New gas terminal set to bridge Bahrain's energy demands

 

With significant expansion projects in both aluminium and power generation slated for between 2017 and 2020, Bahrain is investing in a new liquefied natural gas (LNG) import terminal that will offer these gas-intensive enterprises greater security of feedstock supply. Although domestic production of natural and associated gas increased by some 3.2% in 2015, imports will enable more rapid expansion of industry and allow the kingdom to serve the water and electricity needs of its growing population.

NEW COMPANY: Bahrain’s LNG imports will be managed through a public-private partnership. The Canadian company Teekay LNG Partners will have a 30% stake, the same as nogaholding, the investment arm of the National Oil and Gas Authority (NOGA), while South Korea’s Samsung C&T and Kuwait’s Gulf Investment Corporation will each hold 20%.

The project is being developed on a build-own-operate-transfer basis and will be located near Hidd Industrial Area. The terminal will consist of a floating storage unit, an onshore receiving jetty and breakwater, and a regasification platform connected to an onshore receiving facility by subsea pipeline. There will also be an onshore nitrogen production plant.

PROJECT FINANCE: The project will have a capacity of 800m standard cu feet per day, and will be owned and managed under a 20-year agreement beginning July 15, 2018. A combination of equity capital and project finance through a consortium of regional and international banks will be used to fund construction of the terminal. Société Générale of France has been retained as the financial adviser for the project and in July 2016 the first steps were taken to raise $600m.

The Export-Import Bank of Korea and Korea Trade Insurance are covering 80% of the finance thanks to Samsung’s involvement in the consortium, allowing pricing to reflect South Korea’s “Aa2” rating from Moody’s credit ratings agency, rather than the “Ba2” rating Bahrain was assessed in May 2016. In parallel with this round of financing, nogaholding raised $570m through a sharia-compliant bond in a five-year issue in the same month. Bloomberg reported that for the first three years of repayments, nogaholding would pay 2.25 percentage points over the London interbank offered rate (LIBOR) and 2.75 percentage points over LIBOR in the final two years.

GAS HUB: When the new terminal is operational, the government of Bahrain must make an important strategic decision about the best use of its output. It could operate as an import and export hub for the Gulf, enabling nogaholding to profit by reselling the output to the highest bidders in the region.

However, this must be weighed against the demands of its own power plants and industries, and in particular Alba, which will become the world’s biggest single-site smelter with the completion of its sixth potline – a construction project scheduled to take place at the same time the LNG terminal is being built. In November 2015, one month before the consortium to build the LNG terminal was formed, nogaholding signed a significant deal to supply Alba with gas.

According to the “BP Statistical Review of World Energy” report, the kingdom’s total natural gas production in 2015 was 15.5bn cu metres, while the new LNG terminal will have a capacity of 4.1bn cu metres per year. However, it has been estimated that Alba’s sixth potline and its own 1.35-GW power plant will create a demand of 3.3bn cu metres per year. In 2015 Alba accounted for 18% of Bahrain’s gas consumption, while its power and water plants – with 4 GW of installed capacity – consumed 31%.

Still, these domestic demands may have to be weighed against any deal negotiated with the countries supplying LNG to the terminal. In May 2016 Saint Petersburg’s regional governor, Georgy Poltavchenko, announced that Bahrain would allow Russia to use the new import terminal as an export centre, enabling it to ship its own LNG to other countries in the Gulf region.

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The Report: Bahrain 2017

Energy chapter from The Report: Bahrain 2017