LNG production, supply deals proliferate

Liquefied natural gas projects in Asia, the Middle East, and Africa are building momentum with the signing of a number of deals recently.

Such projects provide a stable revenue source for gas-rich countries such as Oman, Qatar, Yemen, and Nigeria. They also facilitate the development of low-emission, gas-fired power projects in developing nations such as India.

Three LNG producers in the Middle East have signed deals to supply portions of their output to India, which is in dire need of natural gas. These deals will ensure that at least some of India's plethora of LNG import terminal projects have adequate supplies to meet local demand.

Meanwhile, Australian firms Woodside Petroleum Ltd. and Energy Equity Corp. have formed an alliance to build a $70 million (Australian) LNG plant at Port Hedland, Western Australia. The LNG will be used for electricity generation in remote areas of the state.

Nigeria LNG Ltd. is considering expanding its $3.7 billion Bonny Island LNG plant by about 45% in the next 4 years. If the consortium members agree, the capacity of the plant, now under construction, would be in- creased to 8.7 million metric tons/year from 5.9 million tons/year.

Oman LNG contract

Oman LNG LLC has signed an agreement for delivery of LNG to India, concluding negotiations for the entire output of its liquefaction plant.

Oman LNG, of which Royal Dutch/ Shell is the lead partner, is building an LNG plant and export terminal at Qalhat in northeastern Oman and anticipates first deliveries in April 2000. The plant will comprise two 3.3 million ton/year liquefaction trains and will process gas arriving through a 360-km pipeline from fields in central Oman (OGJ, Apr. 6, 1998, p. 29).

This latest sales agreement is with the Dabhol Power Co. in India's Maharashtra state, and calls for delivery of 1.6 million tons/year of LNG over 20 years beginning late in 2001. The Dabhol generation project is being developed by Enron Corp., MSEB, GE Capital, and Bechtel Enterprises.

Oman LNG said the deal is unique in involving the first import of LNG into India, and also because it is the first LNG contract in Asia signed with an independent power project.

The deal follows an earlier heads of agreement, in which Dabhol Power settled the main commercial terms for delivery of 1.2 million tons/year of LNG, but was at the time considering increasing the volume to be delivered.

The independent power producer plans to build an LNG tanker to ship its gas from Qalhat to the terminal it plans to build in India. Dabhol's project is a 2,450 MW power plant being built 240 km south of Mumbai. It includes a port, an LNG import terminal, and a regasification plant, and is expected to cost nearly 76 billion rupees ($1.8 billion).

Dabhol's first 826 MW unit is due to be commissioned shortly. It will be run on naphtha until the LNG deliveries begin.

Power from the plant will be sold to the Maharashtra State Electricity Board (MSEB).

Oman LNG has already sold 4.1 million tons/year of LNG to Korea Gas Corp. and 700,000 tons/year to Japan's Osaka Gas Co. The $2 billion Oman LNG project is about 80% complete, with construction ahead of schedule.

Qatar-Petronet LNG deal

Qatar's Ras Laffan Liquefied Natural Gas Co. (Rasgas), in which Mobil Corp. is a leading partner, has signed a heads of agreement with India's Petronet LNG Ltd., detailing the terms under which Rasgas will supply 7.5 million tons/year of LNG. A full sales and purchase agreement is expected to be signed early in 1999, according to Rasgas.

Petronet LNG is a consortium of Gas Authority of India Ltd. (GAIL), Indian Oil Corp., Oil & Natural Gas Corp. (ONGC), Bharat Petroleum Corp., and Hindustan Petroleum Corp. It was formed to meet LNG demand mainly from the power sector in India.

In September, Petronet awarded Rasgas the tender to supply 5 million tons/year of LNG to a terminal at Dahej, Gujarat, and an additional 2.5 million tons/year to Cochin, Kerala. Deliveries are scheduled to begin in 2003.

"Since much of the LNG is intended to replace existing consumption of more expensive alternate fuels, Petronet has requested us to expedite the commencement of deliveries to India," said Qatar's minister of finance, economy, and trade, Yousef Kamal, who is also Rasgas chairman.

The signing of the contract reportedly will spur construction of three more LNG trains at Rasgas, increasing capacity to 15 million tons/year. Rasgas has also committed to offering Petronet a 5% equity stake in the company if a sales and purchase agreement is signed.

Meanwhile, India's communist-ruled West Bengal state has begun lobbying hard to have Petronet LNG to set up one of its new terminals at the major port of Haldia, on the river Hooghly, rather than at Dahej or Cochin, as planned. Lakshman Seth, chairman of the Haldia Development Authority, has written to Indian Petroleum Minister K. Ramamoorthy, stating that the opportunities and facilities are superior to those available at either Dahej or Cochin.

