Ship comes in for Excelerate
Former El Paso executives beat odds in developing landmark LNG project
Monica Perin
Houston Business Journal
houston.bizjournals.com
A tanker now steaming from Malaysia will make national and global energy waves by dropping anchor 116 miles off Louisiana in the Gulf of Mexico within the next couple of weeks.
The vessel's arrival also will validate a visionary project conceived by a group of former El Paso Corp. executives who left the Houston corporation in 2003 to launch their own company in The Woodlands.
The tanker will deliver 3 billion cubic feet of liquefied natural gas, known as LNG, to the world's first offshore regasification terminal -- a feat that many in the industry said wasn't feasible.
The Gulf Gateway Bridge facility also is the first new LNG receiving terminal to be opened in North America in 25 years, despite the fact that some 40 or 50 LNG terminal projects have been proposed over the last several years and virtually every major oil and gas company plus numerous small independents have been scrambling to get theirs approved and built.
The winners in this energy sweepstakes are a trio of energy professionals whose private company, Excelerate Energy, is based in The Woodlands.
Excelerate President Kathleen Eisbrenner, along with Rob Bryngelson and Jonathan Cook spearheaded the initial development of this offshore regasification concept, called Energy Bridge, at El Paso in 1999. Eisbrenner was the head of El Paso's global LNG group.
Energy Bridge, now Gulf Gateway, is a concept by which LNG is regasified on board the tanker that delivers it, rather than being transferred to a separate onshore or offshore regasification plant.
LNG is natural gas is that has been converted into liquid under extremely low temperatures and high pressure so that it can be transported by tanker. LNG terminals receive the liquid and convert it back into a gas before sending it out in pipelines to markets or to storage facilities.
These regasification plants, typically sited onshore, have encountered stiff opposition from residents and environmentalists on both the East and West coasts, although not as much on the Gulf Coast.
But declining natural gas supplies in North America and rapidly rising demand, together with high natural gas prices, have quickly made LNG a critically important part of the energy picture in the United States. However, the U.S. currently has only four LNG receiving terminals -- all more than two decades old and three of them having been mothballed for years.
Laying off LNG
When El Paso began encountering financial and credit problems in 2003, the company decided to ax its LNG initiative.
"We were involved in winding down those activities and selling some of the assets" of El Paso Energy Bridge, says Cook, referring to himself, Bryngelson and Eisbrenner, who all left El Paso about a year and half ago.
The three hooked up with George Kaiser, a wealthy Tulsa, Okla., oil and gas financier, and put together a deal to purchase the Energy Bridge technology and project from El Paso. The acquisition included rights to all of El Paso's technology and development work, including the three technologically unique tankers that will deliver the LNG.
Kaiser's investment in the enterprise to date is close to $700 million, Eisbrenner says.
And those deep pockets are a big reason why the project has reached completion, says John Olson, energy analyst with the Houston investment banking firm Sanders Morris Harris, who terms the deal "a big bet."
When it was first unveiled as a way to develop incremental natural gas capacity in U.S. markets, Energy Bridge was met with considerable skepticism in the industry.
"There were quite a few nay-sayers," recalls Bryngelson.
Critics picked apart the proposed technology and pointed out that there was no regulatory framework for evaluating and approving such a project.
"There were questions about what the regulatory environment would be, would ships be built, will you ever get a gas cargo," Bryngelson says. "But one by one, through perseverance we got over all the hurdles."
The key, he says, was doing it "below the radar."
"We just kept our heads down and got our work done," Bryngelson says.
Piecing the puzzle
Actually, Cook says, the technology involved really isn't all that innovative.
"The whole development philosophy was to utilize existing technologies wherever possible," he says. "It's a new application of putting these technologies together."
For example, the buoy system used to anchor the LNG tanker and deliver the natural gas into subsea pipelines has been used in the North Sea for about 12 years, according to Cook.
And the vaporizers on the ships that convert the LNG back into gas are the same as those used in onshore regasification plants.
The only question was how that equipment would perform onboard a vessel in high seas, and that factor was tested by El Paso with good results, Cook says.
Other critics worried about offshore facilities interfering with shipping and other offshore activities.
But the location of Gulf Gateway's hookup -- which involves no equipment on the surface of the water -- was chosen because it is an area where there are not a lot of offshore platforms or rigs and is far enough away from shipping lanes but still accessible, Cook says.
The location also enables Excelerate's tankers to deliver natural gas almost directly into existing gas pipeline systems -- only eight miles of new pipeline had to be built to connect to the Blue Water and Sea Robin systems, which can carry 500 million cubic feet of gas a day.
At the site, a submerged loading buoy floats 90 feet below the surface in water 280 feet deep until it is retrieved by the tanker. This technology is commonly used at offshore oil and gas producing fields.
The tankers were designed by the Belgian shipping firm Exmar and constructed by Daewoo Shipbuilding of South Korea. The first vessel, the Excelsior, loaded the first cargo in Malaysia Feb. 14 and is en route to the Gulf Gateway.
A second ship is nearing completion and expected to be delivered by the end of April, while the third ship is just starting construction and is scheduled for delivery in October 2006, Cook says.
Each will be able to deliver 500 million cubic feet a day of regasified LNG into offshore pipelines.
There are only 170 LNG ships in the world today, says Eisbrenner, so "it's a special occasion" whenever a new LNG vessel joins the fleet. And "this one is a lot more special" because it is the first and so far only ship equipped to deliver natural gas as a gas.
"If it works like they think it can, they'll have a nice edge in terms of siting," says Sanders Morris analyst Olson. "This is a natural kind of exercise, minimally invasive, accessing pipeline alley and sending new gas up old pipelines. It will mean that the Texas Eastern and other pipelines will still be able to run at full levels."
Excelerate's business strategy, Eisbrenner says, is to be a spot player in the LNG markets rather than relying on long-term contracts.
"This is a small niche today, about 10 percent of the market, but we believe it will be growing," she says. "The Malaysia cargo is an example. We'll see more of that."
Eisbrenner acknowledges that she, her partners and Kaiser have "made our investments on a speculative basis, but we will look for the best supply opportunities and the best market opportunities as they evolve."
LNG supply will be coming from many new liquefaction projects that are under way around the world, including in Egypt, Nigeria, Trinidad, Norway and Qatar.
On the buyer side, Eisbrenner says, Excelerate has just one customer with whom it is finalizing an agreement.
"We will be selling to a credit-worthy natural gas player in the North American market," she says. "We have established a relationship with this buyer who will buy all the LNG we bring into the Gulf Gateway. We think we have a very nimble, straightforward economic basis behind our technology."
Meanwhile, Excelerate recently filed an application for another offshore LNG delivery site off the coast of Massachusetts, to be called Northeast Gateway.
mperin@bizjournals.com | 713-960-5910 |
