SOCAR Takes On Several LNG Projects Around The World To Generate Electricity From Gas

The trading house of the State Oil Company of Azerbaijan - SOCAR Trading intends to implement 5-8 projects in the world for the processing of liquefied natural gas (LNG) to generate electricity within three years, and the geographical coverage of these projects is Asia, Europe and Africa.

SOCAR itself does not produce LNG, but successfully trades in other people's fuel. So, in 2020, its LNG sales volumes reached 4 million tons (three times more than in 2018), and by 2025 this figure is planned at 10 million tons.

The world's largest LNG seller is Gunvor Group (annual sales are over 16 million tons), but SOCAR Trading believes it can enter the top five.

Experience

Since 2016-17, SOCAR has been active with LNG from third countries around the world, choosing a strategy of concluding short-term, medium-term and long-term contracts on FOB or DES terms and trading LNG from Nigeria, USA, Australia and Trinidad.

In terms of investment, the company is interested in regasification projects (LNG-to-Gas / LNG-to-Power) in the Mediterranean (mainly island formations), Asia and Africa.

The first experience - SOCAR Trading since 2013, as part of the ElectroGas Malta consortium, has been implementing a project in Malta worth 510 million euros, which included the construction of a new power plant with a capacity of 210 MW (provides more than half of the island nation's electricity needs) and a floating terminal for regasification of liquefied natural gas (LNG). SOCAR is the exclusive supplier of LNG to this terminal with a capacity of 125.5 thousand cubic meters (the contract was signed in 2015, and LNG purchases are carried out from various global producers of liquefied natural gas).

In 2019-20, the consortium was embroiled in a criminal investigation in connection with the revealed illegal activities of the general director of the consortium Jorgen Feneck (under investigation since December 2019). Cooperating with the investigation, SOCAR removed its employee Turab Musayev (the person involved in the investigation) from the project.

The project does not stop, as well as LNG purchases from SOCAR, in particular, from Shell and other world companies.

“We make money by charging a fixed fee for the electricity generated by the new power plant, and the fee does not depend on the amount of energy. This kind of deal is an “independent power producer” business model and is common in large-scale energy projects. LNG prices were fixed until April 14, 2022, in accordance with the requirements of the tender, with the transition to a floating price based on a pre-agreed̆ formula after this date, "SOCAR explained at the end of 2020.

The first batch of LNG was delivered to Malta in January 2017. ElectroGas Malta is obliged to ensure the supply of electricity and gas to the state energy company Enemalta for 18 years (the average period for such transactions in the world).

Explaining the interest in LNG in an interview with ASTNA, an informed source in SOCAR noted that liquefied gas as a clean fuel is becoming more and more in demand in the world every year. LNG has high liquidity because does not depend on pipelines, but is delivered anywhere in the world by ships.

“We prefer long-term sourcing from LNG producers, which increases overall trade and therefore profits. We think over logistics and storage possibilities, are able to offer competitive prices without excessive risk to ourselves and are ready to become important global players,” said the SOCAR spokesman.

According to him, after Malta, SOCAR, together with its partner, the French company Total, began to implement an LNG project in Abidjan (Cote d'Ivoire), but it stalled a little.

“The new government of this African state in 2020 gave us a concession to establish an LNG production in Abidjan, and this will be the first LNG terminal in West Africa,” the source told ASTNA without specifying other details.

New Projects

Last week, one of the heads of SOCAR Trading, Khayal Ahmedzadeh, said that the company will undertake the implementation of several projects in different parts of the world for the construction of small terminals for processing liquefied natural gas for specialized power plants, which are in demand.

One such project could be an LNG terminal in Sri Lanka at the port of Hambantota called Pearl Energy.

 SOCAR has entered into a preliminary deal with Chinese port operators and partners from the Gulf countries to create a small terminal for LNG trading, the construction of which could cost about $ 100 million.

According to Togrul Kocharli, head of the business development and investment department of SOCAR Trading, the advantage of the Pearl Energy project is that it can be quickly put into operation as quickly as possible through the delivery of LNG to existing power plants. A new power plant should be built in parallel and added to the capacity later.

In mid-August 2020, the Sri Lanka Investment Board (BOI) signed an agreement with Pearl Energy (Pvt) Ltd. the launch of the Hambantota LNG Hub, a floating LNG storage facility in the port of Hambantota.

Kocharli said that the possibility of implementing LNG projects in several African countries, including Senegal, Mozambique and South Africa (there is a special economic zone Coega), is being studied.

As for the possibility of SOCAR joining the project of the LNG terminal in Alexandroupolis (Greece) in connection with the prospect of expanding the Trans-Adriatic Pipeline (through it from December 2020, Azerbaijani gas goes to Europe), a source in SOCAR told ASTNA: “LNG projects in Greece in at the moment are not within the scope of our interests."

There is also no progress on the prospects for LNG transit from Kazakhstan, although in 2019 SOCAR Trading discussed this possibility with the Kazakh government.

Note that the world exported on average over 480 million cubic meters of LNG per day.

Azerbaijan, which does not have access to the open ocean, believes that it is profitable for it to trade someone else's LNG, and not to produce its own.

As one of the SOCAR experts explained to ASTNA, all currently produced gas volumes in Azerbaijan and planned for production until 2050 have actually been distributed to gas pipelines, the creation of which cost billions of dollars (for example, the SGC cost about $ 33 billion).

“LNG needs terminals, and preferably in open seas, which is not the Caspian Sea. We need additional investments, free volumes of gas (outside pipeline contracts), and guaranteed buyers. This is not yet relevant for Azerbaijan, which needs to think about the utilization and recoupment of the already created gas pipelines. But the company considers it promising to participate in small LNG projects around the world and finds partners,” the SOCAR representative said.