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Press Release: March 8th, 2010: Shannon LNG Investment decision could drag on further than next year says Hess CEO Gordon Shearer  


Gordon Shearer, CEO of Hess LNG, told Energy Analysts ICIS Heren over 2 weeks ago that the Shannon LNG Investment decision could drag on further than next year.

The Investment Decision is the key public indicator from a private company that it is actually going to go ahead with the project and attempt to obtain financing for the project.

The CEO stated that the issues holding up the investment decision are third-party access arrangements (which need both CER and EU approval),  engineering, fine-tuning the planning applications, and crucially, the securing of LNG supplies.
 
Shannon LNG has asked for a 30-35 year exemption from regulated third-party access but, the CER has indicated that it will offer a maximum of 25 years, partly on account of concerns it had about the possible domination of the Irish market in the long term should it "decouple" from the UK. "

'Safety Before LNG' believes that the real horse-trading is now about to begin and that Shannon LNG will only be interested in the project if it can obtain "pivotal supplier" status by the back door - which is forbidden under EU law.

Endesa has applied for planning permission to construct a 450 Megawatt gas-fired power station at Tarbert and Shannon LNG has plans to develop its own gas-fired power station adjacent to the proposed LNG terminal. Both plants,  as current proposals stand, would only have access to Shannon LNG-sourced gas because both plants are over 26 kilometres from the national gas grid at Foynes in West Limerick and the proposed pipeline from Tarbert to Foynes will only contain gas from the Shannon LNG plant because the gas cannot flow in both directions. We believe that this monopoly of becoming a "pivotal supplier" to approximately 900 Megawats of power generation by Shannon LNG will be detrimental to competition in the wholesale market of gas-fired electricity generation in the Shannon Estuary region  and is now a highly-relevant  issue in Third-Party Access arrangements to  be ruled on by the CER and the EU.

'Safety Before LNG' says that recent comments by Bord Gais CEO John Mullins  that Shannon LNG-sourced gas could be exported has now given a clearer picture of the real issue and risks of possible decoupling from the UK market. We believe that Shannon LNG sees a long-term gain if Ireland becomes a net exporter of gas as this would entail a changing in direction of the flow of gas in the gas interconnector with the UK. The Shannon LNG project is not about security of supply to Ireland but rather the eventual export  of gas to the UK  and, as feared by the CER. , possible domination of the Irish market in the long term, should it "decouple" from the UK.

'Safety Before LNG' is once again calling for a strategic assessment of the Energy Hub proposed for the Shannon Estuary as obliged under Irish and European law in order to assess the cumulative impacts of any new energy policy such as "decoupling" or the loss of the Transhipment Hub on the Shannon Estuary.


Note to Editor:

The following was reported by Energy Intelligence Experts ICIS HEREN after they interviewed Hess CEO Gordon Shearer on February 23, 2010:


http://www.icis.com/heren/articles/2010/02/23/9337262/lng/glm/irish-lng-terminal-decision-could-happen-this-year.html

Irish LNG terminal decision could happen this year

23 Feb 2010 20:17:01

A final investment decision on the Republic of Ireland's first LNG import terminal could be made this year. The Irish energy regulator, the Commission for Energy Regulation (CER), has confirmed that it is due to make a decision on the Shannon LNG project Article 22 exemption application "within the next month", having already published a draft response last year expressing provisional approval prior to wider consultation.

Hess LNG CEO Gordon Shearer told ICIS Heren: "A final investment decision could be right at the end of this year or early next year, but it could drag on further.

"We are going to look at the third-party access arrangements because this defines the project parameters. And it is not just in the control of the Irish authorities, because the EU needs to approve it too. And we need to get these before making a commercial decision." Shearer added that three other aspects remain to be completed: engineering, fine-tuning the planning applications, and crucially, the securing of LNG supplies.

Shannon LNG has asked for a 30-35 year exemption from regulated third-party access but, CER has indicated that it will offer a maximum of 25 years, partly on account of concerns it had about the possible domination of the Irish market in the long term should it "decouple" from the UK. The UK supplies almost all of the country's gas at the moment, through two interconnector pipelines from Moffat in Scotland.

Hess to keep control of capacity

The proposed Shannon LNG project structure is similar to that of the UK's South Hook terminal.

A Shannon LNG infrastructure company (currently including consultancy Poten & Partners as a minority shareholder) will operate the terminal, and a separate company fully owned by Hess (referred to as TradeCo) will control terminal capacity and engage in LNG purchase and gas sales agreements.

The developers have rejected the idea of holding open seasons for capacity, foreseeing that TradeCo will negotiate bilateral deals when there is spare capacity and operate a Use It Or Lose It (UIOLI) system along the lines of existing UK terminals.

The CER may decide to supervise this terminal access regime and could outline this in an LNG Operating Licence.

Storage tanks key

Irish gas demand has grown at an average rate of 3% over the past five years. It was forecast at 5.6 billion cubic metres (Gm) for Gas Year 2009-2010 - averaging 15.3Mm/day.

A slight increase is expected this year but then is expected to decline to 5.5Gm by 2014-15.

Peak Irish gas demand in 2009-10 was just 25.5Mm/day, but in the longer term the market should grow strongly, as penetration of gas is relatively low compared with other European countries.

The Shannon terminal is planned to have 17Mm/day of send-out capacity, rising to 28Mm in a second phase (the exemption application is for the higher figure). As Shearer emphasises, the sponsors are conscious of the importance of storage capacity - Ireland only has a maximum of 425Mm at the depleting Kinsale Head field - and the terminal plans include provision of up to four 200,000m LNG storage tanks. BC