Chile's Quintero LNG Project Readies For Full Operations In August

Chile will use its first delivery of liquefied natural gas for testing and commissioning the GNL Quintero regasification project, with full commercial operations due to start in August, said Alfonso Salinas, head of corporate affairs for GNL Quintero SA.

The ship, the Methane Jane, is scheduled to arrive in Chile from Trinidad and Tobago by the end of June with a cargo of 145,000 cubic meters of LNG, most of which will be vaporized and injected into the pipeline, Salinas told Dow Jones Newswires.

"Some of this will be sold to clients, but only a small amount. Full commercial operations will not start until the next shipment arrives in August," Salinas said.

The project has contracts to supply state oil and gas company Empresa Nacional del Petroleo SA, or Enap; power generator Empresa Nacional de Electricidad SA (EOC), or Endesa; and gas distributor Metrogas SA (METR.BA).

Up to 10,000 cubic meters of the LNG aboard the Methane Jane will be lost due to "boil-off during the journey," with the remainder to be used for commissioning, said Gavin Garcia, chief operating officer of GNL Chile, the consortium in charge of selling the gas to customers in Chile.

"In principle, the natural gas produced during commissioning will be distributed equally among GNL Chile's customers," said Garcia.

GNL Quintero will have a regasification capacity of about 17,000 cubic meters of LNG per day, equivalent to 10 million cubic meters of gas, which will be divided among Endesa, Enap, Metrogas and possibly other clients.

Endesa will use its share of the first shipment, some 70,000 cubic meters, for commissioning and testing, local newswire Valor Futuro quoted Endesa Chief Executive Rafael Mateo as saying.

From August, Endesa will buy an average 2.5 million cubic meters per day of gas to fuel its 377-megawatt San Isidro II combined-cycle power plant, Mateo said.

In May 2010, once two 160,000 cubic-meter LNG storage tanks are built in Quintero, the terminal will also supply up to 1.6 million cubic meters per day of gas to Endesa's 250 MW Quintero plant, which will start operations this year with diesel fuel, said Mateo.

Endesa's main rivals, Colbun (COLBUN.SN) and AES Gener (GENER.SN), which initially decided not to sign contracts, could also buy gas from the Quintero terminal on the spot market, depending on the LNG price, which is linked to the Henry Hub gas price.

The government charged Enap with developing the LNG project in 2004 as part of its strategy to diversify energy supplies in response to Argentine restrictions on piped natural gas exports. Those exports have since dwindled to zero in some months.

The gas from GNL Quintero, South America's first regasification plant, will replace diesel and other oil-based fuels used as substitutes by industries and power generators in the absence of Argentine gas.

"This is great news...the start-up of the regasification plant in Quintero will reduce our energy dependence, lower costs and reduce emissions," Energy Minister Marcelo Tokman said earlier this week.

The Methane Jane is owned by the U.K.'s BG Group PLC (BG.LN), which holds a 40% stake in GNL Quintero and is supplying the LNG from its global portfolio. Enap, Endesa and Metrogas each hold a 20% stake in the company.

-By Julian Dowling, Dow Jones Newswires; 56-2-820-4241; [e-mail]