Arzew LNG, Algeria


The world price of gas is rising alongside that of crude oil making it one of the most sought-after commodities in the energy-hungry western world. The demand for natural gas is now outstripping all sources of supply and so the construction of another LNG liquefaction train can only be a good bet on the part of the developers.

One such project is the Arzew LNG train or GL3-Z project, which will soon be under construction in Algeria near the city of Arzew, situated about 400km (249 miles) west of Algiers. The country has proven natural gas reserves of 4.5 trillion cubic metres, which amounts to about 2.6% of the world total, and is the world's fourth-largest gas producer, supplying 25% of the EU's natural gas imports.

Sonatrach (the state oil company, Société Nationale pour la Recherche, la Production, le Transport, la Transformation, et la Commercialisation des Hydrocarbures Spa) runs the largest gas field, the Hassi R’Mel, which holds about half the country's gas reserves (2.4 trillion cubic feet). The problem is that Algeria needs more outlets for gas exports to capitalise on its natural resources, and LNG liquefaction terminals offer more scope for customers such as the US, Japan and Canada. Via two pipelines Algeria already exports gas to Italy and supplies 50% of Spain's gas.

New terminal

In July 2008 Sonatrach announced that a contract had been awarded for a new LNG liquefaction train. The onshore contract is worth €2.8bn and will involve the construction of a new LNG liquefaction train on a brownfield site in the industrial zone of Arzew adjacent to the existing refinery.

The work was awarded to a joint venture of Saipem / Snamprogetti and Chiyoda on a turn-key basis. The contract will involve the engineering, procurement and construction for a 4.7-million-ton-a-year liquefaction train and associated infrastructure. This is the first time that Saipem has been the main contractor for a large LNG project.

The construction work will begin immediately and is scheduled to be completed in 2012.

Existing capacity

Sonatrach already has an oil refinery at Arzew, which carries out topping and reforming, and has a capacity of 60,000bpd. Opened in 1973, the refinery processes crude piped to it along the Haoud El Hamra / Arzew pipeline. Half of the output is for domestic consumption and half for export.

Alongside the refinery are two gas liquefaction plants – the GL1-Z and GL2-Z – which have recently undergone refurbishment of equipment and de-bottlenecking by Bechtel and IHI and Itochu of Japan. Sonatrach is now looking to expand its gas exporting capacity.

"Algeria has proven natural gas reserves of 4.5 trillion cubic metres."

The contract to build the third LNG train at Arzew had previously been provisionally awarded to Petrofac (UK) and IKPT (Indonesia) as the lowest bidders. Sonatrach was not happy that the group could provide sufficient guarantees about the capacity and overall cost of the project and consequently they were disqualified. Technip of France also submitted a bid for the project, proposing a 4.88 million tons a year plant at a cost of $5.92bn (this was rejected as too expensive).

Gas feedstock for the new train will be supplied from the Gassi Touil and Rhourde Enouss gas fields.

History

The project was intended to have been developed by Repsol-YPF and Gas Natural of Spain along with a special purpose Algerian company, El Andalus. However the project was withdrawn from this offer in late 2007 because of a delay in planning and implementation and the fact that Sonatrach wanted to fund the new train itself.

Repsol-YPF (60%) and Gas Natural (40%) had already been involved in the integrated discovery and LNG production project from November 2004 to develop and produce 5.2bcm/y of natural gas from the Gassi Touil fields in the Rhourde Nouss-Hamra region. Repsol-YPF and Gas Natural have made significant investment ($2.1 bn) in gas discovery in Algeria and will continue to develop gas resources for the next 26 years according to their original agreement. A further LNG train may be constructed in the future if export demands remain high.