Jordan’s NEPCO issues mid-term LNG tender: analysis

Jordan’s state-owned National Electric Power Co (NEPCO) has issued a request for proposal (RfP) to be supplied with 59,130,000/MMBtu annually over a period of four years, starting 2016, according to a document it released on 23 July.

This equates to around 20 cargoes every year, depending on the calorific value of gas and the size of vessel used for delivery to the 160,000 cubic metre (cbm) Golar Eskimo, Jordan’s floating storage and regasification unit (FSRU) positioned in Aqaba.

Qualified participants must submit their bids by 2 September, with an award date expected by no later than 30 September.

While NEPCO prefers to receive the bids on the basis of the Brent crude oil price, it will consider other indices, including the Henry Hub and NBP benchmarks. It is up to the buyer’s discretion, however, to consider bids that are based on pricing mechanisms other than Brent.

The power producer’s existing five-year contract with Anglo-Dutch major Shell for 1mtpa of LNG is Brent-linked, ICIS understands. Deliveries from Shell started in July this year.

NEPCO relies extensively on crude-linked pricing formulae for its domestic markets, namely diesel and fuel oil. In terms of hedging its risk exposure, there is sufficient derivatives’ liquidity in the Henry Hub and NBP markets to support gas-indexed contracts.

However, an offtake agreement, which could underline a structured supply position to service a mid-term contract, is more likely to be linked to crude pricing than gas indices. This is likely to be the case for volumes offered from Middle East and Australian production as well as diversions from the Asian markets, such as China.

Gas indices, however, could come into play for bids made based on North American projects, reloads from Europe or by sellers with exposure to hub-linked markets and have opportunities to divert or optimise their existing long-term positions.

Requirements for bids

The validity period specified in the RfP is 28 days, which is consistent with the extent and timing of the tender.

All bidders are required to place a deposit of $1.4m as security. The deposit will be held as a bank guarantee for 35 days and refunded upon the award of the tender.

NEPCO also states that a performance guarantee bond will be required from a supplier 90 days prior to the first delivery.

According to the tender document, NEPCO will specify the exact amount of the bond only by 1 August. The bond has previously equated to about 10% of the cargo’s value.

NEPCO has also specified that the letters of credit included as supporting documents for the bank deposit and performance guarantee need to be issued by a Jordan-based bank with all the attendant jurisdictional and legal implications of such requirement.

As for the timeframe for the first delivery, NEPCO’s preference is as early as possible in 2016. Tender participants are required to use one of its proposed timeframes for their bids.

Participants can either submit a bid for the entire four-year period (2016-2019), or a bid covering the four years together with a separate bid for one of the two-year periods (2016-2017 or 2018-2019). They should not submit separate bids for the four-year period and two additional bids covering the 2016-2017 and 2018-2019 timeframes.

Cargo discharge clause

In its previous tenders, NEPCO specified that a preferred cargo size is around 151,500cbm, with a 2% quantity tolerance.

While its FSRU can accommodate a Q-flex vessel for deliveries, the volumes cannot exceed its capabilities for processing gas. For operational reasons, sellers will have to comply with the requirements of the annual delivery programme (ADP) specified in the tender documentation.

NEPCO has previously required potential sellers to demonstrate a history of having discharged of at least 10 cargoes since April 2014. However, ICIS understands that interested bidders who have not fulfilled this requirement can potentially use a representative to submit a bid for the new tender.

Some traders are expected to act as aggregators and place bids based on positions compiled from either one or several trading companies that could not participate directly because they are unable to meet the credit or cargo discharge requirements.

Potential participants, bid levels

Companies that are currently pre-qualified with NEPCO include: ACT Group, Bank of America-Merril Lynch, BB Energy, BG Group, BP, Cheniere, Chevron, ConocoPhillips, Diamond Gas International, EDF Trading, Enel, Eni, Excelerate Energy, ExxonMobil, Gas Natural Fenosa, Gazprom, GDF Suez, Glencore, Gunvor, Iberdrola, Itochu, Koch Industries, KOGAS, Marubeni, Mitsui, Oman LNG, Origin Energy, PetroChina, Petronas, RWE, Shell, Statoil, Total, Trafigura, Vitol and Woodside.

However, ICIS understands not all of these commercial entities have a master sales agreement in place with NEPCO and some do not have a history of sufficient cargo discharges to back their bid.

Traders active in the tender said bids are likely to range between 12.5% and 14.00% indexation to Brent, with a higher price for volumes closer on the curve. Some traders are also expecting diversions from China to be offered in the tender.

As Australian LNG projects in Queensland are expected to ramp up production by the first quarter of 2016, some sellers expect the market to soften then. This is likely to impact some bids placed in this tender. roman.kazmin@icis.com