Repsol Commissions Canadian LNG Regasification Terminal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Repsol YPF SA (NYSE:REP) (Madrid, Spain) is set to foray into the natural gas markets of the U.S. and Canada, as the firm's Canaport liquefied natural gas (LNG) terminal receives its first shipment of LNG and commences operations this week. Located in East Saint John, New Brunswick, Canada, the Canaport terminal is the first east-coast LNG receipt and re-gasification terminal built in Canada and the first such terminal to be built on the east coast of North America since 1979.

The facility was built in a 75:25 joint venture between Repsol and Irving Oil Limited (Saint John, New Brunswick) at a cost of $750 million. With a storage capacity of 9.9 billion cubic feet and a gas send-out capacity of 1 billion cubic feet per day, the facility is capable of providing enough LNG to heat five million homes. It contains three massive LNG storage tanks, heating and cooling stations, and piping networks. Each of the three storage tanks is 40 meters tall and 80 meters in diameter. One of these tanks will be commissioned this week, while another will be commissioned next month. The third storage tank, which is still under construction, will be brought online in late 2009 or early 2010.

The Canaport terminal will route re-gasified LNG through the Brunswick Pipeline, a 90-mile pipeline that connects the terminal with the Maritimes & Northeast Pipeline along the border of Canada and the U.S. that will cater to the natural-gas requirements of homes, businesses, and industrial establishments in Canada and the northeastern regions of the U.S. The facility is expected to address 20% of the demand for natural gas in New York and New England.

Commissioning of the terminal will begin with the docking of the Bilbao Knutsen, a transport ship with a capacity of 138,000 cubic meters, to unload LNG into the terminal. The tanker, arriving from Trinidad and Tobago, will be anchored against a loading platform with the help of four massive mechanical arms. Before the unloading of LNG commences, nitrogen gas will be purged from the storage tanks in the terminal and burned. Nitrogen gas is used to keep the storage tanks inert before they begin to store LNG. Following this, LNG will be unloaded to one of the three concrete-encased storage tanks, which will store LNG at a temperature of minus 160 degrees Celsius (minus 256 degrees Fahrenheit). LNG stored in the tank will then be directed to another section of the Canaport facility where it will be heated into a gaseous state. Upon re-gasification, the gas will exit the terminal through a 30-inch-diameter pipeline. Unloading of LNG from the tanker and re-gasification is expected to take about a week to 10 days.

Following the docking of the Bilbao Knutsen, about one ship is expected to arrive at the terminal every month. LNG imports are expected to reach 400-500 million cubic feet per day by August this year. Traffic is expected to increase in winter, with imports rising to700 million cubic feet per day because of the seasonal rise in the demand for gas. Repsol has reportedly entered into supply deals with several buyers and expects to sell about 200,000-400,000 decatherms per day, equivalent in energy to 200-400 million cubic feet per day of natural gas, from the Canaport terminal initially.

The Canaport LNG terminal is one of the 10 key growth projects outlined in Repsol's strategic plan for 2008-12. The plan entails a total investment of $45 billion, and is aimed at increasing the firm's net income by a factor of 2.8, operating results by 2.1, and earnings before interest, taxes, depreciation and amortization (EBITDA) by 1.8. Of the total investment amount, about $29.5 billion will be invested in the firm's core businesses of LNG, upstream and downstream activities, $10.8 billion in YPF SA (NYSE:YPF) (Buenos Aires, Argentina), which was acquired by Repsol in 1999, and $5.1 billion in Gas Natural SDG SA (MCE:GAS) (Barcelona, Spain), in which Repsol holds a majority stake.

About 60% of the total investment in Repsol's core businesses, amounting to $17 billion, will be made in 10 large key growth projects. These include three downstream projects, five upstream projects and two projects in the LNG segment.

The three projects in the downstream segment will be set up in the Iberian Peninsula with a total investment of $6.65 billion. These include the Cartagena refinery expansion in Murcia, Spain, the development of a new coking unit at the Muskiz refinery in Bilbao, Spain, and the expansion of a petrochemical project in Sines, Portugal. The Cartagena refinery will be expanded to a production capacity of 220,000 barrels per day (BBL/d), at an investment of more than $4.43 billion.

The five upstream projects in the areas of exploration and production include the development of the Reggane block in Algeria, the Carioca Block in the Brazilian deepwater, the I/R field in the Murzuq basin in Libya, Block 39 in Peru, and the Genghis Khan and Shenzi mega fields in the U.S. Gulf of Mexico. These projects, along with other discoveries in Algeria, Bolivia, Brazil, Libya and Peru, are expected to increase the firm's annual production of hydrocarbons by more than 5%, reaching 400,000 BBL/d by 2012.

The remaining two large key growth projects to be undertaken in the LNG business segment includes the development of the Canaport LNG terminal in Canada, and the Peru LNG project in Camisea. These two projects are expected to increase Repsol's total marketing volume of LNG by a factor of 4.4 to 18 billion cubic meters per year, equivalent to 60% of Spain's annual consumption of gas.

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