Natural Gas in the Middle East LNG Projects Make Progress In Oman And Yemen

Two LNG projects in the Middle East, one in Oman and the other in Yemen, are due on stream at the turn of the century-each the largest single project ever put together in its country.

Officials described their projects at a yearend 1996 conference in Paris by Institut Francais du Petrole and Petro strategies.

The Oman project

Tony Hanna, general manager and chief executive officer of Oman LNG LLC, described his company's project as "the fastest ever put together."

It secured its first sale and purchase agreement last October just 5 years after discovery of the gas reserves on which the project is based: Petroleum Development Oman's (PDO's) finds in the Andam formation of Barik, Saih Rawl, and Saih Nihayda fields in 1991. And exports are to start 9 years after discovery early in 2000.

Oman LNG is handling the downstream part of the project. It is a joint venture of the government of Oman (51%) and private shareholders: Royal Dutch/Shell 30%, Total 5.54%, Partex 2%, Mitsubishi and Mitsui 2.77% each, Itochu 0.92%, and the consortium South Korean Gas Corp. 5%.

PDO, as operator of the upstream part of the project, is developing the gas reserves, which it holds under a 25-year lease from the government. Shares in PDO are similar to those of the downstream segment, which Hanna cites as a project strength: 60% government, 34% Shell, 4% Total, and 2% Partex.

PDO will perform field appraisal and development, gas processing at the central plant in Barik, and transport by a 360 km gas pipeline to the liquefaction plant.

The liquefaction plant will be built at Al Ghalilah, near Sur on Oman's northeast coast in a sheltered, deepwater natural harbor.

Gas reserves in Barik, Saih Rawl, and Saih Nihayda fields are estimated at 17 tcf as of January 1996, 11 tcf proved. The majority of Oman's gas reserves are not associated with oil.

The two-train LNG plant will have production capacity of 6.6 million metric tons/year of LNG. Under the October agreement, Korea Gas Corp. is to take as much as 4.1 million tons/year on an fob basis during 25 years starting in 2000, the largest single LNG contract signed so far in the world, according to Oman LNG.

Petroleum Authority of Thailand has been negotiating a cif deal for as much as 2.2 million tons/year over 25 years starting in 2003. In addition, there are short-term uncommitted volumes to be marketed between 2000 and 2003.

Funds for the $2 billion project will come from shareholder equity and third-party debt raised through project financing arranged through seven banks. Financing has been insured by export credit agencies.

Oman LNG let an engineering, procurement, and construction contract for the liquefaction plant to Chiyoda-Foster Wheeler Co. LCC last November. The plant will use the propane/mixed refrigerant liquefaction process and the Sulfinol treating process.

It will use large gas turbine drivers (GE Frame 6 and 7) and a once-through seawater cooling system.

Yemen project

In the Yemen project, the goverment owns 30% interest and Total 70%.

Due on stream in late 2000 or early 2001, the project is still at the stage of front-end engineering and design, handled by Bechtel and Technip. Engineering, procurement, and construction contracts could be issued in July 1997, according to Total's Pierre Boutelant, gas manager of Yemen LNG Co.

The project includes a two-train liquefaction plant with total production capacity of 5 million tons/year and an export terminal at Bal Haf on the Gulf of Aden, 300 km east of Aden.

A 320-km, 34-in. pipeline will move gas from fields in the Marib area to Bal Haf with a spur line to the capital, Sana'a.

Full capacity could be reached after the first year of production and will be maintained for at least 25 years.

Marib area fields have been on production since 1985. Associated gas is currently reinjected. Proved reserves dedicated to the LNG plant amount to about 10 tcf of high-quality gas, says Boutelant. He believes Yemen reserves could support additional LNG trains at Bal Haf.

Total hopes to complete financial arrangements by yearend. Also by then it hopes to finish negotiations with Yemeni units of Hunt Oil Co., Exxon Corp., and Korea's Yukong, its three partners in the Marib fields, on interests of a combined 49% stake in the LNG plant. This would reduce Total's share to 36% and Yemen's share to 15%.

Bal Haf can supply markets in the Far East and Mediterranean.

In December, Yemen LNG signed a memorandum of understanding with Turkey's Botas under which the parties agreed to negotiate terms of a long-term LNG sales contract.

If the deal proceeds, Turkey might take all production from one of the two liquefaction trains, about 2.6 million tons/year, under a 24-year contract from plant start-up. Botas thus might become the "critical mass buyer" that Boutelant said was needed.

Negotiations are under way with potential buyers in Europe, South Korea, Taiwan, Japan, China, Thailand, and India.

"It is possible that some buyer countries might become shareholders in Yemen LNG," Boutelant said. Sales will be on either an fob or cif basis, with pricing not necessarily linked to the price of crude oil.