EWC updates Sengkang LNG project
Tuesday, September 14 2010 - 02:40 AM WIB
Current Developments
? Sengkang LNG Project
Of the proved reserves in our Sengkang Contract Area, approximately 250 BCF will be required to meet demand from BPMIGAS and PLN under the Gas Supply Agreement and any requisite extension thereto when the Sengkang Power Plant is upgraded to 315 MW as referred to above. In addition, we have calculated that more than 2.25 TCF of prospective gas resources may be available in prospects which have been identified in the Sengkang Contract Area. In order to exploit these gas reserves and prospective resources, we are constructing an LNG facility and export infrastructure referred to as the ?Sengkang LNG Facility?, using our modular LNG train, on the South Sulawesi coastline, in the same region as our Sengkang Contract Area and Sengkang Power Plant.
The planned Sengkang LNG Facility will have a production capacity of 2 MTPA and combine four modular LNG trains, each with a production capacity of 0.5 MTPA. Production of LNG from the first two modular LNG trains which was originally planned to commence in June 2010 has been delayed pending approval from BPMIGAS of a plan of development for the gas required for the LNG facility from the Sengkang gas field. First production will now likely occur by First Quarter 2012. The remaining two modular LNG trains are planned to commence commercial production of LNG operation at quarterly intervals thereafter providing a total LNG capacity for the Sengkang LNG Facility of 2 MTPA.
We already have proved gas reserves for the first 2 units, sufficient to produce 1 MTPA of LNG for more than 5 years. By utilising existing gas reserves for this LNG production we plan to be able to use internally generated cash flow to finance the foreseen further gas field development in the Sengkang Contract Area. If development of gas resources justify (which cannot be known at the present time), we envisage expanding the capacity of the Sengkang LNG Facility up to 5 MTPA through a phased development of additional 0.5 MTPA modular LNG trains.
Our business strategy continues to be to expedite the construction of the Sengkang LNG Facility without the need to first prove up substantial gas resources in the Sengkang Contract Area or conclude long term off-take agreements with customers for our LNG This non-traditional approach to LNG development rests on the relatively lower cost of our Sengkang LNG Facility which will utilise our modular LNG trains instead of conventional large-scale LNG trains, and our ability to finance this key project from cash flow generated from our business operations.
? Contract and Supply Status for the Sengkang LNG Project
The contractual structure for the Sengkang LNG Project is in place and the major components of the Sengkang LNG Facility, to enable production of 2 MTPA of LNG were ordered during 2007 are have been fabricated in the USA, Canada and Germany and ready for shipment to Indonesia.
In February 2009 we acquired the land required by the Sengkang LNG project and commenced civil works to facilitate the shipment of the major equipments to site.
? Engineering, Procurement and Construction (EPC)
Slipform (H.K.), as the proposed EPC contractor, has the responsibility for the engineering procurement and construction of the Sengkang LNG Facility on a fixed price, turn-key basis. This will involve co-ordination of all major and material equipment suppliers, arranging freight and delivery of major equipment to the site, providing any balance of plant items not being provided by subcontractors and completion of all civil and construction works. The EPC Contract between South Sulawesi LNG, Slipform (H.K.), CEA arid Kerbridge Energy Pty Ltd is based on International Federation of Consulting Engineers (FIDIC) Conditions of Contract for EPC Turnkey Projects as amended to reflect the arrangements between the parties. The contract value of the EPC Contract is US$350 million. CEA and Kerbridge Energy Pty Ltd are party to the EPC Contract as providers of LNG advisory services to Slipform (H.K.).
? Civil Design and Construction
Ove Arup & Partners International Ltd (?Ove Arup?) is responsible for designing the storage, loading maritime and civil engineering for the Sengkang LNG Project. A design services agreement was entered into between Ove Arup and us on 24 July 2007. A further agreement was signed between Slipform (H.K.) and Ove Arupto novate to Slipform (H.K.) by a deed of novation between us, Ove Arup and Slipform (H.K.).
