QatarGas-II Contracts Signed; $4 Bn Plant Goes To Technip/Chiyoda.

Qatar Petroleum (QP) and ExxonMobil on Dec. 15 signed finance and EPC contracts to move ahead with their $12 bn integrated QatarGas-II project which will export LNG to Britain. QatarGas-II is one of the world's largest LNG export ventures. The deals flesh out an initial agreement for the project which was signed in 2002.

The new contracts include $7.6 bn finance arrangements, an EPC contract to build two trains at QatarGas-II as well as finance for an LNG import terminal which will be built at South Hook in Milford Haven, southern Wales. The terminal, including a re-gasification facility, will be built by Chicago Bridge & Iron under an EPC contract signed last month.

Britain is to start importing LNG, gas cooled for transport by tanker, from next year as its North Sea gas supplies have started to dwindle. Competition to import gas into Britain, one of Europe's main gas markets, is hotting up. A consortium including BG Group of the UK is building an LNG import terminal, also at Milford Haven, to bring in gas from Egypt. Another plant being built in south-east England will import LNG from Algeria. The UK is already importing crude oil from abroad, as production at its sector of the North Sea has declined.

Egyptian LNG (ELNG), led by BG Group of the UK, is in an advanced stage of negotiations on a third LNG train to be built at Idku, just east of Alexandria, which is being turned into one of five gas hubs the British major is developing around the world. Most of the third train's output will be shipped to the UK (see gmt24cDec13-04)

Qatar's Energy and Industry Minister Abdullah Bin Hamad Al-Attiyah, who is also a deputy prime minister, on Dec. 15 told a news conference: "The QatarGas-II project is a major achievement that will provide the UK with a significant additional source of natural gas".

QatarGas-II is expected to begin exporting LNG to the UK in late 2007. The two LNG trains at QatarGas-II, designed to produce 7.8 million tons/year each of LNG, are the largest in the world. A partnership of French oilfield services and engineering group Technip and Chiyoda Corp. of Japan was awarded the $4 bn EPC contract to build Trains 4 and 5 at the QatarGas complex in Ras Laffan.

The contract is double the $2 bn value estimated earlier in the year and is considered to be the biggest single award in Qatar's history. Technip and Chiyoda were competing for the EPC contract against a consortium of JGC Corp. of Japan and Halliburton's unit Kellogg Brown & Root (KBR) of the US.

The contract price increased because the costs of metals and other materials, as well as insurance an manpower, required for the two trains have risen and, at the same time, the number of qualified international EPC contractors willing to bid for Middle East projects has decreased.

An equally important factor is that the contractors are no longer willing to wage price wars against each other - as they used to do in the 1990s - to win projects. In the Middle East now, there are more projects requiring EPC contractors than the other way around. Another factor is the high level of oil prices and income of states which own such projects and which insist on having the most qualified EPC contractors possible.

Train 4 is scheduled for start-up in late 2007. Train 5 should be on stream by August 2008. Both schedules correspond to LNG delivery timetables are the receiving end. The trains will use technology supplied by Air Products of the US.

Qatargas-II, which has established several affiliates to manage the various parts of its integrated project, is a joint venture between state-run QP with 70% and ExxonMobil with 30%. Qatar, with the biggest gas deposit found to date - the North field - will become biggest LNG producer and exporter by the end of the decade.

For the upstream element of QatarGas-II, Abu Dhabi's National Petroleum Construction Co. (NPCC) has the $500m North field platform and pipeline contract. Technip will also assist NPCC on its EPC platform contract, providing engineering and procurement services to the main contractor. The contract covers three wellhead platforms, with two-phase separation, the two export pipelines, intra-field pipelines and extensive cabling. The two other bidders for the three-year-plus contract were Saipem of Italy and Jebel Ali-based J Ray McDermott Middle East.

The EPC plant and platform contracts followed the awards of the $160m Ras Laffan storage tank order to Ishikawajima-Harima Heavy Industries (IHI) of Japan in October and the UK terminal to Chicago Bridge & Iron in November.