Dan,

Note Force Majeure issue at Elba.  Lets discuss.
---------------------- Forwarded by Phil DeMoes/Corp/Enron on 11/20/2000 
07:58 AM ---------------------------

Les Webber @ ENRON_DEVELOPMENT

11/20/2000 07:24 AM
To: Phil DeMoes/Corp/Enron@ENRON
cc:  

Subject: SALES OF LNG - Force Majeure


---------------------- Forwarded by Les Webber/ENRON_DEVELOPMENT on 
11/20/2000 07:30 AM ---------------------------

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To: Nancy Corbet
cc: Daniel R Rogers, Doug Arnell/ENRON_DEVELOPMENT, Phil DeMoes
From: Les Webber/ENRON_DEVELOPMENT
Date: 11/19/2000 04:45:17 PM
Subject: SALES OF LNG - Force Majeure

Nancy:

As we move forward with sales opportunities for our vaporized LNG at Elba, 
the issue of force majeure protection will surface.  On the one hand, we want 
to present  ourselves as a credible and reliable supplier of natural gas to 
any US customers.  I believe these customers will be looking for force 
majeure language that is standard in the industry, which should include force 
majeure on the pipelines transporting the gas to their facilities, on the 
production facilities, to the extent they are dedicated or are affected by 
some large event (such as a hurricane or a major storm) in the region, and on 
the LNG terminalling and storage facilities at Elba.   
They will not, however, be looking for a non-standard force majeure clause 
that deals with possible situations in foreign lands and waters, i.e. as 
described, more or less, in our force majeure langauge in the El Paso 
Merchant Energy agreement.  If we try to include that kind of protection, the 
customer will see the supply as risky and uncertain, therefore less valuable, 
in the first instance.  

Our LNG strategy is focused on establishing a merchant activity, which 
requires both supply and market aggregation.  Such an activity will give us 
protection against individual force majeure events by its very nature (i.e. 
through diversification).  The basic question, then, is when do we start 
acting as if we are an bonafide LNG merchant?

We can mitigate for the need to build in unique force majeure safeguards in 
several ways:
lower relative price
alternative, albeit interruptible, sources of natural gas supply
alternative fuels
selection of customers with alternative fuels or replacement production.
business interruption insurance
selling the gas to El Paso instead of directly to a customer.

However, I believe this issue also needs to be addressed in the context of 
our probable need to "lock-in" our pricing through the use of financial 
instruments.  What's more, our customer may elect to do the same, quite 
independent of us.  As I understand it, there is very limited force majeure 
protection available to either of us in this regard.

I know you are working on the force majeure provisions of the draft 
Definitive Agreement with El Paso, so I believe it is opportune at the 
present time to extend this assessment to address the issues set forth above 
(and others?).

When can we discuss?

Regards.
Les