OMAN - Oman LNG Nets Huge Profit; 4rd Train Would Raise Exports To More Than 14M T/Y.

Oman Liquefied Natural Gas Co. (Oman LNG) has made almost $4 billion in net profits since it began exports in 2000 - this has covered all costs paid for developing reserves of natural gas dedicated for the venture and for building its two LNG trains. With the LNG business having proved to be so profitable and an income relatively more stable than revenues from crude oil, Oman's third train went on stream in late 2005 and its capacity is 3.7m tons/year. The first two trains have been de-bottlenecked so that total LNG exports has been raised to more than 10m t/y. A fourth train being considered would raise LNG exports to more than 14m t/y before mid-2010 - provided that the state-controlled Petroleum Development Oman (PDO) will have found enough reserves of natural gas to feed it at least for 25 years.

It will take less than two years for a fourth train to be built. So if from now to early 2008 the additional reserves required have been found, the fourth train should be ready by early 2010. As in the case of the third train, which is owned by a firm different from OLNG, the fourth train can be owned by a different company to include a major buyer whose commitment to a sale and purchase agreement (SPA) is bankable.

Qalhat LNG SAOC (QLNG), which has the $700m third train operated by Oman LNG, is a company owned 55.84% by the Omani government; 36.8% by Oman LNG; and 7.36% by Union Fenosa Gas (UFG), the Spanish gas utility which under a 20-year SPA is committed to take 1.65m t/y of its output. UFG, a 50-50 JV of ENI of Italy and Union Fenosa, a fast growing power utility having made huge profits from the LNG, pipeline gas and power businesses, took the first shipment from QLNG aboard the Omani methane tanker Sohar LNG in December 2005. The QLNG train was built by Chiyoda Corp. of Japan and Foster Wheeler of the US, a partnership which had built OLNG's two trains.

QLNG has come on stream at a time when LNG spot prices in the US at times rose above $15/m BTU, more than three times their level in 2000. If spot US prices remain high through to 2008 or beyond, there will be every incentive for the Omani government and Shell, the operator for PDO, to accelerate the latter's gas exploration and find the reserves required for the fourth train. Shell is happy to have just found new oilfields in the north and south of Oman (see omt7OmanExportsFeb13-06).

The Omani government's share in OLNG being 51%, its direct and indirect stakes in QLNG come to 74.61%. As Shell owns 30% of OLNG (see profile below, its interest in QLNG comes to 11.04%. Shell plays an important role in both ventures at various levels, being the technical manager of OLNG. Shell Global Solutions Int'l has supplied the project management team for the third train, meaning it has been and will remain the de facto operator through OLNG. QLNG JV was created in March 2003, and the final shareholders agreement and an accord to share Qalhat facilities were signed on Sept. 16, 2004. Thanks to Shell's huge and diversified resources, OLNG and QLNG are saving considerably in operating costs as they share the facilities at Qalhat, including the terminal and storage tanks.

These include a state-of-the-art, deep sea LNG terminal built at Qalhat, near Sur and south-east of Muscat. The terminal is fitted with sophisticated loading equipment. Together with additional facilities installed already, the terminal can handle LNG tankers of up to 147,000 CM.

Both OLNG and QLNG are already sold out, having secured long-term offtakers for the name-plate capacities of the three trains, as well as short-term and spot buyers of surplus LNG which should average about 900,000 t/y or more. A further de-bottlenecking of the first two trains and of QLNG would raise the volume of surplus LNG to more than 1.5m t/y by late 2007 or before.

Oman Shipping Co. (OSC) is to become an international shipping combine. It will have its own fleets of oil and LNG tankers as well as vessels to carry other Omani exports including petrochemicals. In partnership with Mitsui OSK, OSC has acquired four 145,000 CM LNG tankers (Ibra, Ibri, Nizwa & Salalah) to carry QLNG output and two other vessels to carry OLNG sales.

In June 2005 OSC signed an accord with NVK, K Line and Osaka Gas, all of Japan, for ownership of a seventh LNG tanker. OSC has 40% in this, with Osaka Gas holding 51%, NVK having 6% and K Line having 3%. OSC had previously signed agreements to acquire a VLCC and a vessel for petroleum products. Later in 2005 OSC and Mitsui OSK signed an agreement, together with Oman's Economy Ministry, for setting up a Panama-registered company Energy Spring, which was to own their 50-50 tanker, Sohar LNG. The latter vessel carried the first 135,000 CM shipment from QLNG to UFG in Spain last December. OSC and its partners will have an eighth LNG tanker, 145,000 CM, to be delivered shortly.

QLNG's term clients from the beginning of 2006 include UFG for 1.65m t/y for 20 years; Mitsubishi Corp. for 08m t/y for 15 years; and Itochu for 0.7m t/y for 20 years. QLNG has secured Osaka Gas to take 0.85m t/y for 17 years from 2009, and other companies buying its surplus output on short-term basis. The three Japanese clients have also acquired stakes in some of the LNG tankers.