Seth argued that setting up a terminal at Haldia would hasten the pace of industrialization in the city and throughout West Bengal.

Yemen-BG deal

Yemen LNG Co. said early this month that it was expecting to sign a heads of agreement with BG plc in first half 1999 to supply 2.65 million tons/year of LNG. The companies are then expected to sign a firm, 25-year supply agreement at an unspecified later date.

The heads of agreement follows a memorandum of understanding signed by the firms earlier this year (OGJ, May 18, 1998, p. 41). It will enable the Yemen LNG partners to launch a call for tenders for construction of their planned LNG plant at Balhaf, Yemen, on the Gulf of Aden. Contractors have already been short-listed.

BG will import the LNG at a 5 million ton/year terminal it is planning at Pipavav in India's Gujarat state. Shipments are expected to begin in 2002-03, when the Yemeni plant starts up.

BG may boost its imports from Yemen to 5.3 million ton/year-all of the output from the $2.2 billion, two-train liquefaction plant. But Yemen LNG partner Total said the consortium is also looking for markets in Japan, South Korea, Taiwan, Turkey, and Lebanon.

Trombay project

GAIL has unveiled plans to pick up an equity stake of 25% in a proposed LNG project being promoted by the Tata industrial group in collaboration with Total of France. Talks between the three companies are on, and a decision is expected soon.

The venture would supply 3 million tons/year of regasified LNG to bulk customers in and around the Trombay area in Mumbai city.

At the moment, GAIL supplies these customers 3.2 million tons/year of gas from Bombay High production. But Bombay High gas supplier ONGC cannot fulfill its contractual obligation to supply GAIL with 4.7 million tons/ year because Bombay High production is in serious decline (OGJ, Sept. 14, 1998, p. 38).

Once the Trombay LNG project is commissioned, GAIL will be able to meet latent gas demand of 1.5 million tons/year in the area.

Australian LNG plant

Melbourne's Woodside Petroleum Ltd. has formed an alliance with Perth-based Energy Equity Corp. (EEC) to build a $70 million LNG plant at Port Hedland, Western Australia.

The two companies plan to submit a proposal to the Western Australian government to produce 50,000 tons/year of LNG to be used for electricity generation to supply communities in the state's remote Kimberley region, such as Broome, Derby, and Halls Creek. The proposal comes in answer to Western Australia's recent call for formal expressions of interest from the private sector to develop energy generation capacity in the Kimberley region.

The liquefied gas would be delivered via specially built road LNG tankers. At the moment, the plan is for Woodside and EEC each to own 50% of the project.

EEC already operates a similar small LNG plant at Alice Springs, Australia, and trucks LNG to the Ularu (Ayers Rock) settlement for use in power generation.

Natural gas for the Port Hedland plant would come via pipeline from the North West Shelf fields and from the Burrup Peninsula gas processing facilities to Port Hedland.

Nigeria LNG expansion

Nigeria LNG Ltd. consortium members are planning to meet in January to discuss expanding their $3.7 billion Bonny Island LNG plant by about 45% in the next 4 years.

The group includes Nigeria, Shell Gas BV, Elf Aquitaine, and Agip International. Its two-train LNG plant is under construction and is slated to begin deliveries in October 1999. But a third train may be warranted.

Nigeria LNG Managing Director Steve Ollearanshaw said a contract had been let for front-end engineering work for the expansion. The work will be performed by a consortium of Technip SA, Snamprogetti SpA, M.W. Kellogg Co., and JGC Corp.

In order for the January talks to be fruitful, the group would have to make considerable progress in negotiations for product offtake agreements, gas feed supplies, and funding before the end of the month.

The two-train plant will require about 26.6 million cu m/day of feed gas, which will be sourced from Shell, Agip, and Elf. The expansion would require the three participants to increase their upstream investments to expand gas production at various supply points.

Shell and Elf are already spending more than $318.4 million on gas supply projects.

The expansion is expected to be the first stage of a $7.2 billion plan to boost the plant's output to 8.7 million metric tons/year from 5.9 million tons/year. It is also expected to increase annual revenues from the project to $2.5 billion from $1 billion and reduce the volume of associated gas being flared in the Niger Delta by 75%.

Nigeria LNG has signed long-term contracts for 90% of the plant's initial output. The buyers are Italy's ENEL, Spain's Enegas, Turkey's Botas, and Gaz de France.