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    Spanish Naturgy Ends Damietta LNG Contract, Quits UFG

Summary

The terms follow closely what was agreed in February but put on hold in April as Covid-19 set the agenda.

by: William Powell

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Spanish Naturgy Ends Damietta LNG Contract, Quits UFG

After almost a year's delay, Naturgy has cancelled its 3.5bn m³/yr Egyptian gas purchase agreement that was due to expire in 2029 and intended to supply its Spanish power stations, it said December 1. 

In return it will receive up to $0.6bn and most of Union Fenosa Gas (UFG)'s’ assets outside Egypt and Spain. UFG was a 50-50 LNG marketing joint venture it owns with Italy's Eni, and now dissolved.

"This agreement, which could not be concluded in February due to certain conditions precedent not being met, has been closed on similar terms to those agreed in February and resolves the complex situation at the Damietta plant, which has lingered since 2012," it said.

It said the result showed "its management capacity to continue simplifying its business portfolio and to reduce its gas procurement commitments, all the while improving its financial position to focus on the areas which can maximise value creation."

The agreement values UFG at up to $1.5bn, depending on the energy scenario, of which $1.2bn relate to its Egyptian assets (including the outstanding legal proceedings), and the remaining $0.3bn for the assets outside of Egypt. The agreement has been following the ratification by Cairo November 25.

Naturgy's president Francisco Reynes said the agreement reduced the company’s exposure to gas and also "resolves a complex situation lingering since 2012 and which couldn’t be resolved in the spring because of the pandemic.”

The completion of the transaction, planned during the first months of 2021 once customary conditions precedent are met, including the restart of operations in Damietta planned in the first quarter of 2021, will result in Naturgy’s departure from Egypt and the end of its joint venture with Eni. The 7.56bn m³/yr liquefaction plant has been idle since 2012.

Eni said after the restructuring it would have half of the company that owns Damietta, Segas; and state entities Egas and EGPC  would have 40% and 10% respectively. Eni will also take over the contract for the purchase of natural gas for the plant and will receive corresponding liquefaction rights, thus increasing the volumes of LNG in its portfolio by 3.78bn m³/yr, which will be available free on board. 

Reynes was also in talks with Algerian Sonatrach in October, where the companies amended gas sales and purchase agreements, but Naturgy gave no details on the course of the discussions except to reference the effect of Covid-19 on Spanish gas demand.