Shell to Propose Baja Gas Project

If oil companies have their way, a short stretch of Baja California coastline immediately south of the U.S. border could someday be the scene of about $2 billion in energy projects.

The latest proposal is to be formally unveiled today by a unit of Royal Dutch/Shell Group that wants to build a $500-million liquid natural gas terminal, a re-gasification facility and a pipeline at a site believed to be about 60 miles south of the border.

The Shell project would be the fourth LNG proposal for the area, which is favored for its proximity to several natural-gas-fed power plants under construction or planned in Baja. Closeness to Southern California is another plus, because each company wants to sell surplus gas there.

Jon Chadwick, director of Shell Gas and Power, said the company was considering an inland route for the 55-mile pipeline. That would accommodate the Baja government, which prefers routing the gas through undeveloped areas, thereby promoting new sources of energy and business opportunities.

The three other gas projects have been pitched by El Paso Corp., Marathon Oil Corp. and Sempra Energy. Each involves building piers half a mile or more in length out into the Pacific, where ships bringing supercooled liquid gas from Asia and Latin America would tie up and unload. The liquid would be stored in large silos, then turned back into gas for transmission via a pipeline to users in Baja California and, via another pipeline network, to the Western United States. Each project would cost about $500 million and take three years to complete.

Except for one facility in Alaska that sends liquid natural gas to Japan, no major LNG projects are currently in operation on the Pacific coast of North America.

The likelihood that all four proposals would be built is considered small, but the market could absorb the supply from at least two of the projects easily, observers have said.

Shell’s project, which could send out as much as 1.3 billion cubic feet of gas a day, is the largest. Shell’s maximum output is enough gas to power about 15 medium-sized electric power plants. ChevronTexaco Corp. is known to be scouting Baja for a fifth LNG project proposal.

For competitive reasons, each energy company would like to be the first to start construction, all eyeing a 2005 completion. But the companies are awaiting permit application procedures to be completed by Mexican federal regulators.

Political maneuvering already has begun, and each project is believed to have advantages and disadvantages in the race for permit approval. Given the likely opposition from residents and environmentalists, each is marshaling local and national political support.

The city of Rosarito has refused to grant El Paso Corp. a land-use permit for its project, adjacent to an existing power plant. Last week the governor of Baja California, Eugenio Elorduy Walther, made what some interpreted as negative remarks about the El Paso project in Rosarito, telling a radio reporter: “I don’t believe the mayor of Rosarito would like it if they put a gas plant in his backyard.”

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Source for Southern California

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