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Corrected: Uncertainty surrounds Panama LNG import scheme

01 Aug 2013 14:58:57 | glm

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Correction: The ICIS article headlined: "Uncertainty surrounds Panama LNG import scheme" incorrectly attributed the claim: "The LNG import project's initial start-up has now been moved back from 2015 to late 2017" to Gunvor. A corrected story follows, including a clarification regarding the project timetable in the eighth paragraph.

A milestone in the development of an LNG import project in Panama was reached last week after Switzerland-based commodities trader Gunvor announced that it had agreed preliminary terms for a tolling agreement with a proposed greenfield US LNG export project, Magnolia LNG.

Yet, while the Gunvor agreement offers more certainty over future supply to the Central American country, the exact development timetable of the Panamanian infrastructure remains less well-defined.

Gunvor signed a heads of agreement with project developer LNG Group Panama in 2012, through which the Geneva-based company would advise on various design and operational options for the terminal, as well as offering future supply.

Under the existing proposals of LNG Group Panama, LNG import infrastructure would be constructed on Telfers Island, located in the region of Colon, at the Caribbean Sea entrance of the Panama Canal.

The terminal will be situated alongside a combined cycle gas turbine power plant, with initial capacity of 270MW, although further capacity expansion up to 580MW is envisaged for the future. LNG Group Panama subsidiary Panama NG Power recently won a government tender to supply over 500MW of power to the domestic market from 2017-2036 from the Telfers Island plant.

The LNG import project's initial start-up has now been moved back from 2015 to late 2017, according to a source close to the project.

"The idea is that the LNG import scheme will begin operations in the final quarter of 2017. The power plant is supposed to be generating power before that using natural gas, as we have all the PPAs in place," a source close to LNG Group Panama told ICIS.

According to Gunvor the LNG import project will be fully online before March 2017, in time to cover the power purchase agreement (PPA) which Panama NG Group has with the Panamanian government to begin selling 500MW of electricity by March 2017.

LNG Group Panama declined to comment on how gas could be supplied to the power plant before the completion of the onshore terminal. However, market sources suggest that the developers have already looked into bringing in a floating storage and regasification unit (FSRU) in order to fill the void.

Gunvor would also have to source LNG cargoes on the spot or short-term market until Magnolia LNG exports come on line. A final investment decision on the US export project is planned for the end of 2014, with first LNG production planned for late 2017.

Magnolia targeting FTA countries

Despite the loosely defined development plans for the Panama project, Magnolia LNG project manager Ernie Megginson told ICIS that the US project remains focused on supplying potential LNG buyers in the Americas. Particular interest is being paid towards countries such as Chile and Panama, or others in the Caribbean that fall under free trade agreement (FTA) status with the US and could be importing between 1mpta to 1.5mtpa in the near future.

"We're finding there's a niche opportunity out there in the smaller FTA and domestic markets. Those markets are too small for the big guys," he said.

Megginson said the $2.2bn project's backers decided to market solely on an FTA basis because of the project's status in the regulatory queue, although eventually the project expects to apply for non-FTA status. Magnolia is one of over 20 proposed projects looking to export LNG from the US, the majority of which are seeking approval to sell to both FTA and non-FTA countries.

The agreement reached last week between Magnolia developer LNG Limited and Gunvor covers the tolling arrangement by which the latter's Brightshore subsidiary will access 2mtpa over a 20-year period.

Magnolia LNG declined to comment on an exact tolling fee, although Megginson said the fee was considered competitive compared with the brownfield tolling fees of about $3.00/MMBtu from other US projects.

Market sources told ICIS that Magnolia's tolling fee was understood to be around $2.70/MMBtu.

The Magnolia project would be located in the US state of Louisiana, on Port of Lake Charles property on the Calcasieu river shipping channel, adjacent to the Lake Charles import terminal, also being developed as an export facility.

The 8mpta Magnolia project would utilise four trains of 2mpta capacity each. The second train is already in tolling negotiations, and a term sheet agreement is expected to be announced in the next few weeks, Megginson said. Train 3 marketing discussions are also about to commence soon.

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