Endesa acquisition revives interest in Chilean GasAtacama LNG project

Author: James Fowler

2014/04/02

The Chilean arm of Spanish power producer Endesa has taken control of local generator GasAtacama after reaching an agreement with Latin America-based investment fund Southern Cross to acquire a 50% stake at a cost of $309m.

Endesa already held 50% in GasAtacama, and the Spanish company now has complete control over the 783MW GasAtacama combined cycle power plant as well as associated pipeline infrastructure throughout the north of Chile and the northwest of Argentina.

Through the acquisition, which was disclosed in a statement to the Chilean stock market on 31 March, Endesa Chile also assumes control of plans for an LNG import terminal first proposed by GasAtacama in 2011.

The project envisages developing a floating storage and regasification unit (FSRU) off the coast of northern Chile, alongside the existing 1.5mtpa GNL Mejillones terminal owned and operated by Paris-headquartered GDF SUEZ and Chile’s state-run copper miner Codelco.

In July 2012, GasAtacama reached an initial agreement with Norwegian shipowner Golar LNG to provide an FSRU with a 10 million cubic metre/day send-out capacity on a 20-year charter for the terminal. However, since the signing of that agreement, progress in the project has halted, largely due to the uncertainty surrounding GasAtacama’s future ownership.


Potential advantages of FSRU

As a 50% shareholder in GasAtacama, Endesa was initially understood to be opposed to developing the FSRU terminal. But with full ownership, revival of the project is not completely out of the question for Endesa, according to one market source based in Chile.

Financially, development of the FSRU project makes sense to Endesa, given that it could supply natural gas to both the GasAtacama power plant and its own 245MW Taltal facility located on Chile’s central power grid without the use of Mejillones.

Besides the $48m/year rental costs of the FSRU established in the original GasAtacama-Golar agreement, Endesa would also have to pay for construction of a subsea pipeline – estimated at $25m – linking the FSRU to onshore pipelines, which it now owns.

In the longer run, this could prove cheaper than constantly paying the $2.00-3.00/MMBtu regasification cost plus storage charge levied by GNL Mejillones for use of the terminal through its new open access business model, the source said.

“The FSRU project could easily be revived, though it all depends on Endesa’s ambitions. If they are thinking longer term, then the FSRU project makes better sense. If you want gas now though it would be better to go with Mejillones,” the source said.


Possible delays remain

Frustrated at the lack of progress in talks with GasAtacama, Golar LNG is understood to have entered talks with other parties over delivery of the FSRU for alternative projects.

In its third quarter results release in November 2013, Golar LNG acknowledged that an alternative new-build FSRU may have to be considered for the GasAtacama project given the “indeterminate delays” involved in the Chilean project.

“It seems very improbable the FSRU project will go ahead now, given that the delays made it unlikely before Endesa’s purchase,” one market source said.

Question marks over the immediacy of Endesa’s gas demand have also led some Americas-based sources to doubt the feasibility of the FSRU project.

Endesa was understood to be among the companies close to signing a terminal use agreement with Mejillones, in order to supply Taltal once the facility’s existing turbine is converted to a combined cycle unit at the end of 2015.

With the GasAtacama power facility currently sitting largely idle, the Madrid-based generator may now look to bring forward moves to secure direct access to Mejillones.

LNG could be supplied to Mejillones as soon as next year through Endesa’s existing supply agreement with British portfolio supplier BG Group for the Quintero terminal, which includes an option for the generator to request the delivery of volumes to alternative points.

With GNL Mejillones already considering expansion of the terminal’s capacity to 2.5mtpa, sources believe there would be more than enough room for Endesa to supply its power generators through Mejillones.

“With Mejillones expanding, and the terms and conditions out in the open while the power capacity sits idle, there clearly is an advantage over using the existing facility. The FSRU project appears to have been strangled by Mejillones,” said the market source. James Fowler