BG Group Chosen to Supply LNG, Build Regasification Terminal

Chile's state oil company Enap has signed a letter of intent with UK gas company BG Group to negotiate contracts for the supply of liquefied natural gas (LNG) and construction of a regasification terminal in Chile's central Region V, Enap said in a statement.

Enap leads a pool of offtakers planning to buy gas from the regasification terminal, which includes local power generators Endesa Chile, AES Gener, Colbún as well as gas distributor Metrogas.

The offtakers formed the special purpose company Gestora del Proyecto GNL last year to manage a tender, in partnership with Citigroup Global Markets for the supply of LNG and construction of the terminal. Final bids were received on January 31 but the names of the bidders were not made public.

The agreement with BG was signed by Enap's CEO Enrique Davila, Endesa Chile CEO Rafael Mateo, Metrogas CEO Eduardo Morandé, and BG's Executive VP and managing director of South America, Rick Waddell.

AES Gener and Colbún, which were not present at the signing, have until March 31 to adhere to the agreement.

The period of exclusive negotiation will begin immediately and relates to the technical aspects of the project including the receiving terminal, pier, regasification plant and gas tanks as well as the commercial terms, Gestora del Proyecto GNL manager Antonio Bacigalupo told reporters on Wednesday.

Preliminary technical studies should wrap up within the next two months while more detailed studies should be completed by end-2006, at which point the companies will sign the final contract, Bacigalupo said.

The offtaker pool will buy at least 8 million cubic meters a day (Mm3/d) of gas from the project, which will initially have an output capacity of 9-10Mm3/d.

The offtakers will sign two contracts with BG: one for the construction of the terminal and the other for the supply of the LNG and its distribution to consumers, Bacigalupo said.

Although the exact details will be defined by the studies, construction is expected to begin in 2007 with operations starting in 2009, he said. The terminal's construction carries a price tag of roughly US$350mn.

Chile will secure LNG supplies from BG for 20 years from the date when the terminal in Quintero Bay starts operations, the statement said.

Consumers in the pool, the power generators in particular, had been concerned about signing long-term take-or-pay contracts for LNG supplies because their gas needs vary according to how often their thermoelectric plants are called on to generate power by central grid operator CDEC-SIC.

"The BG offer is very attractive and it gives the possibility of supplying us with LNG on convenient terms and also having a partner with a lot of experience with respect to the design of the terminal as well as the commercial aspect," Bacigalupo said.

Bacigalupo said that the fact BG has a wide global supply portfolio allowing access to many different supply sources will help improve Chile's energy security situation.

BG is a shareholder in liquefaction facilities in Trinidad & Tobago (Atlantic LNG) and Egypt (Egyptian LNG) and has long-term LNG supply agreements with Equatorial Guinea and Nigeria.

While the price of BG's offer was not made public, "the price of LNG has been falling consistently [in the last few months] towards levels closer to those originally projected," Davíla said in the statement.

Officials from both Enap and the government had said that the gas would likely cost US$4-5 per million British Thermal Units (MBTU). By contrast gas in the US - an alternative market for LNG producers - is currently selling at about US$7/MBTU, down from as high as US$15/MBTU last year.

Chile's President Ricardo Lagos told reporters in September 2005 that Chileans will pay more for their gas than they at present but pointed out natural gas will likely be cheaper than oil over the next 20-30 years, whatever the pricing scenario.

Lagos charged Enap in May 2004 with developing the LNG project to reduce the country's dependence on natural gas supplies from Argentina, which has restricted exports to Chile in the past two years to meet its own growing demand.

BG has operations in more than 20 countries on five continents throughout the gas chain, including two LNG regasification plants in the US. BG is currently building additional regasification plants in Wales and Italy, which are due to come onstream at end-2007 and end-2009 respectively.

"We have an excellent track record in South America. We will now begin detailed discussions to help realize this opportunity, to expand our activities into Chile and to become a major participant in fulfilling the country's needs for reliable long-term gas supplies," Waddell said in a BG statement.

BG Group is also exploring the possibilities of exporting natural gas to the US by means of a liquefaction project in Brazil, according to BG's website.

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