EGYPT - LNG Export Ventures: BG - Idku LNG Project.

BG Group, having made the biggest gas discoveries in Egypt since 1996, is to turn Idku (just east of Alexandria) into one of five gas hubs it is developing around the world. BG is aiming to turn itself into an integrated energy giant delivering gas and power directly to customers. It is targeting attractive markets in southern Europe, America, and Asia.

BG signed the final deal for the Idku LNG venture, called Egyptian LNG (ELNG), with EGPC (now Egas) in April 2001. The first of its LNG trains will on stream in September 2005 with a capacity of 3.6m t/y. The second 3.6m t/y train will be on stream in April 2006. Now BG and its partners are discussing a third train. Idku, meanwhile, is being developed to site six LNG trains which, in BG's impressive model, could catapult Egypt into the top rank of world LNG exporters. Each train will have its own venture company, with a different ownership structure from the others as it will include a main buyer of the liquefied methane.

There is now an operating company, ELNG, owned 35.5% by BG, 35.5% by Petronas (having bought Edison's Egypt assets in April 2003), 12% by EGPC, 12% by Egas, and 5% by Gas de France which is committed to buy the entire output of Train 1 under a 20-year contract starting from September 2005. Train 1 Co. is owned in the same way as ELNG. Train 2 Co. is owned 38% by each of BG and Petronas and 12% by each of EGPC and Egas. BG says there is enough room at Idku for other offshore operators in Egypt who have found sufficient gas not far from this zone and may add trains to the plant, such as Apache and a BP/RWE-Dea partnership.

The Idku liquefaction centre is being modelled after Atlantic LNG of Trinidad & Tobago in which BG is the leader and largest shareholder (26%). Like that plant and its three additional trains, Egyptian LNG will use the optimised cascade process developed by Phillips Petroleum of the US (now ConocoPhillips). The FEED work for ELNG has been done by Bechtel which has the $900m EPC contract for Train 1 and the $550m EPC job for Train 2. Bechtel, the main contractor for the Atlantic LNG venture, has been part of the project management team for the development of the Scarab/Saffron fields in the WDDM block.

On Sept. 25, 2003, the Train 2 partners signed the sale and purchase agreements (SPAs) for the sale of the entire 3.6m t/y output of Train 2 to BG Gas Marketing. This will be supplied from April 2006 to BG LNG Service for the Lake Charles import terminal in Louisiana. The SPAs provide for LNG volumes to be switched in 2007 to a 6m t/y import terminal in Brindisi (Italy) on the Adriatic which is being built as a 50-50 venture for BG and the Italian power utility Enel. BG now is on the look out for firm buyers to take LNG from the third train. The Italian market will need 30 BCM per annum of additional gas within the next eight years.

The gas feed for the two LNG trains will be produced from the super-giant Simian/Sienna and Sapphire fields on the BG-operated West Delta Deep Marine Block, which boasts the largest gas finds ever made in Egypt. Other fields on this block will be developed to feed that additional LNG trains. BG's partners on this block are Egas and Petronas (see fields' profiles in Gas Market Trends No. 2).

Societe Generale is the financial adviser for ELNG. The French bank won the contract for this in 2001 against competition from other major banks. It has overseen impressive financing arrangements by Egyptian and international banks for the two trains.

BG has been the most active player on the spot market for LNG west of Suez. In 2003 it traded in more than 3.5 BCM of spot LNG and sold most of this to the US market. The spot market for LNG in 2003 rose by more than the 6% growth rate registered in each of 2002 and 2001 to 12.1 BCM. That was about 8% of total LNG trade worldwide of almost 157.7 BCM, compared to 7.8% of 146 BCM in 2002. The biggest importers of spot LNG in 2003, as in 2002, were Spain and the US.

BG in May 2001 signed a 22-year agreement with CMS Energy Corp., which operates the Lake Charles LNG terminal in Louisiana, to take over the facility. This is the largest LNG terminal in the US. From Jan. 1, 2002 BG took 80% of the terminal's capacity, as the remaining 20% had already been contracted out. The 20% will be handed over to BG on Sept. 1, 2005. BG is using this terminal to market its LNG in the US from Trinidad and Egypt.

The terminal can receive about 4.6m t/y of LNG, store, vaporise LNG and deliver an average send-out of 630 MCF/day of gas. It has access to 15 major inter-state gas pipelines, with BG having several options for the use of the terminal including physical trading of LNG cargoes. It will use its own LNG shipping resources for LNG from Egypt.

(Some experts say BG paid too much for the use of Lake Charles and that in this deal the British company then assumed that the price of natural gas in the US will remain in the $4.50-5/m BTU range for many years. While they doubt that gas prices in the US will rise again to 2000 and 2003 levels, other experts anticipate American capacity shortages in the energy sector will resume shortly after the US economic recovery gathers momentum from this year.

In mid-2001 BG ordered two new 138,000 m3 LNG tankers from Samsung Heavy Industries Co. of South Korea for delivery in the second and third quarters of 2004, respectively. In addition, it has secured options with the same shipbuilder for another six LNG vessels, three for delivery in 2005 and the other three in 2006.

