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Gold/Mining/Energy : Oil & Gas Exploration & Production Co.'s

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To: Ed Ajootian who started this subject6/22/2003 11:26:07 PM
From: Ed Ajootian  Read Replies (2) of 112
Freeport LNG Secures Chemical Giant Dow
(Copyright © 2003 Energy Intelligence Group, Inc.)
Oil Daily Monday, June 23, 2003

Dow Chemical, a $28 billion per year petrochemical business and significant consumer of natural gas, announced Friday that it intended to secure capacity in the proposed Freeport liquefied natural gas (LNG) terminal in Freeport, Texas (OD May1,p5). This will make the chemical giant the first end-user of natural gas in the US to look to LNG imports to ensure a reliable and presumably more cost efficient avenue to meeting its needs for natural gas feedstocks.

Dow signed up for 500 million cubic feet per day of capacity at the 1.5 billion cubic feet per day facility for 20 years starting in 2007. A $1.2 million initial payment will be paid to Freeport, pending a final agreement, though the total price was not disclosed. Cheniere Energy, a 30% shareholder in the project, has indicated previously that it was looking to earn a target price of between 30¢ to 35¢ per million Btu or about $68 million per year in service fees for a third of the capacity at Freeport. Other shareholders in Freeport LNG are investor Michael Smith with 60% and Contango Oil & Gas with 10%.

Keith Meyer, president of Cheniere LNG told Oil Daily, "Dow's decision to take capacity in the Freeport LNG receiving terminal is not only significant from the project perspective, but will serve as a guiding light for all major gas consumers to be proactive in an effort to pull imported gas supplies to the United States. This also helps to validate the idea of locating large LNG receiving terminals in close proximity to the large gas consumers and interstate pipelines along the Gulf Coast."

Dow Chemical consumes about 700 MMcf/d for its operations in the Texas Gulf Coast, all of which have been adversely affected by high natural gas prices over the past year. Companies such as Exxon Mobil who sell natural gas to end-users such as Dow on the other hand have made out very well.

Dow is looking to minimize these costs and is currently planning to purchase LNG directly from suppliers in the Atlantic basin, including Nigeria and Trinidad, Freeport LNG spokesman Nathan Will told Oil Daily.

"In spite of Dow's tremendous strides to reduce energy intensity and a historic focus on co-generation, energy efficiency and conservation, it continues to be challenged with unprecedented increases in costs for US hydrocarbons and energy -- particularly natural gas," Jody Sumrall, Dow's business manager for LNG and Texas Gas, said in a press release.

Dow has a large petrochemical complex located next door to the proposed site. Natural gas price volatility was one of the contributing factors in the shut down of the company's Union Carbide Texas City olefins plant that was recently completed, according to Dow spokeswoman Leslie Hatfield.

Madeline Jowdy
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