Codelco eyes long-term Metrogas LNG diversions

21 April 2014  |  By: James Fowler

Chile’s state copper miner Codelco has taken its first step towards achieving consistent LNG supply for its mining operations in the north of the South American country after signing a long-term agreement with compatriot gas distribution company Metrogas.

Metrogas is expected to deliver volumes to the Mejillones terminal in northern Chile from 2016 as part of an extension to a recently announced, short-term supply agreement with the world’s largest copper producer, multiple Americas-based sources told ICIS.

Gas will be sourced by Metrogas through its existing supply contract for the Quintero terminal in central Chile with British portfolio supplier BG Group.

Under the amended terms of the supply agreement reached between the parties in 2012, Metrogas is able to divert volumes from Quintero to other Chilean ports.

“Metrogas will resell the gas to Codelco. The agreement is on a long-term period, and is based on the low price at which Metrogas buys LNG from BG Group, and the fact that they can decide between Quintero and Mejillones,” a South American source told ICIS.

A Metrogas spokesperson declined to comment on the nature of company’s future supply commitments with Codelco when contacted by ICIS. A Codelco spokesperson did not respond to requests for comment submitted by ICIS.

Although the exact volumes that Metrogas will send to Codelco are undefined, the Santiago-based gas distributor is already understood to have fully allocated its Quintero volumes for 2016 onwards.

Existing customers of the distributor will not see contracts up for renewal next year extended as Metrogas looks to guarantee supplies to Codelco, one Americas-based source told ICIS.

This includes the reallocation of at least two 160,000cbm cargoes a year provided to power generators on the country’s Sistema Interconectado Central (SIC) power grid. “[Metrogas’] lack of interest in extending current agreements indicates that they clearly have business in another area,” the source said.

Codelco will receive one cargo at the Mejillones terminal this year and next year through a contract announced with Metrogas earlier this year. The first cargo of the $100m deal is expected to arrive at Mejillones in May, and will be delivered by a BG-controlled vessel.

 

Northern power push

Codelco is one of three companies to have secured capacity at the Mejillones terminal as part of the new business model introduced at the facility last year. Under the new terminal use agreements, companies are free to regasify LNG at Mejillones sourced from suppliers of their choice in exchange for regasification and storage fees.

LNG brought into the facility by the mining company will be used to fuel the power demands of mining operations on northern Chile’s SING power grid. Local power generator E-CL and Australian mining and energy major BHP Billiton are the other companies understood to have reserved future delivery slots at the Mejillones facility.

While 12 of the 20 annual delivery windows are currently reserved for 2014 and 11 for 2015, almost all of the open slots have been booked out from 2016 onwards.

Codelco itself is currently proposing the development of a 750MW power plant close to Mejillones. Environmental approval for the project was received last year; however, questions remain over the mining company’s commitment to the project.

Codelco executives have previously said they would be open to passing the development and operation of the Luz Minera project onto another company in order to concentrate on its core mining business.

Cargoes sourced from Metrogas could be provided to Luz Minera, or a separate power generator on the SING grid, so long as they supply power to Codelco mines. The recent acquisition of a 50% stake in Chilean generator GasAtacama by the local arm of Spanish power giant Endesa opens up previously idle capacity on the SING grid, and could also provide an alternative power supply source for mining companies.

Elsewhere on the SING, BHP Billiton continues to press ahead with its own power generation project. The company awarded French engineering company Alstom a €100m ($138m) contract to deliver two gas turbines for the Kelar plant planned to sit alongside Mejillones, Alstom announced on 9 April.

Korean conglomerate Samsung Engineering has already been awarded an engineering, procurement and construction contract for the 517MW plant due online at the end of 2016.

BHP Billiton has held discussions with several LNG suppliers through 2013, ICIS understands but a firm supply deal for Mejillones has yet to be signed.

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