Dragon LNG Terminal Milford Haven, Wales, United Kingdom

Dragon LNG Ltd is constructing an LNG import, storage and regasification terminal in Waterston, Milford Haven, Wales on the site of an old refinery. The Waterston site was formerly the Gulf Oil Refinery which operated from the mid-1960s until 1997, when refining operations ceased. 4Gas acquired the site in 1998, as part of its purchase of Gulf Oil Refining Ltd UK from Chevron. Since that time the site has operated as 4Gas Tankstorage Milford Haven Ltd, providing storage and other services relating to the oil and energy industry.

The new facility will have a start-up capacity of six billion cubic meters per annum (bcma) and is due to be in service from the end of the second quarter of 2007. The shareholders in this project are 4Gas BV (20%) (founder) and its customers BG Group (50%) and Petronas (30%). The gas exporting partners have 20-year arrangements governing the use of capacity rights, which will allow each company to throughput three billion cubic metres (106 billion cubic feet) of gas a year, equivalent to around 2.2 million tonnes of LNG per year.

The start-up capacity of the new terminal will provide up to 7% of natural gas deliveries in the UK. Construction of the £250m facility began in 2004 following an intense environmental regulation process. Proposed LNG terminals in the UK are subject to control by the Control of Major Accident Hazards (COMAH) regulations and must demonstrate it meets these requirements to a health and safety executive before any plant can be operated.

UK DEMAND FOR GAS

Over 18 million homes in the UK use natural gas and a significant proportion of UK electric power is generated using natural gas. The demand for energy and natural gas is now increasing at a time when the UK's domestic production from the North Sea is in the decline (although not due to run out for some years). The import of LNG via LNG terminals will help to close the growing gap between supply and demand.

The principal of the project 4Gas are involved in about five other LNG projects around the world including some in the Netherlands, US and Canada. The other partners in the project, BG Group and Petronas, are among the world's leading LNG exporters, who collectively own the largest fleet of LNG ships.

LOGISTICS

LNG would be delivered to the new Milford Haven terminal by a fleet of LNG carriers / ships, which will berth at one of the two refurbished jetties. The LNG carriers can carry up to 145,000m³ of LNG.

The gas will then be stored in storage tanks of around 160,000m³ capacity, at just above atmospheric pressure. LNG will be pumped using the LNG pumps into the two storage tanks. From the storage tanks the liquefied gas will be pressurised, regasified and sent out to consumers via a gas pipeline connecting with the National Transmission System (NTS).

The LNG tanks are of a full-containment design where two tanks are employed, an inner tank which contains the stored liquid, and an outer tank which provides security in case of leakage.

The inner shell will be fabricated of a special nickel alloy, designed to resist the low temperatures. The outer shell is of pre-stressed concrete with a reinforced concrete base slab and roof. Automatic protection systems are employed to monitor the tank levels, pressures, temperatures and any potential leakage from the inner tank.

DRAGON LNG CONSTRUCTION

The contractors for the project are a joint venture of the following companies: Whessoe Oil & Gas Ltd (UK) and Volker Stevin Construction Europe BV. MW Kellogg Ltd is also doing construction work at the site.

The Engineering, Procurement and Construction (EPC) contract with a value of £185m was awarded to the joint venture preparation work commenced in October 2004 and permanent work started on site at the beginning of 2005. The contract is based on a lump-sum / turnkey agreement to deliver a fully functional LNG import terminal.

The facilities will consist of an LNG unloading jetty, two LNG storage tanks and LNG gasification and gas export facilities. The terminal will be able to receive and unload 71,000m³ to 165,000m³ capacity LNG carriers in 24 hours. The average gas send-out rate will be 700,000m³/h.

FINANCE

4Gas transferred 80% of the ownership in Dragon LNG, to its partners realising a profit of approximately £45m to £50m in the second quarter of 2005. Morgan Stanley represented 4Gas in this transaction. Shearman & Sterling advised Dragon LNG on the planned terminal. Allen & Overy and Berwin Leighton Paisner advised Petroplus on the project (this partner is no longer involved). LXL Law is advising Petronas.

Herbert Smith is advising Centrica on its first LNG supply deal for the terminal (a 15-year, £4bn LNG supply contract with Asean LNG, a subsidiary of Petronas). The deal will see Petronas supply over 45 billion cubic metres of LNG to British Gas at the Dragon terminal.

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