The government wants a larger piece of the pie because LNG is being sold at higher prices in the US instead of in Spain where the prices are lower, Williams said. When the original PSCs were signed, LNG was to be sold in the Spanish and US markets "where the prices at the time that these projects were conceived were very comparable," Williams said.
Since then the Spanish market has seen declining prices due to increased LNG supply sources and competition from alternative fuel sources, while the US market has faced higher prices.
So far in 2004 prices have averaged some US$5.66/mBTU on the US market, while in the Spanish market prices have averaged US$3.03/mBTU. The government alleges that the Atlantic LNG consortium has been diverting cargoes bound for Spain to the US instead to cash in on the higher prices.
"We have discovered that given the technology of the day, these cargoes are being diverted to the more lucrative US markets and are being supplanted by cheaper gas from other sources," Williams said.
However, the revenue that Atlantic LNG reports back to the government is the revenue as if it had gone to Spain, Williams said, adding: "We are about to seek to close that loophole, a substantial loophole."
Under the terms of the original contracts, there is a provision for the sharing of any premiums in excess of the contracted price. In addition, the parties are allowed to seek a "contract price re-opener" if the economic circumstances in Spain have "substantially changed" and the contract price does not reflect the value of natural gas in the end user market, Williams said.
Therefore the government "believes that there exists sufficient justification for the contracts to be revisited as there is scope for increased returns to this country," Williams said.
Atlantic LNG's Trains 1, 2 and 3 have a combined LNG production capacity of 10 million tons a year (mt/y), which will jump to 15mt/y with the start-up of US$1.2bn Train 4 in 2006. Atlantic LNG officials had no comment when contacted by BNamericas.
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