13-03-08 Chile is looking to expand its ground-breaking LNG project, even before supplies start arriving next year.
The $ 940 mm GNL Quintero project -- South America's first -- on Chile's central coast is scheduled for pre-commissioning and requisite plant cool-down starting in April 2009, GNL Quintero general manager Antonio Bacigalupo tells Argus. The first gas shipments to energy-starved buyers are planned for June next year.

The UK's BG, which leads the project with a 40 % stake, committed in May 2007 to provide an initial 1.7 mm tpy, equivalent to 6.5 mm cmpd of natural gas, nearly a third of the pipeline deliveries that neighbouring Argentina used to provide before giving priority to its own booming market in 2004. In a sign that LNG is gaining prominence in this small but growing market, talks are under way with BG to expand supplies to 2.5 mm tpy, based on the needs of the existing buyers -- Chile's state-owned oil company Enap, Spain's Endesa and local gas distributor Metrogas.
"We are having discussions with BG [to increase supplies], but these will be long negotiations," Bacigalupo says.

The three offtakers hold 20 % each in GNL Quintero, and each will take about a third of the gas under 21-year contracts. They are subject to a tolling agreement to cover capital costs, but have some flexibility in the amounts they take, Bacigalupo says. A long-term syndicated loan for around $ 1.15 bn is expected to close in April, with global bank HSBC serving as financial adviser. Bacigalupo acknowledges the challenge posed by the international subprime credit crisis.
"The subprime crisis has affected the general market and made banks more selective," Bacigalupo says. "If you look at the quality of the project and the country, and the attractiveness of LNG, the banks are showing a lot of interest. But the loan may not be as cheap as it would have been six months ago," Bacigalupo says.

The Quintero project remains on schedule despite the obstacles posed by strong demand from other large-scale construction projects.
"It is a challenging moment for engineering, equipment and construction," he says. "In a market of so much demand, we have placed inspectors in all of the suppliers offices to make sure our materials are delivered as per our specifications and on time. The important thing is that we are paying market prices."

The partners have spent $ 485 mm to date, and construction is 40 % complete under a $ 775 mm engineering, procurement and construction contract signed with US engineering firm CB&I in May 2007. A 1,600 m permanent jetty -- under construction along five separate fronts to accelerate completion -- will replace a 230 m temporary jetty in Quintero bay.
Construction of a 14,000 cm storage tank, designed for quick commissioning to allow early gas, is running ahead of schedule. Two 160,000 cm seismic-resistant storage tanks are under construction, with commissioning slated for the first and second quarters of 2010.

Two new LNG-fired power plants are in the works -- Endesa isbuilding a 240 MW plant near the terminal in Quintero, while BG, Chilean fuels distributor Copec and Enap plan another plant in Concon near Enap's 105,000 bpd oil refinery. Most of the LNG is earmarked for existing installations, including numerous combined-cycle power plants that have been forced to replace Argentinean gas in favour of more costly and less efficient diesel.
The scarcity of new gas-fired generating capacity mostly reflects the cheaper cost of coal, at least for now. But Bacigalupo remains undaunted.
"Chile needs all types of fuels, not just coal," he says. "I have no doubt that there will be other offtakers for LNG. It is clean, competitively priced and does not need a [nearby] port like coal."

Trail blazing
The Quintero project is blazing a trail for a separate LNG terminal that Franco-Belgian firm Suez is developing with Chile's state-owned copper producer Codelco in Chile's strategic mining zone in the north. The $ 500 mm LNG project in Mejillones will use a floating storage unit (FSU) that will remain permanently moored to the jetty. But it might only serve as a supply bridge until a plethora of coal-fired plants starts coming on stream in 2010-11.
Whether the project becomes permanent will depend on LNG's competitiveness with coal. Suez will take a decision on whether to build onshore storage to replace the FSU by the end of this year, the firm says. The first stone is due to be laid in Mejillones in late March.