Oman LNG to sell gas to Spain

29 November 2002

Oman LNG and Spain's Union Fenosa Gas signed on 25 November a sales and purchase agreement (SPA) for the supply of 1.3 million tonnes of liquefied natural gas (LNG) between 2004-05. The gas will be delivered to Spain on a carriage insurance freight (cif) basis using the government's recently acquired LNG tanker, Lakshmi.

The deal is the fourth such sales agreement signed this year by Oman LNG, which produces about 6.6 million tonnes a year (t/y) of LNG from its two liquefaction trains at Sur. In total, the company has placed contracts for 2.75 million t/y of LNG this year with Gaz de France; Shell Western, a subsidiary of the Royal Dutch/Shell Group; Japan's Tokyo Electric Power Company, and Union Fenosa (MEED 25:10:02; 5:4:02; 15:3:02).

The Spanish deal will take up most of the excess gas that Oman LNG was left with following the collapse of the US' Enron Corporation, which had committed to buy LNG for its Indian power venture, Dabhol Power Company (DPC). Supplies of

1.6 million t/y of LNG to DPC's plant in Maharashtra, which were scheduled to start this year, have been postponed while a new foreign partner is found to own and operate the plant. Oman LNG's other long-term offtake agreements are for 4.1 million t/y to Korea Gas Corporation and 700,000 t/y to Japan's Osaka Gas Company.

In order to meet its forward commitments up to 2005, the company is planning to boost its output of LNG by 10 per cent to 7.2 million t/y. Shell, which is the majority foreign shareholder in Oman LNG, is carrying out engineering studies on the debottlenecking of trains 1 and 2. Work is expected to start in late 2003 (MEED 18:10:02).

Oman LNG is also planning to take an equity stake, alongside Union Fenosa and the government of Oman, in the construction of a third liquefaction train at Sur. The Spanish utility has committed to take 50 per cent of the train's 3.3 million-t/y output starting from 2006 (MEED 26:7:02, Cover Story). This gas will also be delivered on a cif basis by a new fleet of four LNG vessels, which are being bought by the Omani government (MEED 25:10:02).

A team of Japan's Chiyoda Corporation and Foster Wheeler Corporation of the US has been formally awarded the main engineering, procurement and construction (EPC) contract for the project. Contractors have already been asked to quote for the seawater intake and outfall and the onshore construction subcontracts (MEED 4:10:02).

Total project costs are estimated at $600 million. Citibank, which worked on the original finance package for the first two trains and their subsequent refinancing, is acting as the financial adviser for the deal. A final investment decision on the scheme is due in January and will be followed in the first quarter by the release of a preliminary information memorandum. Following the successful $1,300 million refinancing in March of Oman LNG's existing debt, the deal is expected to be well subscribed.

However, bankers say pricing could be adversely affected by the outcome of a downgrade review being carried out by US credit rating agency Moody's Investors Service on Oman LNG's existing A3 debt rating (see Banking & Finance).

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