Quintero LNG expansion derailed: Update

Adds formal withdrawals, Colbun intention to sell assets.

The second expansion of Chile´s Quintero LNG terminal has effectively derailed after the sole remaining participant signed a long-term supply deal with one of the incumbent offtakers.

Chilean generator Colbun today announced an agreement with state-owned oil company Enap, one of Quintero´s three existing offtakers, for 12 years of gas supply tied to reserved regasification capacity, starting in January 2019.

The contract entails a minimum payment of $400mn, Colbun and Enap said.

Enap already supplies Colbun under a short-term contract that expires at the end of 2018.

Colbun, owned by the Matte family, uses the gas to supply its 875MW Nehuenco thermal generating complex in Quillota, in the central region of Valparaiso.

The new deal effectively short-circuits a $250mn project to expand the Quintero terminal´s regasification capacity by 50pc to 20mn m³/d, from a current 15mn m³/d, and add a third 160,000m³ storage tank. The project was expected to be completed in 2021.

"There will be no expansion for the timebeing, and I do not think it is going to happen anytime soon," an industry executive not directly involved in the project told Argus.

Other industry sources said Enap´s direct offer was a more competitive option for Colbun, which is looking to sell its Nehuenco assets with a firm gas supply deal to make them more attractive.

Colbun was among three companies that originally committed to reserving a total of 3.2mn m³/d of regasification capacity at Quintero in a second open season that began in late 2014. By March 2016, only two of the three companies signed non-binding 20-year agreements: Colbun for 1.65mn m³/d and fellow generator AES Gener for 1.45mn m³/d. The third party in the original group, Israeli IC Power´s Cerro el Plomo, dropped out. AES Gener unofficially pulled out of the project earlier this year.

Colbun and AES Gener were part of an even-earlier pool of offtakers for Quintero when the project was first conceived in the mid-2000s, in response to Argentina´s curtailment of pipeline gas exports. The two generators later withdrew and went on to build coal-fired generating capacity that was seen as more economic than gas.

Colbun and AES Gener today formally gave notice that they would not participate as clients in the expansion project, a senior industry executive told Argus.

GNL Quintero could not be reached for comment. GNL Chile, the commercial entity representing the Quintero offtakers, declined to comment.

The central coast terminal, which was launched in 2009, has been operating at close to capacity since a first 50pc expansion was completed in early 2015. A total of 49 cargoes was received in 2016, up from 40 in 2015. The preliminary delivery program for 2017 encompasses 46 cargoes.

The existing offtakers are Enap, Spain´s Gas Natural Fenosa distribution unit Metrogas and Italy´s Enel.

The terminal itself, which is controlled by Spain´s Enagas, is undergoing changes in ownership. Borealis Infrastructure, the infrastructure investment manager of Canadian pension fund OMERS, signed an agreement to acquire a 34.6pc stake in Quintero from the main shareholder, Enagas, for $341mn.

At the same time, Enagas agreed to pay $191mn to Oman Oil for its 19.6pc stake in Terminal de Valparaiso (TDV), which owns 40pc of Quintero.

Once the transaction closes, the ownership structure will be as follows: Enap 20pc, Enagas wholly owned TDV 40pc, OMERS 29.6pc and Terminal Bahía de Quintero (51.9pc Enagas Chile y 48.1pc OMERS) with 10.4pc.

Chile has a second smaller LNG terminal in the northern port of Mejillones. The Mejillones facility is controlled by France´s Engie.