Uruguay project delayed until late 2016 as supply talks re-open

Source: Heren

2015/03/25

Ongoing financial issues with a subcontractor lined up to develop the onshore infrastructure for Uruguay’s first LNG import facility are likely to delay start-up of the project until late 2016, sources in the Americas told ICIS.

The postponed start-up may also lead the project’s two offtakers - Uruguay’s state power utility UTE and oil refiner ANCAP - to restart the supply negotiation process after nearly three years of conversations with international LNG providers.

The 2.5mtpa GNL de la Plata project had been expected to begin operations in July. However, financial problems surrounding OAS, a Brazilian engineering subcontractor, initially saw the scheme postponed until early next year.

Market sources now say that the project is unlikely to begin operations until the end of next year, timing with the arrival of a purpose-built 263,000 cubic metre (cbm) floating storage and regasification unit (FSRU) currently under construction by Tokyo-based shipowner Mitsui OSK Lines (MOL).

Paris-based GDF SUEZ was selected by Uruguay’s government to provide and operate the LNG terminal through a 20-year contract awarded in 2013. GDF SUEZ originally planned to use the 145,000cbm GDF SUEZ Neptune, a conventional carrier vessel, as a bridging FSRU for the terminal’s initial start-up until the newbuild was delivered.

The mid-2015 start-up date had been selected to coincide with the start of the southern hemisphere winter peak demand season.

Power utility UTE is understood to have reserved the majority of capacity at the terminal in order to meet power demand in times of peak consumption.

A source close to the company stressed that the company will have sufficient alternative supply sources to meet winter demand without the GNL de la Plata project, while gas consumers around Uruguay’s capital Montevideo will continue to be supplied with alternative fuels by ANCAP.

Construction on maritime infrastructure and the pipeline linking the FSRU site to the Cruz del Sur pipeline which connects Uruguay to neighbouring Argentina remain on track to be completed this year, the source added.

However, pressure remains on the Gas Natural Licuado del Sur (GNLS) consortium, composed of GDF SUEZ and Japanese trading company Marubeni, to settle the OAS issue and complete construction of onshore infrastructure in time for next year.

“The issue is there for GNLS to sort out themselves, however, for the offtakers, the arrival of the new FSRU marks the ultimate deadline for the project,” a source within Uruguay told ICIS.

A spokesperson for GNLS told ICIS that the company had terminated its contract with OAS earlier this month, and has already launched a new call for bids for a replacement sub-contractor. The consortium aims to deliver the project by November 2016, the spokesperson added.

OAS could not be reached for comment.

Supply talks

ANCAP and UTE are understood to be re-opening talks over long-term supply for the project in light of the delays to the project’s start-up.

The companies were understood to have lined up a preferred supplier in late 2014, after narrowing down the list of interested companies to a shortlist of three companies earlier in the year through a negotiation process which began in 2012.

However, a new selection process is understood to have begun from scratch, one source in the Americas told ICIS, a move which coincided with the delay, and the election of a new government in Montevideo.

A separate source suggested the falling price of oil may also have led the companies to seek alternative contract terms.

As the supplier of the regasification infrastructure, GDF SUEZ is still considered one of the favourites to provide LNG for the project, according to market sources. Interest has also been heard from Japan’s Mitsui, UK-based BP and Swiss trading company Trafigura.

The FSRU will have an initial send-out capacity of 10 million cubic metres (mcm)/day, exceeding the South American country’s maximum demand by around 6mcm/day, according to the estimates of Uruguay’s government. ANCAP and UTE are therefore understood to be considering potential pipeline and small-scale LNG re-exports to neighbouring Argentina and Brazil as a means to underwrite investment in the project. James Fowler