A third-train expansion of the liquefied natural gas (LNG) plant at Qalhat near Sur has moved a step closer following the signing on 30 May of an agreement between the government and Spain's Union Fenosa. Oil & Gas Minister Mohammed bin Hamed al-Rumhy and Union Fenosa vice-president Elias Velasco Garcia signed in Madrid a 20-year sale and purchase agreement for the supply of 1.6 million tonnes a year (t/y) of gas starting from 2006 (MEED 5:4:02).
Under the terms of the deal, Union Fenosa will invest in the construction of a 3.2 million-t/y third-train LNG plant at Sur. The government of Oman will take a strategic stake in two regassification terminals under construction in Spain, located on the coast at Segunto and Mugardos. The remaining gas will be sold on the open market or taken by another major shareholder. 'A separate company may be established to market the gas, and share the existing export facilities at Sur,' says a Union Fenosa official.
Shipment of the gas to Spain will also be handled by the Omani government, which is planning to establish a company to operate a new fleet of LNG tanker vessels. Earlier this year the government acquired a 40 per cent stake in Greenfield Shippingfrom the US' Enron Corporation. Greenfield operates the Lakshmi, which is being used for spot deliveries from Oman LNG. The US' Curtis, Mallet-Prevost, Colt & Mosle (CMP)is acting as the government's legal adviser (MEED 29:3:02, Banking & Finance).
Union Fenosa is the third largest utility in Spain. Its total gas needs are set to rise to 9,000 million-11,000 million cubic metres a year (cm/y) by 2010, with much of this gas going to the company's domestic power generation assets. By 2005, Spain is expected to require 35,000 million cm/y of gas, rising to 45,000 million cm/y by 2010. Elsewhere in the region, Union Fenosa is investing in an LNG plant in the Egyptian port of Damietta. The first 5 million-t/y train is under construction (MEED 4:1:02).
It is not yet clear what role Oman LNG and its major foreign shareholder Royal Dutch/ Shell Groupwill play in the third-train expansion. 'There is no such thing as Oman LNG train 3,' says chief executive Agnus Cassens. 'It is a government project at this stage. We are waiting for the government to announce the next phase. Until we are notified otherwise, this is a matter for the Oil & Gas Ministry.'
Oman LNG has capacity of 6.6 million t/y of LNG from two trains in operation at Qalhat. The company, which is the sultanate's sole LNG exporter, has major long-term supply contracts with Korea Gas Corporationfor 4.1 million t/y and Japan's Osaka Gas Companyfor 700,000 t/y. It also supplies Shell's customers in Spain with 700,000 t/y on a short-term basis and has recently signed a deal with Gaz de Franceto supply a further 700 million cubic metres of gas. Oman LNG was also due to supply India's Dabhol Power Company (DPC)with 1.6 million t/y of LNG. This deal has been delayed following the financial collapse of the venture's major shareholder, Enron (MEED 28:12:01).
'The existing contract with DPC is on hold. Once the new shareholders have finalised their plans for the project we will start to negotiate,' says Cassens. Oman LNG's foreign shareholders are Shell; France's TotalFinaElf; Korean LNG; Mitsubishi Corporation, Mitsui & Companyand Itochu Corporation, all of Japan; and Portugal's Partex.
The Union Fenosa deal is also likely to activate a number of upstream gas projects that have been put in place by Petroleum Development Oman (PDO). The sultanate's biggest producer of gas is increasing the capacity of its main processing facilities at Saih Nihayda by 20 million cubic metres a day (cm/d) to 60 million cm/d in order to meet the expected increase in demand from Sur and the various industrial projects in Sohar. Construction of a midway gas booster station between Sur and the central Oman gas fields was contingent on the LNG expansion moving ahead (Oman, MEED Special Report, 26:4:02, pages 33-34).