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LNG financing, supplies unsettled

Published:Friday | July 2, 2010 | 12:00 AM
Energy Minister James Robertson and Conrad Kerr of CLNG Jamaica (right) at a meeting with Gleaner editors on the liquid natural gas project, on Tuesday. - Ricardo Makyn/Staff Photographer

Jamaica is at least seven months away from a final deal on a floating liquid natural gas (LNG) platform and supplies lines for the new energy option, but investors in the project are already signalling that Trinidad is unlikely to be the supply source.

The Exmar consortium members said Tuesday that they will be going to the world market in search of the best price for the anticipated 1.2 million to 1.5 million tonnes of LNG it will need annually for the plant.

The consortium, which also includes Promigas of Colombia and CLNG Jamaica, a mix of Jamaican and American inves-tors, say they are yet to tie down financing of what is now estimated to be a US$600-million project.

Financial backers will want to know, said Conrad Kerr of CLNG, that the project has a secure source of supply for the 20-year deal being negotiated with Jamaica.

For now, the partners say they have piqued the interest of financiers Barclays, Deutsche Bank and Morgan Stanley, who are awaiting the final outcome of talks with Jamaica before firmly committing to any financing deal.

The consortium will absorb all the financial risk, with no backing from Jamaica, neither in the form of capital or loan guarantees, Energy Minister James Robertson affirmed.

Jamaica, however, has put $1 billion into the LNG plan, some of it funding from multilateral sources, according to Robertson and acting managing director of the Petroleum Corporation (PCJ) of Jamaica Nigel Logan.

Robertson, who along with the consortium members, met Tuesday with Gleaner editors, said the project is unlikely to enter its mobilisation phase before January 2011, but that the supply contracts should be tied down by yearend.

The contractor general's probe of the procurement process, including the role of former PCJ chairman Ian Moore - a director of CLNG - in the selection of the Exmar consortium, will not slowthe negotiations nor the project, Robertson said.

Engineering consultant Joe Fosella of CH-IV, whose company is advising Jamaica on the project, suggested that financiers would prefer open-market supply contracts, based on Henry Hub pricing.

But Robertson said that no decision has yet been made on LNG procurement.

"The government of Jamaica has entered no contract nor made any decision on gas supplies," Robertson told the Financial Gleaner.

"This is one of the decisions that will be made over the next three to six months ...".

Added Robertson: "So, the possibility of bilateral deals that may be open to Jamaica is still open. All the information will be put before the cabinet for a decision, which I can't pre-empt."

No clear signal

Venezuela has committed gas supplies to its PetroCaribe partners, if they need it, but there was no clear signal from the consortium about whether they would tap that source.

Jamaica has been trying since the late 1990s to bring LNG into its energy mix, but has faced set- backs initially linked to preferred partner Trinidad's inability to follow through on supply arrangements when its gas reserves ran low, and later waffling by the Bruce Golding administration about whether to stick with LNG or pivot to coal as replacement for some of the 25-29 million barrels of oil consumed annually in Jamaica.

Golding eventually replaced his original energy minister with Robertson, while reaffirming that the LNG programme was definitely on the table.

Earlier this year, former Trinidadian prime minister Patrick Manning said supplying Jamaica with LNG was a priority for his now-ousted administration.

However, the new Train X in the Gulf of Paria, from which the supply would be sourced, is still to be brought into production, in part because of the need to put the finishing touches to a gas-sharing deal with nearby Venezuela.

Fosella has stressed the importance of timing, saying that LNG is now a buyers market, allowing for the negotiation of good prices, with supplies of about 330 million tonnes currently outweighing demand.

LNG now sells at about US$4.50 per British thermal unit.

Supplies, he suggested, would outstrip actual requirement for perhaps the next decade.

But with the United States and other large nations debating their energy policies, in efforts to pivot from expensive and air-polluting oil towards clean-burning fuel, it is likely that the market for LNG could shift back to a sellers market.

While Fosella did not exactly spell it out that way, he suggested that the window now open to the consortium to cobble a good supply deal may not remain open much longer.

Robertson said Tuesday that Jamaica was on track with its renewable energy programme and that alternative energy, including wind and hydropower, would eventually replace 20 per cent of fossils by 2030.