September 22, 2020

Caribbean FLNG plant will weather the oil price storm


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PACIFIC RUBIALES ENERGY CORP. - Pacific Rubiales and GazpromBy Chris Noon From Interfax

The world’s first floating LNG liquefaction plant will begin operations in Q2 2015 as scheduled off Colombia’s northern coast – and will be economically viable despite the oil price rout, its developer has told Interfax.

“The construction of the floating liquefaction and storage unit is underway in China, and is 92% completed,” Peter Volk, a general counsel for Canada-based independent Pacific Rubiales Energy, told Interfax on Tuesday. He confirmed the plant would be economically viable.

Pacific Rubiales – the largest independent oil and gas company in Colombia – signed a preliminary deal with Gazprom in November 2013 to sell 0.5 mtpa of crude-linked LNG from the plant to the Russian giant. Interfax understands the plant will export about 175 million cubic metres per year (MMcm/y) to Caribbean and Central American markets, with at least seven Caribbean countries pursuing gas import schemes.

“As of September 2014, basic and detailed engineering for the gas pipeline and the offshore jetty has been completed. Port concession terms for the LNG terminal have been released, clarifications have been resolved to [Colombia’s environmental regulator] ANLA about the environmental permits for onshore pipelines and are expected to receive a positive response,” said Volk.

The news is a boost for Colombia as Latin America struggles to adjust to the low oil price environment. It is still uncertain if Mexico will hold its inaugural competitive bid round, known as ‘Round One’, in mid-2015 as planned.

Analysts have reported waning interest in the country’s gas, unconventional and heavy oil prospects – all as a result of low oil prices (see Mexico’s grand opening could be a damp squib, 19 January 2015).

Bidding postponed

Uruguayan state-run company Ancap said last week it could postpone its third bid round because of the oil price plunge, while Premier Oil said it would delay exploration in the Falkland Islands until crude levels recover.

Brazilian authorities denied earlier this week that the country’s 13th oil and gas bid round will be delayed because of lower oil prices (see No bid round wobble, says Brazil, 20 January 2015).

Pacific Rubiales shares also hit a five-year low last week, prompting concerns that the producer – a bellwether for the Colombian economy – would struggle to endure the oil price shock.

At the time of publication, the company’s share price on the Toronto bourse was C$3.58 (US$2.96) – down by 83% from April 2014.

Investors have also been concerned that the company is struggling to develop new fields and manage debts of $4.5 billion.

Lower returns

Despite the company’s optimism over the FLNG plant, its returns from the project are likely to be lower than originally expected.

Pacific Rubiales Chief Executive Ronald Pantin told analysts in an earnings call in November 2013 the company’s free-on-board contract with Gazprom was “a very good price based on Brent” and the agreement “may double” the company’s gas netbacks.

Benchmark Brent crude averaged $108 per barrel in November 2013, but was trading at $48.45/bbl at the time of publication.

Volk refused to share further details of the company’s agreement with Gazprom for the export plant, saying the deal was confidential.

“We only have a contract to supply Gazprom with LNG cargoes. Gazprom has the direct relationship with the customers,” he said. At the time of publication, Gazprom had not returned calls seeking comment.

“Colombia’s best LNG customers are large-portfolio LNG players who aggregate supply from multiple sources, sell their inventory to multiple destinations and then optimise the flow of LNG between the two,” Jed Bailey, managing partner at Latin America-focused consultancy Energy Narrative, told Interfax last year.

Despite the choice of a so-called ‘portfolio player’, Bailey said the Pacific Rubiales project was relatively small for a liquefaction facility, suggesting it would be well-suited to supply the region’s fledgling LNG market.

This would make Panama, El Salvador, Jamaica and Haiti – which have all proposed regasification projects – likely future customers for Colombian LNG. Existing LNG import terminals in the Dominican Republic and Puerto Rico will also provide demand.

Pacific Rubiales produces gas from La Creciente – Colombia’s second-largest non-associated gas producing field – and the neighbouring Guama concession, around 100 km to the east. The company is also exploring nearby prospects.

The company is building an 88 km pipeline, with initial capacity of 28 MMcm/d, to the offshore floating liquefaction barge. Pacific Rubiales said in December 2013 it would cost around $180 million to complete the project.

Colombia – which will become South America’s second LNG exporter after Peru – is also set to become an LNG importer this year, with plans for a regasification terminal in Cartagena to supply local power plants, which are under construction.

The $500 million project is expected to be concluded by December 2015 and will include the construction of a port, pier and connecting pipelines, as well as an FSRU with 170,000 cubic metres of storage and 11.3 MMcm/d of regasification capacity.

IMAGE: Artist’s impression of Colombia’s FLNG plant, which is under construction. (CNW Group/Pacific Rubiales)

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