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OPINION: LNG regas projects left and right

August 29, 2007

After Hugo Chávez spearheaded the idea of building the mega Gran Gasoducto del Sur pipeline that would extend from Venezuela to Argentina, talk has now shifted to the construction of LNG regasification terminals in the region.

Chile is building one at Quintero Bay and Petrobras at Baia de Guanabara next door to Rio and plans to launch another one at Pecem in northeast Brazil. El Salvador will begin construction in 2008 of Central America’s first regas terminal at La Unión.

Apart from these three projects, there’s talk about building more LNG regas terminals in Brazil, northern Chile, Argentina and Uruguay.

Taking into account how tight the LNG market is, building such terminals is easier said than done.

Possibly one of the most incredulous LNG regas projects is the one planned at Bahía Blanca by Argentinean state-owned energy company Enarsa and PdVSA of Venezuela. With the help of another regas terminal in Uruguay’s capital of Montevideo, both countries could be supplied with LNG.

Both LNG regas plants are seen initially costing about $800 million to build and will supply 20 million cu m/d.

While it’s a good sign that countries are investing in LNG projects to plug burgeoning energy demand, one can rightly ask how feasible they are? For one they are expensive plants to build. According to the Henry Hub, which is a benchmark for LNG, prices have been at $8-$7/MMBTU before falling in August to below $6/MMBtu.

Argentina buys gas from Bolivia for about $5/MMBtu. The price of domestic gas in Argentina is much cheaper than what it pays Bolivia.

What’s unclear about the Argentinean-Venezuelan-Uruguayan regas venture is where they’re going to get the LNG? What about the ships to transport the fuel? How reliable is PdVSA as a partner, considering that the state-owned company has been spearheading since the 1980s the construction of a liquefaction plant in the east of the country?

PdVSA has tried with dismal results attempted to partner with QatarGas, RepsolYPF, Shell, Petrobras and others in its $2.7-billion Mariscal Sucre LNG project. Taking into account the slowness at which the project has moved, it seems a bit incredible that PdVSA can build with Enarsa in three years regasification terminal capacity.

With the Gran Gasoducto del Sur pipeline shelved indefinitely, there’s going to be a lot of hype left and right in South America about grandiose LNG regas terminals.

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