Petronas, the Malaysian NOC which is becoming a global player and having the world's largest LNG complex at Bintulu, Sarawak, was the first Asian company to enter the Egyptian gas E&P and LNG businesses in April 2003, when it bought the assets of Edison Int'l of Italy for about $1.75 bn. Petronas is to market its share of the Idku LNG on both sides of Suez.

British Petroleum, for years the biggest oil producer in Egypt and the second biggest gas producer next Agip of ENI group, was until a few years ago leading the first LNG project ever to be conceived in this country. But this project has been stalled for lack of sufficient gas being produced by the major for export. BP's planned gas production of 1,200 MCF/d in 2004 is locked into Egypt's domestic market. It may take a few more years for BP to revive the LNG project. (BP is the main investor in Egypt's petroleum sector, with most of the money having been spent over the past 42 years by Amoco, the biggest oil producer in Egypt which was absorbed by BP in 1999).

BP holds 45% in the proposed LNG venture. Its partners in this are ENI (45%) and Egas (10%). Agip is the biggest gas producer in Egypt. The $2.5 bn project has been planned to have two LNG trains built at Damietta, with each to have a capacity of 4-4.5 BCM/y. ENI, like Amoco operating in Egypt since the early 1960s, formally joined the venture in March 2001, when the final commercial framework for plant construction and ownership was agreed. Basic engineering for the plant was done in 2001 by ABB group together with the local ENPPI and Petrojet. The JV's financial advisor has been Citibank. As was planned in early 2001, the first train was to be on stream in early 2005, with the gas feed to be purchased from Egas affiliate Egyptian Natural Gases Co. (Gasco).

The LNG was to be purchased by the inhouse gas trading units of BP and ENI -BP Gas & Power Upstream and Snam. With the LNG venture to have its own tankers, the two units were to sell the liquefied methane on CIF basis, mainly to Spain where BP has a growing market share, Botas in Turkey which was have an LNG receiving terminal in Izmir, and Italy. The second train was to be built as soon as demand for its output was developed in markets on both sides of Suez, with the two trading units to expand in the European Union and the Mediterranean.

BP has a global LNG unit now marketing brand LNG on both sides of Suez. It has gone to the Dominican Republic, where in 2001 it signed a 20-year agreement to supply 100 MCF/d of LNG to a unit of US power company AES for its local power generation projects. This is typical of the major's brand sales deals not linked to a specific supply source but to what it says "BP's ability to provide flexible, green and innovative solutions in LNG supply".

This is what Shell has done and BG and others have begun to do. BP has a major share in the Atlantic LNG business in Trinidad and Tobago, a rapidly expanding venture with a fourth train to boost its capacity to 14.2m t/y. Having a share in the power business and an LNG receiving terminal being built in the Spanish Basque country, BP is to build a $200m LNG import terminal in the port of Tampa, Florida, as part of its rapidly growing gas network in the US. BP has equity in an LNG terminal being built near Shenzhen in southern China, as part of its thrust into the Asian/Pacific markets, with the LNG to be supplied from its Indonesian plant - also under construction. BP has a MoU with the government of Andhra Pradesh, India, to have a stake in an LNG terminal and an IPP at Kakinada. With ENI's gas unit Snam to follow in its footsteps on both sides of Suez, BP is targeting important niche markets for LNG that lack scale but have specific needs. In addition, BP is leading the first of Iran's LNG export projects, with the US market to be targeted.

Each of BP, ENI (through its local unit IEOC) and Gasco has a third share in a two-train NGL plant being built in Damietta which will cost more than $310m. To be on stream in the third quarter of 2004, the plant will process 1,100 MCF/d of gas to produce 330,000 t/y of LPG, 280,000 t/y of propane and 1m t/y of condensates. Most of the gas liquids will be consumed locally, where demand for LPG and other liquids has risen rapidly. In late January 2001, when the JV agreement for this plant was signed, it was reported that Egypt was importing 800,000 t/y of LPG at the cost of $200m per annum.

The gas for this plant will be produced by the Mediterranean Gas Co. (MGC) which was formed in 1997 as a joint venture between EGPC (now Egas), Agip (IEOC) and BP to develop big gas fields in four offshore blocks: Temsah and East Delta Deep Marine blocs operated by Agip (IEOC), and Baltim and Ras El Barr blocks operated by BP. Gas production from the four blocks will reach more than 1,200 MCF/d by end-2004. BP-led GUPCO operates a $138m LPG plant in Ras Shukhair which went on stream in October 2001. This is processing 280 MCF/d of gas to produce over a 15-year period 1.1m tons of LPG, 3.9m tons of propane and 14m barrels of condensate, with the liquids also being consumed by the local market.

Apart from this, Egypt has 18 gas-processing plants and six LPG recovery plants producing 82 MCM/d of gas, 94,000 b/d of condensate, 1.2m t/y of LPG, 274,000 t/y of commercial propane, and 510,000 t/y of ethane/propane mix.