Uruguay ends LNG deal with Engie-led GNLS

OREANDA-NEWS. September 08, 2015. Uruguay has effectively revoked a contract with a consortium led by France Engie to build an LNG import terminal, postponing the tiny country aspiration of joining the ranks of South American LNG importers and serving as a regional hub.

Gas Sayago, a joint venture between Uruguay?s state-owned oil company Ancap and state-owned utility UTE, awarded the contract in 2013 to Engie, then known as GDF Suez, to build the 10mn m?/d GNL del Plata offshore LNG terminal. A new tender for another contractor will be issued after the agreement is made formal, with the goal of launching the terminal in mid-2017, energy and mining minister Carolina Cosse said.

"We are evaluating alternatives. We will return to the market and present the alternatives to the board of Ancap and UTE…The project didn?t fail, one contract is not the project," Cosse said.

The agreement to rescind the contract, which is pending approval by the boards of Ancap, UTE and GNLS, is "very favorable for the state", industry, she said.

In addition to cashing in a \\$100mn guarantee from GNLS for non-compliance with the contract, the new agreement calls for the transfer of more than \\$100mn in assets that were already installed and leaves Uruguay with intangible assets such as technology, know-how and climate information, Cosse said on the sidelines of congressional testimony this week. Gas Sayago is also contractually insulated from any local demands against GNLS, she added.

Engie has not commented so far. Earlier this week Marubeni approved its withdrawal from the project.

Cosse noted that the assumptions behind the LNG import project are the same or better than they were before, and project costs have come down off the initial \\$800mn price tag.

"Gas prices are lower and crude prices are not likely to stay where they are," she said.

The LNG project has been suspended for months following the bankruptcy of GNLS subcontractor OAS, one of several Brazilian construction companies that have fallen into financial straits because of a widespread corruption scandal centered on Brazil?s state-controlled Petrobras.

On its own, Uruguay does not have enough gas demand to justify investment in a regasification terminal. Sandwiched between Argentina and Brazil, two countries that have emerged as significant LNG importers in recent years, Uruguay has billed the project as a regional hub, featuring LNG reloads, pipeline gas and gas-based electricity for its neighbors.

Echoing nearby Chile, Uruguay lost most of its gas supply after Argentina started curtailing pipeline exports in 2004. Chile started importing LNG in 2009 and now has two terminals with a third in the planning stage. Argentina has two terminals and Brazil has three, with several others on the drawing board.