McMoRan is pursuing plans to develop the Main Pass Energy Hub^TM (MPEH^TM) which will be used for the receipt and processing of liquefied natural gas (LNG) and the storage and distribution of natural gas.  We have completed conceptual and preliminary engineering for the development of the MPEH™ project.  We believe our plan to use existing former sulphur mining structures in the development of the MPEH^TM, located 38 miles east of Venice, Louisiana in 210 feet of water, is a highly attractive project.  The use of existing facilities provides significant cost advantages and our offshore location near established shipping lanes is advantageous.  The terminal would be initially capable of receiving LNG and conditioning 1 Bcf per day of natural gas.  Additional investments are being considered to develop significant onsite cavern storage for natural gas in the large salt dome structure at this site and for pipeline connections to deliver gas from MPEH™ to markets in the United States.  The proximity of the proposed project to major natural gas markets and the availability of on-site salt dome cavern storage provide a potential opportunity to expand the project beyond a typical LNG receiving facility, thereby creating substantial additional values.  Designs include 28 Bcf of initial cavern storage availability and aggregate peak deliverability from the proposed terminal, including deliveries from storage, of up to 2.5 Bcf per day.

In February 2004, pursuant to the requirements of the U.S. Deepwater Port Act, we filed an application with the U.S. Coast Guard (Coast Guard) and the Maritime Administration (MARAD) requesting a license to develop an LNG receiving terminal.  Pursuant with this federal law, the Coast Guard and MARAD have a specified 330-day period from the date the application is deemed complete, subject to possible suspensions of this timeframe, to either issue the license or deny the application. Subsequent to filing the license application, the statutory review period was temporarily suspended while we provided the Coast Guard with additional information relating to the potential impact of the project on the marine habitat, air emissions, cavern design and other matters.

In June 2005, the Coast Guard and MARAD published a draft Environmental Impact Statement (EIS) for our MPEH™ license application. The draft EIS evaluates potential environmental impacts associated with the construction and operation of the MPEH™. The Coast Guard and MARAD, which work in collaboration with the National Marine Fisheries Service, the Environmental Protection Agency and other government agencies, stated in the draft EIS that the proposed project would not have unacceptable adverse environmental impacts and, specifically, the proposed open-loop system would not have a significant adverse impact on marine life in the Gulf of Mexico. 

The Coast Guard conducted public meetings during July 2005 to allow comments on the draft EIS. On August 26, 2005, the Coast Guard requested additional information in response to comments received on the draft EIS, primarily related to fisheries, air quality and water quality issues. The Coast Guard again temporarily suspended the 330-day review period on August 26, 2005, indicating the suspension would be of short duration, in order to accommodate the information request and scheduling adjustment. Following Hurricane Katrina, the Coast Guard advised all Deepwater Port applicants, including MPEH™, that it was unable to schedule the public hearings that are necessary to resume processing of the applications because of the State of Emergency in the Gulf of Mexico.

The Coast Guard and MARAD published the Final EIS for the MPEH™ license application on March 10, 2006. The Coast Guard has scheduled public hearings for the week of March 20, 2006. Under the Deepwater Port Act, Governors in the adjacent states (Louisiana, Mississippi, and Alabama for MPEH™) and applicable federal agencies will have 45 days following the final public hearing to respond to the license application. After the 45-day comment period, the Act provides that MARAD has up to 45 days to issue a Record of Decision. This timeline would result in a decision on the MPEH™ license application by the end of June 2006.

The Final EIS evaluated potential impacts associated with MPEH™. The EIS concluded that the environmental impacts associated with the construction and operation of MPEH™ would be expected to result in minor long-term adverse impacts. The EIS assessed the impact to fisheries of using an open rack vaporizer alternative for the project and indicated this system would have “direct, adverse, minor impacts on biological resources.”  The methodology used in the EIS to assess the impact on biological resources did not consider potential benefits from varying the depth of seawater intake or other mitigation strategies which we plan to incorporate in the project to reduce the potential impacts. Based on technical studies, which consider the unique location of MPEH™ in 210 feet of water and mitigation measures expected to be included in the project’s deepwater port license, we expect the potential impact from MPEH™, evaluated to be minor in EIS, can be further reduced.

We believe that a natural gas terminal at Main Pass has numerous potential advantages over other LNG sites including:

• Existing facilities that provide timing, construction and operating cost advantages over undeveloped locations.

• Cavern storage capacity of 28 Bcf of natural gas within the two-mile diameter salt dome at the location.

• Close proximity to shipping channels.

• Access to an existing pipeline system and potential to develop other pipeline interconnects that would facilitate the receipt and distribution of natural gas to U.S. gas markets.

• Possible security and safety advantages because of its offshore location in relatively deep water.

• The potential ability to handle a fleet of new LNG supertankers, which may have limited access to existing U.S. ports.