia Costa Azul translate into 2.5 billion cubic feet per day of new gas supply capability to serve the North American market."

Around the same time in mid-August, when Shell and Sempra were receiving approvals, BHP Billiton announced that it will file applications to construct and operate an LNG facility located 32 kilometers from Oxnard, California, off the Ventura County coast. Cabrillo Port would be a permanently moored facility providing a deepwater port with a floating storage and regasification unit (FSRU). After regasification the product will then be transported by an undersea natural gas line into the existing pipeline system of the local gas utility.

The FSRU features three state-of-the-art 'spherical tanks' with an equivalent capacity of six billion cubic feet of gas. The FSRU will contain eight vaporizers to enable the conversion of up top 1.5 million cubic feet of natural gas per day. The anticipated average send-out will be around 800 million cubic feet per day, which represents nearly 15 percent of California's daily requirement.

The project uses the company's offshore experience to provide an environmentally friendly solution for the protection of California's coastline and public safety. The facility could commence operations by 2008. A deepwater port license and land lease applications are the first steps in a series of environmental and regulatory hurdles the project will have to pass, as well as discussions at public forums, before final confirmations can be made.

For more information on proposed North American LNG projects, including an index of projects, see the archived IIR Industry Alert titled North American LNG Project Planning Exceeds $11 Billion as ExxonMobil Gas & Power Joins the Foray. Over 2,100 archived news articles are available to premium news subscribers. Click here for details.