The Gas Keeps Coming

Qatar

Economic News

22 Jul 2010
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Qatar Petroleum and ExxonMobil passed a significant milestone last week with the official signing of the engineering procurement and construction (EPC) contracts for the QatarGas II project; a $12bn undertaking described as the world largest liquefied natural gas (LNG) project to date.



“This is the biggest project in the history of the hydrocarbon industry,” Second Deputy Premier and Energy and Industry Minister Abdullah bin Hamad al-Attiyah told the press at the signing.



The EPC contracts are for the offshore and onshore facilities of the joint venture that will supply LNG to the UK by early 2008.



The onshore facilities contract comes with a price tag of around $4bn and was awarded to a joint venture between Chiyoda and Technip to build two 7.8m tonnes per annum (MTA) LNG liquefaction trains. Al-Attiyah signed the document along with Chiyoda’s CEO, Nobuo Seki, and Technip’s senior executive vice-president, Jean Deseilligny.



The trains will be built at the Qatargas site adjacent to the existing Qatargas LNG plant, which has been operating since 1996 at the Ras Laffan Industrial City. The feedstock will be sourced from Qatar’s North Field, which has proven natural reserves in excess of 900 trillion cu feet, 9.3% of the world’s proven reserves.



“We are very proud to play such a significant role in helping Qatar to meet its long-term goals,” explained Mr Seki. “We have a long and cherished history in Qatar going back over 28 years and we will continue to do everything possible to make this project a success.”



The gas will be borne to the new liquefaction trains via the offshore facilities that will be provided under a $500m contract by the National Petroleum Company of the UAE. The facilities involve the construction of three wellhead platforms and two pipelines leading to the onshore facilities.



Also present on the dais were Qatar Petroleum (QP) board member and Qatargas vice chairman, Faisal M al-Suwaidi, ExxonMobil director and executive vice-president, Harry J Longwell, and BNP Paribas regional director for energy, commodity, export and project finance, Christophe Mariot.



“The award of EPC contracts is a highly significant step in Qatargas II’s plans to bring LNG to the UK market,” reflected al-Suwaidi, “We have now awarded contacts for the four key physical elements of the value chain: the offshore facilities, the LNG trains, the ships and the receiving terminal.”



The orders for new LNG tankers to bear the gaseous wealth to their destination were placed in the second week of November this year. Three South Korean shipyards were commissioned to build eight state-of-the-art tankers that will be 50% larger than conventional LNG ships. Daewoo Shipbuilding and Marine Engineering will produce four 210,000 cu metre tankers at a cost of around $875m, while Hyundai Heavy Industries and Samsung Heavy Industries took orders worth around $450m to build two vessels each.



The facilities at the receiving terminal were also contracted out in the second week of November and the Chicago Bridge and Iron Company was awarded a lump sum turnkey contract for around $700m to build a grassroots LNG import terminal in Milford Haven, Wales. The facility will be operated in a 70-30 split by South Hook LNG Terminal Company Ltd., a British company owned by Qatar Terminal Company Ltd., and ExxonMobil Qatargas II Terminal Company Ltd.



Paying for all these new developments was also a cause for back-slapping at the signing as the announcement came that $7.6bn of the financing agreements have been met for funding the expansion.



Involving 57 lenders in the world’s largest ever energy project, financing the agreement involves a bank facility, an Islamic finance facility, export credit funding and an ExxonMobil facility. Although it is early days, it is likely that as the project nears completion, the lenders may refinance the loans and investors will see some bond issues coming from the project.



“Bond investors tend to be short term in the maturity that they are looking for,” BNP Paribas’s Christophe Mariot explained to OBG. “Pre-completion wrap-up is more of an issue for them, whereas the banks can be more aggressive; they know the shareholders, they know the contractors pretty well and so it’s easier for banks’ debt to be repaid pre-completion. After a while though, the borrowers will get together with some others and go for a rating; then after a few years, generally one or two after completion, they’ll go for a bond issue. They’ve done this for RasGas extremely successfully.”



The pricing and terms were competitively bid – resulting in some quite attractive rates for the borrowers and reflecting the confidence of the lenders. Plenty of liquidity in the region due to hydrocarbon prices and a tendency to keep money locally since September 11, 2001, has meant some liquidity being raised for billion dollar projects at around 50 to 60 basis points. In the case of the Qatargas II finance, the rate is 40 basis points pre-completion, which Mariot sees as a result of the Qataris’ reputation.



“They have an impeccable track-record,” he continued. “In my six years here, they’ve never missed a target; they’ve always been a re-assuring lender of quality and keeping tight scrutiny of progress, so they have this credibility.”



The increasing world demand for LNG should keep the creditors happy for years to come, but jubilation about the size of the project won’t last long; Qatargas III is already on the drawing board and promises to trump its little brother.

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