(July 14, 2004) -- The Mitsubishi subsidiary Sound Energy Solutions (SES), currently seeking permission from the Federal Energy Regulatory Commission (FERC) to build and operate a Liquefied Natural Gas (LNG) facility within the Port of LB, has signed a non-binding Memorandum of Understanding (MOU) with ConocoPhillips to work jointly on the continuing development of the facility.

LBReport.com has learned that among the reasons for the firms' MOU is the potential to strip-off and send so-called "hot gases" (like ethane and propane which can accompany some types of LNG and must be removed under CA environmental laws) via a not-yet existing pipeline from the proposed PoLB LNG site at the southern end of Pier T (southeastern part of Port) to the ConocoPhillips Carson refinery.

The proposed LNG facility already contemplates an on-site operation to remove ethane and propane, if any...and piping the ethane/propane to ConocoPhillips would presumably reduce or eliminate on-site storage of the stripped gases. A formal amendment to SES' FERC application detailing such changes has not yet been filed.

ConocoPhillips spokesperson Linsi Crain told LBReport.com that the pipeline aspect of the relationship is one reason for the MOU. "If ConocoPhillips does end up being a partner in the project, the pipeline (perhaps two) would go to our Carson area refinery along an existing crude pipeline corridor. Our facility would use a fractionater [gas processing] and provide storage; some extra rail service may also be involved for marketing the products."

SES CEO Tom Giles likewise indicated "the ethane and propane will either be consumed or if it isn't consumed it will leave by rail, not trucks."

ConocoPhillips spokesperson Crain said another reason for the MOU is that ConocoPhillips "is looking for a west coast import facility for LNG, part of our global LNG strategy of increasing imports and monetizing our global gas reserves." She added that ConocoPhillips has a long record with LNG, is proud of that record in the past and looking forward to continuing it in the future. In a written release, ConocoPhillips describes itself as "an integrated petroleum company with interests around the world."

SES CEO Giles told LBReport.com that "Mitsubishi has a long history of importing LNG into Japan from Alaska in the late 60s that's continued, so there's a long relationship in the LNG business. They also have LNG in the Pacific Rim and we're looking for a terminal on the west coast, and the relationship and all of that makes it a good fit."

SES says it currently estimates its facility would involve bringing roughly 120 LNG tankers a year into the PoLB (approx. 1 every 3 days). As currently proposed, SES says the facility can handle a send-out capacity of 700 million standard cubic feet per day (MMscfd) of natural gas, with a peak capacity of 1,000 MMscfd [a billion cubic feet per day].

"We can increase up to about a billion a year with just running the standby vaporizers, so the various parts of the facility will be sized so that the facility is able to operate at above 700," Mr. Giles said.

LBReport.com has also learned that the giant LNG tankers cannot use "cold-ironing" (plugging into electrical power) while at berth. "Right now what we're proposing [in an amendment to application likely forthcoming] is that [the tankers] burn about 78% [LNG-related] boil-off gas. The engine for an LNG tanker is a steam turbine, and current regulations say we have to keep a pilot light under one of the boilers, so that's something I guess we'll work out with the Coast Guard and various regulatory agencies." He added, "You can't cold iron without making the ship dead and then it takes a longer time to start up."

ConocoPhillips is currently pursuing separate plans (independent of Mitsubishi) for an LNG facility off the Alabama coast in the Gulf of Mexico...yet in SES' "Frequently Asked Questions" section of its web site, SES says in part:

"Q: Has SES considered locating the project offshore? A: The offshore LNG terminal concept is interesting, but challenging and unproven. It also does not meet the needs in this area..." (This is part of a lengthy SES FAQ answer; to view it in full, click here.)

Since ConocoPhillips considers offshore LNG feasible in the Gulf of Mexico, does that mean the SES LNG facility could be put off-coast instead of within part of the nation's busiest port complex? SES CEO Giles told LBReport.com:

"We've never said that an offshore port in the Gulf of Mexico was as difficult as one was in the Pacific. The Gulf of Mexico is much more shallow water, much calmer area, and not as challenging technically as an offshore one in the Pacific Ocean."

In view of the new Conoco-SES MOU relationship, might there be a rethinking of an offshore plant in spite of technical challenges?

"I think both Conoco and SES think we have really great sites right where we are," Mr. Giles said.

Likewise asked if the LB LNG facility might be located offshore, ConocoPhillips spokesperson Crain said "that's really an SES question" and added "it's very hard to find an offshore site that's appropriate. It just turned out that Alabama was a great site. It depends on several factors, pipeline infrastructure, bottom conditions, meta ocean data."

News of the ConocoPhillips-Mitsubishi MOU made headlines nationally and internationally: Reuters: ConocoPhillips, Mitsubishi in US LNG terminal.