? LNG Facility and Final Gas Clean Up
Chart Energy & Chemicals Inc (?Chart?) is responsible for the supply and installation of four 0.5 MTPA modular LNG trains, including gas pre-treatment equipment. We have placed a contract for the supply and installation of this equipment with Chart on 4 August 2007. This will be novated to Slipform (FLK.) by a deed of novation between us, Chart and Slipform (H.K.).
- Chart has placed a subcontract with Siemens for four 27 MW electric-motor-driven main refrigerant compressors and one Siemens Aktiengesellschaft (?Siemens?) Robicon frequency convertor for electric-motor startup.
- Chart has placed a subcontract with TDE for the gas pre-treatment system.
- Chart will manufacture the LNG liquefier, which includes the cold box, air coolers, vessels and the liquid collection and vaporisation system.
- The modular LNG Equipment from Chart?s contract is ready for shipment to the site.
? LNG Marine Loading-Arms
A contract has been placed with Aker Kvaerner Woodfield Systems Limited for the supply of LNG marine loading-arms on 12 December 2007. This will be novated to Slipform (H.K.).
? Balance of Plant
Siemens Pte Ltd is responsible for the provision of certain balance of plant equipment, including high/medium/low voltage switchgear, fire fighting systems, distribution and control systems and electrical systems under a contract to be entered into with Slipform (H.K.).
? Operation & Maintenance
An O&M Contract Will be entered into between Sulawesi LNG Slipform (H.K.), CEA and Kerbridge Energy Pty Ltd. Slipform (H.K.) as the provider of operation and maintenance services under the O&M Contract CEA and Kerbridge Energy Pty Ltd are party to the EPC Contract as providers of LNG advisory services to Slipform (H.K.).
Total capital expenditure on the Sengkang LNG Project, to enable production of 2 MTPA of LNU is expected to be US$350 million which is expected to be financed from a combination of non-recourse project finance and the proceeds of our placement of shares in May 2008. We have mandated Standard Chartered Bank and Mizuho Bank as advisors for the financing of the Sengkang LNG Project. On 25 July 2008, we entered into a loan faci1ity with Mizuho Bank and Standard Chartered Bank for a US$60 million loan facility and letter of credit to finance capital expenditure for or in connection with the Sengkang LNG Project and related projects entered into by Energy Equity Epic (Sengkang) Pty Ltd. (EEES) and PTES, including but not limited to making payments to Chart.
The Ministry of Energy and Mineral Resources of Indonesia issued us with guidelines to obtain an operating licence for the Sengkang LNG Facility in November 2006. We are required, among other things, to satisfy certain conditions and obtain various other licences, permits and approvals as the Sengkang LNG Project proceeds before an operating licence is issued. We are in the process of complying with these guidelines and although these matters are proceeding satisfactorily the timing for the receipt of these approvals are also influenced by the approvals required from BPMigas for EEES to supply gas to the Sengkang LNG project and for the completion of a programme of gas infrastructure works, including an expansion of the Sengkang Gas Plant.
The electric power required for the Sengkang LNG Facility is expected to be generated by our Sengkang Power Plant by way of the proposed 120MW expansion. We are in negotiations with PLN regarding this supply of electricity from the South Sulawesi electricity grid to the Sengkang LNG Facility which will require the construction of a 40 km transmission line connecting PLN?s Sengkang Switchyard at the Sengkang Power Plant with the Sengkang LNG Facility.
Teaming up with industry leaders on modular LNG
EWC has brought together distinguished global players and strong partners such as Chart Industries and Chemicals and Siemens to develop an efficient, electric drive modular LNG system
Strategic Alliances
We have formed strategic alliances with the principal equipment suppliers to the Sengkang LNG Project, Chart and Siemens. Collaboration with these industry leaders over several years on our concept for a modular LNG train led to the realisation of our configuration for our modular LNG train. This will use standardised 0.5 MTPA LNG liquefaction units made up of proven ?off the shelf? technology. We entered into strategic alliance agreements with Chart on 4 August 2007 and with Siemens on 19 September 2007 respectively to develop further mid-scale modular LNG projects using our modular LNG train.
