Dow & Freeport LNG Development Ink LNG Terminal Use Deal

Freeport LNG Development, L.P. has reached a 20-year terminal use agreement, (TUA) with The Dow Chemical Company. The agreement is for up to 500 million cubic feet per day (mmcf/d) of throughput capacity at Freeport LNG's proposed liquefied natural gas (LNG) receiving terminal located in Quintana, Texas.

Under the terms of the TUA, Dow has made a firm commitment to reserve throughput capacity for 1.8 million tons of LNG per year (250 mmcf/d), and has until August 31, 2004 to exercise an option on the remaining 250 mmcf/d.

A portion of the anticipated LNG supply would be used to partially satisfy Dow's demand for natural gas at its petrochemical facilities located along the Texas Gulf Coast. Dow facilities in Texas and Louisiana consume nearly 600 million cubic feet per day of natural gas. Portions of the natural gas resulting from the LNG supply will be marketed to other industrial consumers and to key Gulf Coast natural gas hubs in Texas.

Dow is the first industrial energy user in the U.S. to commit to LNG terminal capacity on a long-term basis, according to Jody Sumrall, Dow business manager for LNG and Texas Gas. "This is an important commitment for Dow, a step we need to take due to the ever-increasing demand for natural gas in the U.S. Importing LNG from other regions, such as South America, Africa and the Middle East, is a small part of a larger energy solution," said Sumrall. "This development in no way reduces the need for the U.S. to develop new additional sources of domestic natural gas. If we are to restore the domestic chemical industry to a globally competitive position and keep manufacturing jobs in America, the U.S. must further diversify its sources of energy for generating electrical power and all of us will be required to promote and participate in national programs for energy efficiency and conservation."

According to Michael S. Smith, chief executive of Freeport LNG Development, L.P., reaching a long-term contract with Dow marks an important milestone in the realization of the receiving terminal initiative. "Based on this agreement, assuming Dow exercises its option to take the full 500 million cubic feet per day, and with our previously announced transaction with ConocoPhillips, we believe that the entire first phase of our facility is now sold out. We expect final approval from the Federal Energy Regulatory Commission in the next couple of months, which will keep us on target to begin construction in mid-2004. LNG deliveries would begin in mid-2007."

Overview of the Freeport LNG Terminal Project

Dow has elected to finalize the TUA with Freeport LNG pursuant to the rights granted Dow under the heads of agreement entered by the parties in June, 2003. It is anticipated that the first phase of the LNG terminal facility will be designed with storage capacity of 320,000 cubic meters (6.9 billion cubic feet) with a vaporization send-out rate of 1.5 billion cubic feet per day. The natural gas would be transported through a 9.4-mile pipeline that will extend to Stratton Ridge, Texas, which is a major point of interconnection for a number of Texas intrastate systems.

The proposed LNG marine terminal facility and natural gas pipeline will be located entirely in Brazoria County, Texas. The LNG marine terminal facility, transfer lines, and the storage and vaporization units will be located on Quintana Island, southeast of Freeport.