Curtis Williams
OGJ Correspondent
PORT OF SPAIN, Sept. 3 -- Following more than a year of negotiations with Trinidad and Tobago, Tractebel LNG North America LLC has pulled out of the $1.2 billion Atlantic LNG Co. of Trinidad & Tobago's (ALNG) Train 4 expansion project.
Highly placed sources at the company indicate that the decision to pull out was made because Tractebel did not have sufficient value across the LNG chain to warrant the investment and due to its inability to meet the demands of the Trinidad and Tobago government.
Tractebel, which is the largest importer of LNG into the US, wanted the Train 4 project to be structured in a way which would maximize income at the Train 4 facility rather than at the wellhead because the company has no revenue from upstream gas sales as do most of the other partners: wholly owned subsidiaries of British Gas, Repsol-YPF SA, and BP PLC.
Tractebel's exit confirmed
However Trinidad and Tobago wanted high gas prices at the wellhead so that it could increase the country's revenues through higher taxes upstream and thereby limit the profits at the ALNG facility to an average of 8% return on investment.
Both Trinidad and Tobago's Energy Minister Eric Williams and Robert Riley, Chairman of BP unit Amoco Trinidad LNG LLC—he largest single shareholder in the Train 4 project—confirmed that Tractebel is out of the project.
But Williams was quick to point out that Tractebel's exit will not affect the expansion.
"It has not affected the project. Work is continuing at the Point Fortin Train IV site without Tractebel. Tractebel's potential 10% interest will be shared among the other partners in accordance with shareholder covenants among the existing parties. The company's 10% shareholding will be split among the other partners of Train IV," said Williams.
Williams also noted that already the partners have signed the final agreement establishing the project, which on June 14 received government sanction.
Riley said an "omnibus" agreement had been reached between the shareholders. "The agreement outlined a clear series of procedures and included the formal passage of the expansion being resolved," he said.
Different agreement
Unlike ALNG's first three LNG trains, under the Train 4 agreement, the Train 4 liquefaction facility has been decoupled from the upstream gas producers even though they also are the shareholders of the plant.
This means the processing facility will operate at an arm's length from its suppliers and will earn an agreed utility rate of return of 8% and the tax paid to Trinidad and Tobago would be 35% as oppose to the 55% paid by upstream producers at the wellhead.
The processing fee ALNG will levy for liquefaction will be made up of a production charge, operating costs, and a capital recovery cost. Williams said with the formula insisted on by his government, the Caribbean twin islands would earn $4 billion from Train 4 if the Henry Hub gas prices average $3/MMbtu, but if it averages $5/MMbtu, then the return to the government coffers would be closer to $10 billion over the 20-year life of the project.
BP's holdings
The Train 4 agreement also means that on completion of the project, BP's gas sales in Trinidad will reach 2 bcfd.
BP remains the largest shareholder in ALNG and has participated in every LNG train expansion.
BP holds a 34% interest in Train 1, 42.5% in Trains 2 and 3, and 37.5% in Train 4 due to Tractebel's decision to stay out of the project.
BP provides all of the 450 MMcfd required by Train 4 and another 600 MMcfd required by Trains 2 and 3. With another 360 MMcfd being supplied to Train 4, which includes its share and another 60 MMcfd it will be providing on behalf of the state-owned National Gas Co. of Trinidad & Tobago Ltd. (NGC), which, like Tractebel, is in an operational disadvantage because it does not have its own gas.
BP will be selling 1.41 bcfd of gas to ALNG added to another 650 MMcfd it sells at present to the NGC's national grid. However the NGC took up its 10% stake in the facility and has negotiated with both BP and Canadian firm Vermilion Resources Ltd. to supply it with natural gas (OGJ Online, Sept. 17, 2002).
NGC also has reached agreement with BP to market NGC's LNG in the US. Riley said BP was expanding its LNG business worldwide and that Trinidad and Tobago was key to these plans.
Riley said this was the major reason why BP now considered Trinidad and Tobago its fifth most important operations, more important that even the North Sea.
On Aug. 8 BP announced the delivery of the first cargo to the recently completed LNG import and regasification facility in Bilbao, northern Spain. It will support BP's LNG marketing efforts in Spain. In May, the company announced that its new LNG carrier British Trader was loading the first cargo of LNG from Train 3.
The cargo was destined for the LNG import terminal at Elba Island, Ga., from where it will be marketed by BP.