BG informed LNG Chile that the British company will not be complying with the gas supply committed for next year
07-Nov-2012 El Mercurio – News
British Gas measure will only affect Endesa and Enap. Metrogas state they have supply secured by the British company:
BG informed LNG Chile that the British company will not be complying with the gas supply committed for next year
The British company has informed its clients that hydrocarbon supply will experience a 40% reduction
When the gas shortage situation occurred with Argentina during the last decade and continued increasing thereinafter, an investment of US$1,000 million was made for a LNG terminal in Quintero. The purpose was securing Chile not to have any restrictions for hydrocarbon consumption. Safeguard measures included a contract with British Gas (BG) to supply for a 21-year term the complex at Quintero that is operated by Endesa, Enap, Metrogas, Enagas and BG itself.
However, the agreement between LNG Chile – gas purchasing company constituted by Endesa, Enap, and Metrogas – and the European gas supplier will not be met in 2013. Some sources close to the British company state that the gas supplier informed LNG Chile some weeks ago that from next year onwards the contracted supply of gas will be reduced in a 40% for the Chilean company.
The reason the British gas supplier has adduced is that gas production in Egypt strongly slowed down because efficiency of fuel extraction projects in that country has been much more unsatisfactory than expected.
The measure will directly affect Enap and Endesa who use gas to operate power plants in the case of the power generation company and a refinery in the case of the state-owned petroleum company. Additionally, a reduced supply will also affect Colbún and Gener that purchase LNG surplus from Enap and Metrogas to supply their units.
Should gas supply reduction finally occur, LNG Chile will be forced to look for new contracts with other world operators in order to offset the shortage. This is a decision that would strongly rise the purchase price of gas because of the strong demand of hydrocarbon in the market and would also affect LNG-based electric power companies. In accordance with the last report from Electroconsultores consultants, in October 20% of the SIC (Interconnected Central System) was LNG supported.
Metrogas unaffected
On the other side, Metrogas would be the only company not to be affected by BG’s failure to comply with the contract. “Metrogas’ purchases of LNG are guaranteed given the fact that, as of public knowledge, last July the Chilean gas supplier reached full agreement with the British company to modify their supply contracts. Addenda the parties agreed – besides including convenient prices and larger volume – secure supply availability; consequently our clients will not be affected for any of the possible issues described (above)” as stated by representatives of the company that supplies gas to almost 450,000 homes in Santiago.
Should BG fail to comply with the 21-year contract, they should pay in cash the gas the British company would not be supplying as stated in the agreement the gas supplier and the Chilean clients signed.
Additionally, the BG measure announcement occurs almost after two months the supply contracts automatically modify the formula to calculate gas price from Brent to Henry Hub index. This means the companies purchasing fossil fuel would have to pay between US$ 3 to US$ 5 per million BTU instead of US$ 9 to US$ 13 per million BTU -not including delivery and regassing expenses.
On this regard, Enap already informed the British supplier that they will not be negotiating this particular point in the contract and so would do Endesa in order to automatically benefit from the price reduction the index change brings. However, Metrogas made a deal with BG that did not imply such a steep price reduction (20%) but instead set a contract to secure 100% supply.
When asked about the issue, Enap, Endesa and Ministry of Energy declined to talk to the press.
