Opinion ID: 405902
Heading Depth: 2
Heading Rank: 1

Heading: The Initial Agreement

Text: 18 In 1969 Sonatrach, 1 the Algerian national oil and gas company, contracted to supply LNG over a twenty-five year period to El Paso Algeria Corporation (El Paso), an American enterprise, at a rate of 1,000,000 Mcf 2 per day, delivered at Arzew, Algeria. El Paso, in turn, would transport the LNG by cryogenic tanker to the east coast of the United States for resale at Elba Island, Georgia, to Southern Energy Company and at Cove Point, Maryland, to Columbia LNG Corporation and Consolidated LNG Corporation. 3 The LNG would be regasified at these points, ultimately finding its way to consumers throughout the regions serviced by these companies. 19 The 1969 import contract (Initial Agreement), as approved in 1972 by the Federal Power Commission (FPC), 4 called for an initial base price of $.0305/MMBTu, 5 f. o. b. Arzew. Twenty percent of this base price was subject to periodic escalation according to an inflation-based formula utilizing two Bureau of Labor Statistics indices. 6 The project required the applicants to construct terminal storage and vaporization facilities at Cove Point and Elba Island (at a combined cost of over $600 million) and the purchase by El Paso of LNG tankers and associated facilities (costing.$1.6 billion). 7 For its part, the Algerian government was to construct a liquefaction plant and storage facilities at Arzew. 20 At the time the Initial Agreement was negotiated, the parties anticipated that the construction of Sonatrach's LNG facilities would cost about $540 million and that deliveries would begin in 1973 or 1974. As it turned out, the Arzew facilities cost over $2.2 billion and initial deliveries, which were still below the contracted volumes, were not made until March 1978. 8 This same time period witnessed dramatic changes in the entire character of world energy supply and demand, driving affected prices skyward at a rate all too familiar to American consumers. The price of LNG followed this spiral, and by early 1979 El Paso was paying Sonatrach only one-fifth as much as other U. S. concerns were paying for natural gas from every other import project.