Supply woes won't derail US Freeport LNG terminal: Executive

Supply woes won't derail US Freeport LNG terminal: Executive

Houston (Platts)--13Oct2006

An executive with a company building a liquefied natural gas terminal on
the Texas Gulf Coast on Thursday said he is still bullish on the project's
long-term viability despite recent moves by LNG-producing countries to divert
supplies to markets elsewhere in the world.
Hugh Urbantke, CFO of Freeport LNG Development, said supply concerns
might prompt some firms to think twice about building an import facility on
the Gulf Coast. But he insisted that Freeport LNG is going ahead with
construction of its 1.5 Bcf/d terminal in Brazoria County, Texas.
"There is an overhang of capacity relative to supply and until that goes
away, I don't think there'll be a big demand for capacity, whether greenfield
or expansion," Urbantke said on the sidelines of the Infocast Gas Storage
Finance and Investment Summit in Houston.
"I think there's a feeling that on the Gulf Coast we're fairly long on
capacity, and when the terminals that are being built get [finished], this
will dissuade additional terminals from being built until those terminals have
a fair amount of utilization," he added.
The three major capacity holders at Freeport LNG--ConocoPhillips, Dow and
Mitsubishi--are having problems finding supplies to use their respective
capacities because of a tight global market and because exporting countries
think they can get a higher price elsewhere, Urbantke said.
ConocoPhillips owns 1 Bcf/d of Freeport's initial capacity and Dow owns
the rest. Mitsubishi bought rights to 150,000 to 250,000 Mcf/d of proposed
expansion capacity, and ConocoPhillips has options for an extra 500,000 Mcf/d.
ConocoPhillips bought the initial 1 Bcf/d on a firm basis and Dow bought
its capacity on similar terms, meaning they would have to pay for the capacity
whether they use it or not. Mitsubishi bought its 150,000 Mcf/d of capacity on
a firm basis.
Dow, which does not have stakes in LNG liquefaction projects, is among
several companies that have been unable to secure a long-term supply contract
in the current tight market.
Although ConocoPhillips had hoped to move its Qatar LNG volumes to the
Texas facility, Qatar Gas--which owns 70% of the ConocoPhillips liquefaction
plant being built in Qatar--said it doesn't want those volumes to go to
Freeport because the gas prices in South Texas are too low.
Instead, Qatar persuaded ConocoPhillips to take 1 Bcf/d of capacity at
the Golden Pass LNG terminal it is developing with ExxonMobil in Sabine,
Texas, because the price of gas is higher near the Texas/Louisiana border.
In addition, Russia's Gazprom recently announced that it plans to send
LNG from the giant Shtokman field to Europe instead of to the US for similar
reasons.
Urbantke said that those supply hiccups won't directly affect Freeport,
at least initially. "Our customers' supply arrangements are their business,"
he said. "We're a tolling company and its a user-pay arrangement. Whether they
toll LNG through our facility or not, we get paid pretty much the same
amount."
"We certainly want to see our customers be successful...we don't want to
see an empty terminal," he added. "But whether it gets constructed or whether
its profitable is not determined by whether or not our customers toll LNG
through the facility."
But Urbantke said a lack of access to future LNG supplies might affect
the company's aggressive expansion plan. In September, FERC approved a project
under which send-out capacity at Freeport would more than double from 1.5
Bcf/d to 4 Bcf/d. The plan includes an additional LNG tanker berthing dock,
another storage tank and new unloading facilities.
"The more supply that comes to the US, the more it enhances our expansion
plans," Urbantke said, adding that he is confident that LNG-producing
countries ultimately will provide substantial LNG volumes to US terminals.
For giant exporters like Qatar and Russia, "it is hard to place them in
anything but the US market," Urbantke said. "One of the reasons they were
interested in the US market was the liquidity and the size of the market.
Whether they can duplicate that anywhere else quickly remains to be seen."
--Jim Magill, jim_magill@platts.com

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