Egypt Begins LNG Exports To Spain.

Egypt's first LNG plant, located in Damietta, has completed test operations and is this week to begin loading an initial shipment to Spain. The LNG will be taken by Union Fenosa Gas (UFG). This is a unit of Union Fenosa (UF), Spain's third largest power utility having ventured into the gas business. UFG is owned 50% by ENI of Italy and 50% by UF.

The LNG plant consists of one train with an eventual capacity of 7 BCM/year. This is owned and run the $1.6 bn Spanish Egyptian Gas Co. (Segas), a JV owned 80% by UFG and 20% by the state-owned Egyptian General Petroleum Corp. (EGPC) and Egyptian Natural Gas Holding Co. (Egas).

UFG owns 4 BCM/year of this capacity. The rest is owned by EGPC and Egas. UFG Chairman Elias Velasco told Reuters on Dec. 3: "We expect to start selling gas (LNG) in the United States next year with some 0.6 or 0.8 BCM and start selling around 1 BCM in 2006". UFG expects to fill 34 LNG tankers from Damietta in 2005, he said. Most of the gas will be destined for industrial clients in Spain.

Construction of this train has been ahead of schedule. The first LNG shipment will leave Damietta on a UF tanker in next week 2004. The first gas will fuel UF's power plants in Spain. ENI bought the 50% UFG stake in early December 2002.

UF, with no previous experience in the LNG field, has been advised and represented in the LNG project by Foster Wheeler Corp. Two competing front-end engineering and design (FEED) studies were done in 2001 by MW Kellogg Co. and Chiyoda Corp., which bid but failed to win the EPC job. Citibank is UF's financial adviser for the project. A consortium led by SN Technigaz, a unit of Bouygues Offshore, in September 2001 got a $73m EPC contract to build two 150,000 m3 storage tanks at the 1.2m sq-metre site of the Damietta plant by mid-2004.

UF has ordered two 138,000 m3 LNG tankers, one from Daewoo in South Korea and one from AESA (Astilleros Espanoles) in Sestao, with each to cost about $155m. The first was delivered last week. The second will be delivered in early 2005. UF has also chartered two 140,000 m3 tankers, under 25-year contracts beginning from September 2004, from Spain-based ship owners Marpetrol-Knutsen and F. Tapias.

UF has a $240m LNG receiving and regasification terminal just built at Sagunto harbour, near Valencia on the Mediterranean, with a storage capacity of 450,000 m3 and LNG vaporisation capacity of 5 BCM/year.

UF, was the first to sign a 25-year gas purchase agreement with EGPC in June 2000. This was sealed at a meeting in Madrid between Egyptian President Mubarak and then Spanish Premier Jose Maria Aznar. It was the first LNG venture leader in Egypt to sign the EPC contract in December 2001, with the winner of the $1 bn job being a partnership of KBR, JGC and Tecnicas Reunidas of Spain. The EPC contract covered the first of two trains in Damietta, with each to have a capacity of 5m t/y, and the infrastructure which will reduce the cost of the next train. The LNG plant is based on the APCI's propane pre-cooled mixed refrigerant cycle process. Damietta, Egypt's second most important trading port where a free industrial zone is growing rapidly, lies at the eastern end of the Nile Delta, about 50 km north-west of Port Said.

UFG purchases the natural gas feed for the LNG plant from EGPC/Egas under a Brent crude oil-indexed pricing formula agreed in May 2004. The value of the natural gas has a price cap of $24/barrel. It had signed the supply contract in late 2003 for 4.4 BCM per annum for a period of 25 years starting from last September, when test operations began.

Output from the second train, to be on stream in 2007, will be partly used for UF's power plants in Spain and partly marketed in the European Union and the US. UFG intends to build up its gas marketing business in Spain and the rest of the EU, now that EU markets have been deregulated.