Sonatrach Awards $1.1 Billion Gas Processing Contract to SNC-Lavalin

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Researched by Industrial Info Resources (Sugar Land, Texas)--SNC-Lavalin Group Incorporated (TSX:SNC) (Montreal, Quebec), a leading engineering and construction management company, recently secured a $1.1 billion contract from Sonatrach (Hydra, Algeria), a state-owned oil and gas firm, to build natural gas processing facilities in the Sahara desert, about 1,200 kilometers from the capital of Algiers.

Riadh Ben Aissa, Executive Vice President for Infrastructure Operations of SNC-Lavalin, said the company won the contract after months of detailed technical feasibility studies, which were reviewed by Sonatrach. The contract will last 39 months.

Under the contract, SNC-Lavalin will set up a gas treatment facility, including infrastructure to collect raw gas from four fields: Rhourde Adra, Rhourde Adra South, Rhourde Nouss Central and Rhourde Nouss South/East. Construction will begin immediately at the four fields. The complex is expected to be developed in 36 months, and the facilities are designed to produce 3.53 billion cubic meters per year of natural gas. The installations are likely to start processing and producing gas by 2012.

In addition, the company will build a gas processing unit at Qartzites de Hamra and a decarbonization facility to extract and reinject carbon dioxide into the fields. Carbon dioxide is reinjected to combat climate change, as it curbs the release of greenhouse gases into the atmosphere.

Natural gas from the plant will be transported through a 1,000-kilometer pipeline to Sonatrach's new liquefied-natural-gas (LNG) terminal under construction in Arzew near the Mediterranean city of Oran, in the country's northwest coast. The new terminal will augment the country's export capacity from the present 62 billion cubic meters per year to 85 billion cubic meters per year by 2014. The gas project will also generate about 16,000 barrels per day of condensate. Algeria's Energy Minister Chakib Khelil said that once the complex is commissioned, the increase in exports is likely to bring in revenues of nearly $500 million.

Algeria is keen on increasing its LNG processing capacity. The $4.5 billion contract to build the Arzew LNG plant was awarded to a consortium of Saipem SpA (BIT:SPM) (Milan, Italy), an engineering, procurement, and construction (EPC) company operating in the oil and gas sector, and Chiyoda Corporation (TYO:6366) (Yokohama-shi, Japan), an integrated engineering and construction firm. The 4.7 million-ton-per-year train is slated for completion in 2012. The Arzew facility is the country's largest export terminal.

A 4.5 million-ton-per-year gas-production plant is being constructed in Skikda in the northeastern coast at an estimated cost of $2.8 billion. Sonatrach awarded the EPC contract for the plant to KBR Incorporated (NYSE:KBR) (Houston, Texas). Once these plants begin production, the total LNG production capacity of Algeria is expected to reach 28.5 million tons per year.

The primary export markets for Algerian LNG are France, Spain, Turkey, Belgium, Italy, Greece and the U.S. About two-thirds of natural gas exports are currently transported through two natural gas pipelines between Algeria and Europe. The remainder flows in the form of LNG.

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