Punj Lloyd Teams up with Saipem to Bid for Singapore's First LNG Terminal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Punj Lloyd Limited (BOM:532693) (New Delhi), an Indian engineering, procurement and construction (EPC) major, has teamed up with Saipem SpA (BIT:SPM) (Milan, Italy) to compete against three other groups of international majors in the bidding process for Singapore's first liquefied natural gas (LNG) terminal project. The project is estimated to cost $725 million and is scheduled to be commissioned by 2011. The proposed LNG terminal will have a capacity of 3 million tons per year.

Other companies involved in the bidding process include KBR Incorporated (NYSE:KBR) (Houston, Texas), Samsung Group (Seoul, South Korea) and Korea Gas Corporation (SEO:036460) (KOGAS) (Gyeonggi-do, Korea), who have formed a consortium to jointly bid for the project. Another consortium consisting of SK Gas Limited (SEO:018670) (Seoul), LG Corporation (SEO:003550) (Seoul) and Whessoe Oil & Gas (Darlington, United Kingdom), and another consisting of Technip (OTC:TKPPY) (Paris, France) and Daewoo (Seoul) are also bidding for the project. However, with Gaz de France (Paris) picking up a 30% stake in the project in July, it is expected that French EPC players might have an undue advantage in the bidding process.

In January 2005, the Energy Market Authority (EMA), Singapore's electricity and gas industry regulator, appointed Tokyo Gas Engineering Company Limited (TGE) (Tokyo, Japan) to conduct a feasibility study pertaining to LNG imports into Singapore. This move was initiated to assess whether Singapore could tap into the burgeoning world market for LNG. Singapore addresses 80% of its power generation requirements through natural gas sourced from Indonesia and Malaysia through pipelines. The country was looking at importing LNG to help reduce its dependence on natural gas in anticipation of demand for natural gas exceeding supply in the future. Based on the results of the feasibility study, TGE recommended that Singapore develop a 3 million-ton-per-year LNG terminal by around 2012.

In August 2006, the government of Singapore announced its plan to import LNG to address the nation's growing energy demands. In order to reduce investment risk for stakeholders in the LNG terminal project, the government imposed controls on imports of piped natural gas (PNG) to promote a buildup in the demand for LNG. The government plans to review the PNG import-control policy in 2018, or when LNG import reaches 3 million tons per year, whichever comes first.

The proposed LNG terminal will be developed over 30 hectares of land in the southwestern region of Jurong Island with an initial capacity of 3 million tons per year that can subsequently be expanded to 6 million tons per year. PowerGas Limited (Singapore), a wholly owned subsidiary of Singapore Power Limited, has been designated to own and operate the LNG terminal under the regulatory authority EMA.

In September 2007, the EMA invited proposals from interested parties for the selection of an LNG aggregator that would be responsible for initial procurement of LNG for Singapore. In April 2008, the EMA selected BG Asia Pacific Private Limited (Singapore) from 22 participants as the LNG aggregator to assess demand for regasified LNG and to procure LNG for all end users in the country. BG has an exclusive license to import LNG and sell up to 3 million tons per year of regasified LNG in the country starting in early 2012 when Singapore's LNG demand is expected to reach 1 million tons per year.

If Punj Lloyd secures the deal, the project would be executed through the firm's subsidiary in Singapore, which functions as an EPC contractor for projects in Singapore and its neighboring countries. It is also the holding company for Punj Lloyd's subsidiaries in the Asia Pacific region. In India, Punj Lloyd, in partnership with Whessoe, secured a $107 million EPC contract for completion of the 5 million-ton-per-year Dabhol LNG terminal project at Ratnagiri, Maharashtra, which was abandoned in 2001 due to contractual problems. However, the project has now run into issues of massive cost overruns and the Indian government is planning to sell the project to interested players. Punj Lloyd has also been constructing two LNG storage tanks for Petronet LNG Limited (BOM:532522) (New Delhi) at Dahej, Gujarat, since March 2006. IHI Corporation (TYO:7013) (Tokyo), which had initially secured the contract to design of the two tanks, passed on the contract to Punj Lloyd. The project is scheduled for completion in January 2009 but is expected to slip behind schedule because of delays in the initial stages of the project because of heavy rainfall in Dahej.

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