Firms still compete for LNG projects in Baja California: Report
Wednesday, December 11 2002 - 09:47 AM WIB
San Diego's Sempra Energy, a welterweight among the heavyweight global contenders, has lost its equity partner, CMS Energy Corp., which owns the largest LNG receiving terminal in the United States.
El Paso Corp.'s commitment to partner Phillips Petroleum Corp. now ConocoPhillips and their proposed facility in Rosarito Beach appears to be wavering.
Royal Dutch/Shell has switched the site of its project.
ChevronTexaco, a company that had been keeping its plans for the region under wraps, apparently is ready to join the multimillion-dollar competition to provide the fuel source to consumers in northwestern Mexico and Southern California.
It has optioned a parcel north of Rosarito Beach near the Oasis resort and also is considering other sites onshore and offshore, a company representative said.
Despite all the shuffling, at least five individual or groups of energy companies still appear to be contenders in the competition to build LNG complexes in Baja California, even though energy experts say only one or two regasification terminals are needed.
All hope to start operating by 2006 or 2007. And all, including Marathon Oil and its regional energy complex at La Joya, south of Playas de Tijuana, face opposition from local residents.
On Feb 28, Marathon and associated project partners Indonesian state oil and gas company Pertamina, Golar LNG Limited and Grupo GGS, S.A. de C.V. proposed plans for a major LNG regasification and power generation complex in the Mexican State of Baja California.
"If they can get them built, they should be pretty profitable projects for some amount of time," said Tim Clark, an energy analyst at the Chicago investment firm CastleArk Asset Management.
Such fits and starts aren't uncommon with LNG projects, said Bill Taylor, a spokesman for ConocoPhillips. An entire supply and delivery system typically costs well more than $1 billion. Regasification terminals, like those envisioned for Baja California, usually run $500 million or more.
"With LNG," Taylor said," you have to have the patience of a turtle."
The position of CMS, El Paso and Sempra in the LNG competition has been affected by allegations the companies helped manipulate the natural gas market during California's energy crisis, which ended last year.
After being hit with a $75 million loss in its second quarter, CMS pulled out of its 50-50 partnership with Sempra.
"We've stepped down our involvement in the Baja project to focus on balance sheet improvements," said Keith M. Meyer, vice president of LNG development for
CMS' Panhandle Eastern Pipeline subsidiary.
Instead of participating as an equity partner, CMS now is a contractor, paid by Sempra to provide technical expertise and operate the terminal if it gets built.
Mark Nelson, Sempra's director of government affairs and community relations, said Sempra plans to pursue the project alone. The company has submitted an environmental impact assessment to the Mexican government. Public comment on the project ends today.
Allegations against Sempra haven't yet affected its financial performance.
El Paso Corp. has been hit hard, however. The company reported a third-quarter net loss of $69 million and announced a plan to exit the energy trading business. In response, Moody's cut the firm's stock ratings to junk status on concern El Paso will suffer from weak cash flow and the weight of its $25 billion debt load.
California is trying to recoup more than $1 billion from El Paso Corp. for the company's alleged role in market manipulation.
"A lot of these companies have a lot of bad stuff going on," said analyst Clark.
Recently, Robert Bryngelson, managing director of El Paso Global LNG, indicated the company is having second thoughts about its plans to build a terminal with partner ConocoPhillips in Rosarito Beach.
The project, which would be adjacent to homes, oil storage tanks and the Presidente Juarez electrical power plant complex, has been among the most criticized proposals in the state. Hundreds of residents, including schoolchildren, have marched along Rosarito Beach streets and signed petitions to protest the project. So far, Mexico's environmental agency has refused to give its approval.
Bryngelson said El Paso is considering shifting its LNG development priorities from Baja California to Altamira, an area with oil and natural gas reserves north of Tampico, Tamaulipas, on Mexico's east coast, where El Paso is involved in a venture with Royal Dutch/Shell.
He also said that if the company does proceed with a Baja California project, it might give up the plan to build in Rosarito Beach and instead use an LNG regasification vessel offshore to circumvent the city's "very politically charged climate."
The company plans to decide by the second quarter of next year whether to go ahead with the facility.
"Market conditions will dictate the technology choice," Bryngelson said.
The Baja California LNG project poses a dilemma for El Paso, analyst Clark said. Investors are growing increasingly skeptical of the company with every blow of bad news.
"El Paso's a company that can't afford to waste too many pennies," Clark said.
"But walking away after investing millions also won't look good."
ConocoPhillips spokesman Taylor said his company isn't aware its partner might be considering alternatives.
"I can't corroborate," he said. "We're still holding meetings. We're still working as a team."
He said part of the process of developing an LNG project is educating the communities where the facilities will be built. As the company provides people with more information, he predicted Rosarito Beach and other Baja California residents will accept the terminals.
"These things are so new to Mexico, they are all having trouble understanding the business," Taylor said in a phone interview from Tulsa, Okla. "You get a little town like Rosarito or Tijuana, it's going to be difficult for them to understand a project like LNG."
Royal Dutch/Shell, however, has given more weight to local criticism of its regasification terminal proposal.
In response to complaints from residents of the adjacent Bajamar Golf Resort and Community, Shell shifted its site on the Costa Azul plateau from a plot north of Sempra's site to one south of Sempra's.
Costa Azul, where Fox Studios Baja recently shot a portion of "Master and Commander: The Far Side of the World" starring Russell Crowe, is one of the few pristine expanses of coastal land in northern Baja California.
"The neighboring community had concerns about the visual impact, so we moved our plot," said Barbara Blakely, a Shell representative in Mexico City. "We try to minimize any negative impact."
Roberto Valdes, Bajamar's original developer and one of the area's largest landowners, said switching the site will diminish but not completely eliminate the intrusion.
"It's difficult to avoid the negative impact," Valdes said. "We're also concerned about security. The days we're living in right now, somebody could just take a rocket and cause a real catastrophe." (*)