LNG Customers
Discussions regarding LNG sales with parties in China, Japan, Indonesia and the Philippines are progressing positively, however confidentiality agreements signed do not authorise us to release specific details of the progress that we are making with some of these parties. With regard to the supply of LNG to the Indonesian domestic market, on 30 May 2008, we entered into a MOU with Indonesia Power, a subsidiary of PLN, to negotiate the supply of LNG, initially to three of their power stations in Java and Bali.
Within this MOU it is proposed that the supply of LNG will be under a 10 year agreement, initially providing for the supply of up to 1.5 MTPA of LNG. If an agreement is concluded with Indonesia Power, we would develop LNG receiving and re-gasification facilities at these power plants to receive LNG from our Sengkang LNG Facility. Under the MOU, Indonesia Power is also seeking our supply of up to 5 MTPA of LNG in a subsequent phase to replace fuel oil in its other power stations. On 25 March 2010, we announced that a Heads of Agreement had been reached with Tokyo Gas for the potential supply of 0.5MTPA of LNG from the Sengkang LNG plant.
Comparison of our LNG approach and the conventional LNG approach
For the last 30 or so years, the LNG business, especially in Asia, has consisted of a standard model, involving the construction of a large-scale LNG facility of 4 MTPA or above, at a cost currently in excess of US$3 billion, requiring a 600 MMscf/d gas supply and 4.8 TCF or above certified proven gas reserves for a 20 year off-take contract. This model necessarily leads to a large quantity of stranded gas in Asia. In other words, gas reserves which are not considered commercially viable for a conventional LNG development. Moreover, 4.8 TCF is a major accumulation for a single field and aggregating the supply from a number of smaller fields to provide the required amount of gas is logistically and commercially difficult.
Usually, in order to get an off-taker to commit to buy LNG under a long-term (20 year) contract, the gas feedstock has to be certified by an international certifying company like DeGolyer and MacNaughton. This process generally takes years to conclude; 5 years being very typical. Many gas wells usually have to be drilled in order to prove the existence of the required gas reserves which is a very capital intensive and time consuming process.
Banks typically will require the commitment of an LNG purchaser under a long-term off-take contract in order to finance such LNG projects. This means that ground for an LNG facility usually cannot be broken until 4.8 TCF of gas reserves are proven, adding, in some cases, years to the start of a project. The financing costs for development and time to market for sale of LNG are paramount for a developer and have been major obstacles to the development of stranded gas fields.
We believe we are breaking this model through pursuing a non traditional approach by providing a mid-scale LNG facility comprised of 0.5 MTPA modular LNG trains. One modular LNG train requires only 25 BCF per year or a 70 MMscf/d gas supply, an amount relatively easily attainable from typical Indonesian gas wells.
Our Sengkang LNG Facility?s modular construction provides substantial flexibility and downside risk protection because when a gas field is depleted, each modular LNG train and the associated plant is small enough to dismantle and relocate.
Taking into account latest equipment pricings, we estimate that a typical LNG facility using our modular LNG train would cost approximately US$125-150 million dependent upon foundation and site conditions per 0.5 MTPA, complete with all support facilities (but excluding the primary gas processing plant which will be at the gas field and power generation which may be via a grid supply or captive generation plant). We believe that this capital cost allows us to consider that our standard for an LNG off-take contract can be for five years, rather than the twenty years for conventional LNG projects, and require a gas accumulation of only 125 BCF.
Several 0.5 MTPA modular LNG trains can be combined as appropriate for larger accumulations of gas or to meet increased LNG demand. (end of edited excerpt)