Atlantic LNG off the mark

by Emile Valere, Port of Spain, Trinidad.

Valued at US$1.5 billion, more than the annual budget of most Caribbean islands, it is hailed as the largest ever investment in the Caribbean.

Four major international energy- based companies and one regional state company on June 20 signed on the dotted line to give the much publicised Liquefied Natural Gas (LNG) plant the green light to commence construction in Trinidad. The agreement was the result of three years of planning and six months of intense negotiations between the plant managers Atlantic LNG Company of Trinidad and Tobago and the government.

Construction is expected to be completed by mid- 1999 and the owners forecast that the plant will provide US$6 billion in taxes and other expenditures to the local economy over its 20- year life span. This massive project has been described as a feather in the cap of the coalition United National Congress/National Alliance for Reconstruction government.

Not only is the project viewed as proof of investor confidence in the economy, but it promises to create jobs. The launch of the LNG plant was timely since Local Government elections were held four days following the signing ceremony. Shareholders in Atlantic LNG are: US- based Amoco Trinidad LNG B.V. (34 percent,) British Gas Trinidad LNG Limited of the UK (26 percent,) the Spanish Repsol International Finance B.V. (20 percent,) and the Boston- based Cabot Trinidad LNG Limited and the National Gas Company of Trinidad and Tobago (NGC), 10 percent each.

One of the incentives offered to Atlantic LNG is a 10 year tax holiday, said Atlantic's President, Gerald Peereboom. Some of the others include tax exemptions on certain pieces of machinery, which will be imported into Trinidad for the LNG plant. The contracts signed were: the LNG project agreement and an Environmental Indemnity Agreement between the Trinidad and Tobago Government and Atlantic; the Engineering, Procurement and Construction agreement between Atlantic and its US- based preferred contractor Bechtel; and a licensing agreement between Phillips Petroleum Company and Atlantic for use of the Phillips' Optimized Cascade process technology.

Amoco also signed a Principles of Agreement for Amendment of the 1991 Gas Sales Contract with Government and the state- owned National Gas Company of Trinidad and Tobago (NGC). Amoco Trinidad Oil Company, which will supply 100 percent of the gas to the first Atlantic LNG train for 20 years, has agreed to amend its 20-year gas supply contract, signed in 1991 with the NGC. Amoco is the major provider of natural gas in Trinidad and Tobago.

Energy Minister, Finbar Gangar said that based on negotiations concerning the LNG plant, Amoco will be selling natural gas cheaper to the NGC and saving the country US$40.7 million annually, a figure which has been neither confirmed nor denied by Amoco. Gangar declined to comment on the price, but promised that it will be "made public in the future" as soon as the Omnibus Agreement is laid in Parliament.

Taxpayers will earn US$3.124 billion from the upstream take from the sale of natural gas from Amoco to Atlantic, said Prime Minister, Basdeo Panday at the signing ceremony. Its downstream take from Atlantic will start after Atlantic's first ten years of production, when the tax holiday expires.

Panday estimates government's discounted take to reach US$276 million for the following 10 years. Atlantic LNG has also agreed to secure a minimum of US$100 million of local content, effective as of the date of execution of the Agreement and Project authorization. The LNG company has also agreed to establish a Skills Development Centre by the NGC on behalf of government, to develop skilled labour in the energy industry. Atlantic will pay US$8 million to the Centre and commit an additional US$250,000 annually for 20 years beginning in the first year of LNG sales in 1999.

"In the event that this commitment is not met, the Atlantic LNG Company has agreed to make an additional contribution of US$3 million to the Centre," said the Prime Minister. The plant is also expected to make 2000 temporary jobs available during construction and provide 150 permanent positions when it is completed. The LNG plant alone will cost an estimated US$1 billion. But Peereboom says, taking into account the construction of all the plant's facilities in Point Fortin- southwest Trinidad- plus the development of Amoco's offshore gas reserves on the southeast coast, running a pipeline to the shore and stretching that pipeline across the island to the LNG plant, the actual investment should reach about US$1.5 billion.

Initial funding for the plant's construction will be drawn from the shareholder's equity but, the overall project financing, which stands at US$600 million, will be organised by ABN Amro Bank N.V., Barclays Bank plc and Citibank, N.A. says Peereboom. "We hope to have the financing package in place by September 1996," he says. Cabot Corporation has agreed to purchase 60 percent of the offtake and supply markets in the northeast United States- New England- and Repsol's affiliate, Enagas, has signed to purchase the remaining 40 percent to sell it on the gas grid in Spain.

Cabot is the largest LNG importer to the United States. Enagas holds exclusive concessions from the Spanish Government to own and operate that country's natural gas network. Atlantic LNG is expected to produce three million tonnes annually and use 400 million cubic feet of natural gas per day.

"We have now reached the point where all the planning, designing, contracting and negotiating will be turned into implementation and construction," said Peereboom. "We have come a long way in a very short period of time because historically, the period between conception and first production of LNG is 14 years. This project will only have taken six and a half years when the first LNG tanker leaves in mid-1999."

This is the first LNG plant to be built in the Western Hemisphere in the past 25 years and the first greenfield project in the past ten years, notes the Atlantic president. Martin Houston, General Manager of British Gas (Trinidad) adds, "Trinidad and Tobago will soon become the tenth LNG producing country in the world, in a small but very exclusive club of LNG exporters." He said British Gas is interested in supplying natural gas for a possible second train of the LNG plant but the shareholders have not yet decided if or when they will plan a second train for the LNG plant.

"The Atlantic facility has been designed, planned and located so that additional production trains can be added as market demand for LNG increases," says Peereboom.

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