OMAN - LNG Marketing.

Shell spearheaded efforts to market the LNG years before construction of the LNG plant. The leader in the world's LNG business, Shell went through all possible markets. It approached more than 30 potential buyers on both sides of Suez, with its marketing effort begun even before Shell and the Omani oil ministry first presented the venture at the APS Annual Conference in Larnaca in late September 1993.

On Oct. 23, 1996, OLNG finally signed a 25-year sales and purchase agreement (SPA) with South Korea's gas utility, Korea Gas Corp. (Kogas). This involves the supply of 4.1m t/y, with shipments having started in April 2000. Kogas, then 85% owned by the Seoul government and the only company in that country allowed to import LNG, committed itself to a clear take-or-pay clause. That followed OLNG's acceptance of the following terms: (a) the LNG is being lifted on fob basis in South Korean tankers; (b) the fob-Qalhat price was good enough for Seoul to put its weight behind the venture; and (c) a South Korean stake in OLNG.

On Feb. 27, 1997, a consortium of Kogas, Samsung, Hyundai, Daewoo and Yukong got the 5% stake in OLNG. The Omani government retained its 51% share. Shell cut its share from 34% to 30%. Total reduced its stake from 6% to 5.54% and Itochu cut its share from 1% to 0.92%. Mitsui and Mitsubishi cut their shares from 3% to 2.77% each. The Portugal-registered Partex retained its 2% equity.

On Oct. 5, 1997, after efforts by Shell since 1993, OLNG signed an MoU with Osaka Gas  for the sale of 700,000 t/y of LNG over 25 years, with deliveries beginning in November 2000. The two parties signed a "fully termed" 25-year SPA on Oct. 26, 1998. The LNG now is taken on fob basis, with Osaka Gas having acquired a tanker for the purpose and having developed a brand LNG business on its own.

In 1998, a 21-year SPA was signed for OLNG to supply 1.6m t/y to Enron-led Dhabol Power Co. (DPC) in Maharashtra, India. But before the first LNG cargo to Dabhol was to take place in December 2001, Enron collapsed in the biggest bankruptcy case in US history. Enron had signed a "master agreement" with LNG in mid-2000 and the deal called for six cargoes, each with 87,000 CM. Enron took two cargoes. A master agreement is similar to SPA. Shell had anticipated trouble in India long before Enron's Dhabol venture went sour due to a conflict between it and the local government of Maharashtra. In November 2001, the Omani government bought out Enron's 40% share in the new LNG tanker Lakshmi, a purpose-built carrier to supply the Dhabol power plant. The Omani government also took over from DPC the rights as a charterer of the tanker.

To fill the gap resulting from Enron's collapse, OLNG sold most of the 1.6m t/y on spot basis to several companies including Gaz de France (GdF) which in March 2002 took delivery of the first of nine 138,000 CM cargoes which it purchased on ex-ship basis CIF-Montoir-de-Bretagne terminal and the last delivery took place in December 2002. OLNG had also sold one spot cargo to the US in late 2001.

In March 2002, OLNG signed an agreement with Shell Western Supply & Trading for the latter to take 700,000 t/y on fob basis over a period of five years, with the LNG delivered to the Spanish market by Shell-owned tankers. The remaining 1.5m t/y of LNG available for short-term or spot sales in 2002 went to BP (698,000 tons to Spain); Gas Natural of Spain (117,000 tons); Kogas (183,000 tons to Korea); and Total (61,000 tons to Belgium).

In October 2002, OLNG signed a spot deal to supply Tokyo Electric Power Co. (Tepco) with 120,000 tons to meet winter shortfalls. Tepco is the term client for most of Abu Dhabi's (ADGAS) LNG output.

On Nov. 4, 2002, Total signed a contract to take 600,000 t/y on CIF basis in six monthly cargoes starting from March 2003. The LNG cargoes were carried by Lakshmi. Three of them went to CMS' Lake Charles terminal in Louisiana, and one each went to Barcelona, Montoir and Zeebrugge terminals. This was part of brand LNG trading operations developed by the major.

On Nov. 14, 2002, London-based Tractebel LNG signed in to take 600,000 tons from March 2003 to March 2004 for the US, European and Asian markets, where the Belgian company had developed brand LNG trading operations. For the ten cargoes, Tractebel was using two newly-chartered tankers, Hoegh Galleon and Excalobur.

On Nov. 25, 2002, OLNG signed a contract to sell 1.8 BCM of LNG to Spanish utility Union Fenosa Gas (UFG) for delivery in 2004-2005. In May 2002 UFG had signed a 20-year SPA to buy 50% of the output of the third LNG train, and become a partner in that venture (see below).

On June 2, 2003, BP Gas Marketing and OLNG signed a flexible agreementunder which BP was to take up to 4m t/y of LNG over a six-year period from 2004. It was thus agreed for 12 cargoes per annum to be delivered on ex-ship basis for the European market, mainly CIF-Spain. The final SPA was signed in November.

BP Gas and Power is considering another deal to source of LNG from Oman to supply UK customers. Business Development Manager David Thomas said in late November 2003 BP was just floating the idea, after BP announced plans to have an LNG terminal built in the UK.

Also in June 2003, OLNG signed a two-year agreement to supply NGLs to Mitsubishi Corp. Mitsubishi later chartered the NGL ship Belisaire to carry 20-24 cargoes of 180,000 tons each from the OLNG plant to Japan. This was the first time the Japanese trading giant, a shareholder in OLNG, bought NGL from the company. In June 1999, Total and OLNG signed an 18-month SPA for the French major to take 130,000 tons of NGLs produced by the LNG plant. The first cargo was taken in April 2000.

In November 1999, Oman LNG and Coral Energy signed an SPA for 11 LNG cargoes, each of 125,000 CM, to be sent to CMS Energy's terminal in Lake Charles. But the cargoes were later cut to two after an agreement in February 2000 to sell 17 cargoes to Enagas in Spain at a higher price. Houston-based Coral, a Shell affiliate, is among the five largest wholesale gas marketers in North America.

In June 2001 Oman LNG signed master agreements, for short-term sale of surplus LNG to Europe and the US, with GdF, Total, BP, Shell, and three US firms - CMS Energy, Sempra and Cabot LNG. For Shell, BP, Total and GdF, deliveries were to feed their global brand LNG businesses, which had been pioneered by Shell.