Statoil acquires access to US LNG market

Norway's Statoil ASA has gained access into the US LNG market through the purchase of El Paso Merchant Energy LP's capacity rights for LNG from the Snøhvit project for $210 million.

Steven Poruban
Senior Staff Writer

HOUSTON, Nov. 1 -- Norway's Statoil ASA has gained access into the US LNG market through the purchase of El Paso Merchant Energy LP's capacity rights for LNG from the Snøhvit project for $210 million.

Based on the agreement, which was announced by both companies Thursday, Statoil will assume a 17-year primary term agreement with the Snøhvit consortium, beginning in 2006, to provide delivery of roughly 1.8 million tonnes/year of LNG bound for various delivery points. Production from the Statoil-operated Snøhvit field is due to start in 2006.

In a related transaction, Statoil unit Statoil North America Inc. will assume Houston-based El Paso's capacity at the Cove Point, Md., LNG regasification terminal, an amount equal to "about one-third of the facility's total capacity," according to El Paso.

"Both of these transactions are in line with our LNG strategy," said Statoil CEO Olav Fjell. "Access to the high-value gas markets on the US East Coast represents an attractive opportunity for Statoil."

In addition, Statoil reported that it has been invited to bid for interest in the acreage being offered by Petroleos de Venezuela SA in the Plataforma Deltana (Deltan platform) area off Venezuela. The area contains some undeveloped gas discoveries, including the world-class Loran field. Gas from the area could be used to feed either an Atlantic LNG expansion or a Venezuelan LNG Project (OGJ Online, Aug. 29, 2002).

Changing El Paso strategy
For El Paso, the transaction marks what could be the start of a modified strategy for its LNG projects and capacity ownership.

"The whole transaction was initiated by Statoil and we had not contemplated a sale of the assets prior to their overtures," El Paso Global Petroleum and LNG Group Pres. Greg G. Jenkins told OGJ. The transaction, he said, was driven by two factors: "We were in a position to recognize full and complete value for the assets, and . . . (the deal) allows us to execute more broadly on our strategy. . . and deploy that capital into the terminals we're developing."

Jenkins said that, within the LNG marketplace, there is "tremendous value" associated with the company's strategy and that it "imprints" a value on what they are doing. "It adds momentum to our development projects of the terminals that we are pursuing around the country and internationally," he said. "Our basic agenda is to develop these terminals (and) make these physical assets happen (in order to) shape the landscape of the LNG business."

When asked if El Paso sees itself selling other similar contracts in the near future, Jenkins noted, "At this point, I don't see that happening," adding, "Our expectation is that we'll be completely focused on the implementation of our strategy at this point, which does not include the sale of any particular asset or contract." However, Jenkins noted that it would take offers, such as the one received from Statoil, very seriously. "If another similar offer were presented to us, it would be our responsibility to take it seriously as well. But we're not signaling to the market in any way that we're interested in selling any other assets."

What the transaction has helped El Paso to do, Jenkins said, is to provide "incremental confidence" for the company to pursue a broad-based partnership within the LNG business. "We have undertaken a process of discussions with companies that have expressed an interest to us—again, mostly unsolicited—to form a broad LNG partnership," he said, adding, "Having been able to reflect a concrete value on one element of our business has given us encouragement to pursue those broad partnership discussions."

The company said that it will continue to focus attention on the development of LNG terminals in North America, Europe, and Asia. El Paso also has a scheme to build an offshore LNG delivery system, dubbed EP Energy Bridge (OGJ Online, May 8, 2002), as well as plans to continue the development of two land-based terminals: one in the Bahamas and another in Altamira, Mexico.

The capital associated with the planned projects will be dictated by how quickly they evolve, Jenkins said. "Today, our most advanced project is our first Energy Bridge project in the Gulf of Mexico." Jenkins said that the company has already made application for its permit and is "moving rapidly" toward the terminal's installation.

He said El Paso is "quite close" to making final investment decisions on its land-based terminals and expects to make a commitment on them sometime in first quarter 2003. "It's just a function of which one moves more quickly as to how we allocate our capital," he said.

Contact Steven Poruban at Stevenp@ogjonline.com.

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