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Texas LNG project moves ahead; first in U.S. since ’82 FERC issues EIS for Freeport site; construction to start later this year Larry Persily Petroleum News Government Affairs Editor
The Federal Energy Regulatory Commission decision to issue a final environmental impact statement for the Freeport Development LNG L.P. project on the Texas Gulf coast is a boost to proponents of building new liquefied natural gas terminals to fulfill domestic energy needs.
FERC’s May 28 announcement means developers on are target to start construction later this year and to start taking LNG deliveries during the second half of 2007, putting Freeport in a good position to be the first new LNG receiving terminal in the United States since 1982.
FERC staff concluded the project would have “limited adverse environmental impact,” according to a press release from Cheniere Energy Inc., which holds a 30 percent interest in the Freeport venture.
The proposed 233-acre terminal, on Quintana Island in front of Freeport, a city of 13,000 residents about 40 miles south of Galveston, is planned for an initial daily send-out capacity of 1.5 billion cubic feet. Dow Chemical Co. and ConocoPhillips Co. have contracted for the full capacity.
Plans include storage facilities for 6.9 bcf, and a 9.4-mile pipeline to take the gas to Stratton Ridge, Texas, a major connection point for Texas intrastate pipes.
The impact statement is the last step in FERC’s environmental review of the project, with a final order expected soon for construction and operation. Freeport Development filed its FERC application in March 2003. ConocoPhillips, Dow take 100% of capacity ConocoPhillips in December 2003 signed an agreement with Freeport Development to take on primary construction and operation management of the facility, and to contract for 1 bcf per day of the capacity. In exchange, ConocoPhillips agreed to provide construction funding, estimated at about $500 million, and paid Freeport LNG a “nonrefundable capacity reservation fee of $10 million,” according to Cheniere Energy.
Also as part of the deal, ConocoPhillips is taking a 50 percent interest in the general managing partner Freeport LNG-GP Inc., which had been owned 100 percent by Michael Smith, a former president of Basin Exploration Inc., of Denver, Colo. Smith formed the Freeport venture in 2002 specifically to build the LNG terminal.
In addition to the managing partnership of ConocoPhillips and Smith, the Freeport project includes Cheniere Energy, of Houston, and Contango Oil and Gas as limited partners. Contango is a Houston-based independent Gulf Coast oil and gas exploration and production company.
For its part of the deal, Dow reserved 500 million cubic feet per day of capacity for 20 years. The chemical giant’s facilities in the Gulf Coast region consume nearly 700 million cubic feet per day of natural gas. Dow will be able to market what it doesn’t need from Freeport to other industrial consumers and gas distribution hubs in the area.
Neither Dow nor ConocoPhillips have announced any LNG supply deals for Freeport, though the oil and gas major has said it is looking at possibly bringing in gas from Venezuela, Nigeria or Qatar. Cheniere also looking at two other LNG projects Cheniere, looking to become a leader in the Gulf Coast LNG business, also is working to develop two other receiving terminals along the Gulf of Mexico coastline — at Corpus Christi, Texas, and Sabine Pass, La. The company submitted its FERC applications for both projects in December 2003.
The Corpus Christi terminal would be adjacent to the Sherwin Alumina Co. plant on 600 acres along the La Quinta Ship Channel. Sherwin Alumina, formerly the Reynolds Metals Co. Sherwin plant, extracts aluminum oxide from bauxite ore.
The Sabine Pass terminal is proposed for 570 acres along the Sabine Pass Channel in extreme southwest Louisiana, just across the border from Texas.
Each project would include storage for 10 bcf of gas, and capacity to handle as much as 2.6 bcf per day of LNG deliveries, with start-up of operations scheduled by 2008. Cheniere plans to operate both terminals as tolling facilities, and is looking to sign up users for long-term deals.
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