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Enron Mail |
Let's sit down next week and go over this. There are some other things going
on that the LNG group is trying to trade with El Paso for LNG space around the country, as well. Jeff Janet R Dietrich 11/20/2000 10:16 AM To: Jeffrey A Shankman/HOU/ECT@ECT cc: Mike McConnell/HOU/ECT@ECT Subject: SOUTHERN LNG re ELBA ISLAND LNG TERMINAL Hey guys, no real need to read all of this. I just want to be sure your team and our team are closely coordinating on the Elba Island tolling agreements (your team) and gas sales agreements (our team). These discussions have been going on for about eight months now and I want to be sure this is all worthwhile. Phil Demoes is spending a considerable amount of time coordinating and negotiating with Southern Co. and other sales customers for the LNG offtake agreements. I'm assuming Doug Arnell is your lead on deciding and executing on the strategy at Elba. There is a CONSIDERABLE amount of money to be made depending on your view of the long-term supply curve for LNG. Question: Are the right people involved here on both sides to develop and execute on the strategy at Elba? What is our specific strategy at Elba and can we accelerate our negotiations on the various contracts here? Please advise. Thanks. ---------------------- Forwarded by Janet R Dietrich/HOU/ECT on 11/20/2000 10:05 AM --------------------------- Phil DeMoes@ENRON 11/20/2000 07:58 AM To: Janet R Dietrich/HOU/ECT@ECT, Gil Muhl/Corp/Enron@ENRON, Ed McMichael/HOU/ECT@ECT cc: Dan J Hyvl/HOU/ECT@ECT Subject: SOUTHERN LNG re ELBA ISLAND LNG TERMINAL Janet, Gil and Ed, Please note Les' latest summary of Elba. Things seem to be coming to a head there. Southern Co. was in town last Thursday to visit us and Les agreed to start working on a letter of intent with Southern Co for the sale of gas from the terminal. We have been asked to work up a good price for gas at Elba by Les. I have started working with John Hodge and John Griffith on this. So. Co.'s latest offer was Hub + $.12 for all 160,000 dt/d. So. Co. wants 100,000 dt/d at Elba and will give us the option of selling to them the remaining 60,000 dt/d at Elba or Destin at our option. We have not discussed what a price at Destin should be. So. Co. has some leverage with El Paso that can be instrumental in helping Les with his negotiations below. Additionally, they may be the only party that can burn the high btu gas and significantly improve the btu issue at Elba. We should be better prepared to talk about this by Wednesday. Let me know if you have any questions. ---------------------- Forwarded by Phil DeMoes/Corp/Enron on 11/20/2000 07:28 AM --------------------------- Les Webber @ ENRON_DEVELOPMENT 11/18/2000 03:47 PM To: Doug Arnell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Nancy Corbet/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Daniel R Rogers/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, byamagata@akingump.com, masseye@arentfox.com cc: Shelley Corman@ENRON, Phil DeMoes/Corp/Enron@ENRON, David L Fairley@ECT Subject: SOUTHERN LNG re ELBA ISLAND LNG TERMINAL GREETINGS: On November 17, 2000 Southern LNG advised the FERC that it "has determined to withdraw the Btu stabilization options from the instant certificate application", such application being the one seeking to amend the certificate issued by the FERC in March, 2000 authorizing Southern LNG to reactivate the LNG terminal at Elba Island. With this withdrawal, the El Paso organization has drawn its line in the sand. We plan to vigorously protest this withdrawal at the FERC within the 15 day period allowed by FERC procedures. This gives us until December 2, 2000 to file which, presumably, would be extended until Monday, December 4, 2000. Our filing will be of an adversarial nature, so the Enron organization needs to be on board with our intended filing, which we will commence drafting on November 20, 2000. Drafts will be circulated to the appropriate personnel, so please advise us re any additions in that regard. At the same time, this decision by Southern LNG will focus our resolve to complete the commercial transaction with El Paso Merchant Energy. We have come to accept some of the less desirable features of the Letter Agreement/Term Sheet signed with El Paso Merchant Energy on October 13, 1999, inasmuch as the more important aspects are very much in our favor, including several that Southern LNG found rather unsettling. We will discuss the path forward with El Paso Merchant Energy on November 21-22, 2000. While we remain open to a solution to the quality issue that leaves our commercial flexibility and optionality intact, we must be positioned to move forward resolutely and in a timely manner with both El Paso Merchant Energy and Southern LNG. We cannot afford to stop these processes while we discuss alternative solutions. On Wednesday, November 15, 2000, we gave both Mike Varagona and David Jenkins of El Paso Merchant Energy a "heads-up" regarding our likely response to Southern LNG's proposed letter agreement dated November 1, 2000. We indicated we would be asking Southern LNG to bifurcate the FERC proceeding into the Vaporizer Project, that could proceed quickly and on an independent path to certification, and the Stabilization Project, that required considerably more technical analyses before it could proceed. When I contacted Mike Varagona on Friday, November 17, 2000, after we received a copy of Southern LNG's letter to the FERC, he stated that he had not been advised by Southern LNG regarding its decision, hence, had not been positioned to return the favor. Mr. Varagona will be in Houston on November 21 and 22, and he wants to meet with us. He is still pushing for a commercial solution that sees El Paso "take on the quality risk" in return for our firming up our volumes to El Paso Merchant Energy at an improved price of Henry Hub plus approx. $0.08 per MMBtu. Let there be no doubt that El Paso and Southern LNG will find a solution to the quality issue at little or no cost. He said he would like to prepare us an outline of an offer. to which I responded that he had nothing to lose by doing so. The usual practice has been for Enron to do this and for El Paso to respond with "I don't think that will work". Mr. Varagona also indicated that he did not see how the Letter Agreement/Term Sheet could form the basis of the commercial arrangement between our respective companies - "It just won't work!". As a consequence, he stated that Clarke Smith, head of El Paso Merchant Energy, has already contacted or will shortly contact our Mike McConnell to see if they can work to resolve this matter. Apparently, these gentlemen have developed a good working relationship over the years. He also alluded to the possibility that Mr. Smith may have also contacted our Stan Horton (for less than obvious reasons to me). Mr. Varagona further advised me that a Duke/Williams joint venture had just acquired the rights to the Gulfstream Pipeline Project from Coastal (divestment of this asset was required, I understand, as part of the El Paso/Coastal merger). "This situation gives added impetus to development of the Cypress Pipeline project by Enron and El Paso." There is considerable merit in Enron retaining the right to market its own gas out of the Elba Island LNG Terminal. However, we may find it desirable to reach some commercial resolution with El Paso Merchant Energy for a portion of our volumes that also makes the quality issue disappear. However, should we decide to so compromise, we must either fully engage Southern LNG in that solution or totally eliminate them from all aspects of our agreement with El Paso. In the case of Southern LNG, we are dealing with one or more individuals who see only one way to do things. namely their way, and who are totally opposed to working with Enron. I would recommend any compromise with El Paso Merchant Energy be conditioned on first reaching agreement with Southern LNG on explicit terms acceptable to us (and checking it twice). I would appreciate receiving your comments, if any, before Thanksgiving. Regards. Les Webber
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