US company wants to supply liquefied gas to Ukraine: 5.5 billion cubic meters annually for 20 years

Author : Olena Holubeva

Source : 112 Ukraine

May 27, Ukrainian Cabinet approved a memorandum of cooperation with Louisiana Natural Gas Export Inc (LNGE)
17:42, 15 June 2020

112 Agency

May 27, Ukrainian Cabinet approved a memorandum of cooperation with Louisiana Natural Gas Export Inc (LNGE). It's about the supply of American liquefied natural gas to Ukraine. Minister of Energy Olga Buslavets said that the government has only preliminary approved the document, instructing it to finalize all key ministries. "Only after that will a final decision be made," the minister said. According to LNGE Chief Executive Officer Ben Blanchet, Buslavets put the issue of approval of the memorandum on the agenda of the Cabinet meeting on May 27.

Gas market participants and experts were very wary of the signing of the memorandum by the Cabinet with an unknown American company. Naftogaz head Andriy Kobolev cast doubt on the viability of the project. He assured that the Naftogaz will not participate in the project. The company reported that the proposed project might be commercially unsuccessful. And this judgment is of great weight since it was Naftogaz that was considered as one of the parties to sign the project with the Americans.

It turned out that LNGE was registered in Louisiana in 2018, its final beneficiaries are unknown. Dzertkalo Tyzhnia outlet published a document, according to which Louisiana Natural Gas Exports, even in offshore Delaware, is officially recognized as a malicious tax evader. The publication claimed that the allegedly co-owner of the company and part-time director – certain William Miller – was judged in the 1980s for fraud and fictitious sale of shares in the company in which he then worked. In fact, he served eight years. In 2019, he became involved in another major litigation, also related to securities fraud.

The draft memorandum with LNGE has not been officially published by the Cabinet. Experts ironically note that no matter how the Ze-team repeats the story of the signing of the scandalous billion-dollar agreement on the LNG terminal in the south of the country. During the presidency of Viktor Yanukovych, Kyiv signed documents on a major project with a ski instructor. Interestingly, as Ben Blanchet told, the Americans want to offer Ukraine a contract for the mandatory purchase of 5.5 billion cubic meters of gas annually. Ukraine barely escaped from such a contract with Gazprom in the Stockholm arbitration.

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In view of the foregoing, we recorded an interview with the head of the American company, in which a person who introduced himself as Ben Blanchet told the details of the project being discussed with the Ukrainian Cabinet. He also confirmed that he was discussing the project with President Zelensky. The LNGE PR service has verified that the language described below is correct.

Blanchet did not deny that the Ukrainian side is discussing a contract for the purchase of 5.5 billion cubic meters of gas per year from Louisiana Natural Gas Export (a little less than half of all imports to the country, which amounted to 14.2 billion cubic meters in 2019). American businessmen expect to conclude it with one of the state companies - Naftogaz or Natural gas transmission system of Ukraine. Their company does not yet have the unequivocal support of the US or Poland authorities. It expects to receive it, as well as financing of large international financial state institutions for the construction of large infrastructure facilities necessary for the implementation of the project, in particular the Polish gas interconnector. For this, LNGE needs to obtain the consent of the Ukrainian government for 20 years to buy from them the agreed volume of liquefied natural gas from the United States.

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As reported before, you will sign a memorandum with the Cabinet on the part of Louisiana Natural Gas Export Inc (on the Ukrainian side, the document must be signed by Prime Minister Denys Shmygal). The memorandum has been preliminarily approved, but, as Minister of Energy and Environment Olga Buslavets said at a press conference, it is still being agreed with the ministries. At what stage is the work with this document?

The Cabinet of Ministers has preliminarily approved the document, instructing it to finalize (before signing) within one day. The procedures are still ongoing. The memorandum itself is not a binding document. This is a framework agreement that sets the parameters for subsequent documents containing the obligations of the parties. We expect that three separate agreements will be approved - for the purchase and sale of gas, for gas storage and for the construction and operation of the gas pipeline, plus all additional agreements that might arise depending on how the parties agree to structure the cooperation.

Could this be Naftogaz or Ukraine's Gas Pipelines, which will take on certain obligations with regard to investments in infrastructure projects or the purchase of the required amount of gas?

The Cabinet will choose the counterparty from the Ukrainian side. We will not take part in this. If it is Naftogaz or Natural gas transmission system of Ukraine, we will be happy to work with them.

What kind of infrastructure facilities are provided for by the project?

To implement our project, it is necessary, first of all, to increase gas pipeline capacities between Ukraine and Poland, the so-called gas interconnector. In addition, we should decide whether it is necessary to increase the capacity of the regasification plant in Poland (in Świnoujście, - ed.). This is what we discussed with the Ministry of Energy of Ukraine. The parameters of the interconnector that we proposed are based on the already existing project of such an interconnector, which has been considered for a long time (since 2015, - ed.). There is a project to study its capabilities, and with our assessment, we proceeded from these data.

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So the project involves gas production in the USA and its subsequent liquefaction for shipment to regasification facilities in Poland and further through pipelines to Ukraine? In particular, media posted some information that Ben Blanchet owns the Abbeville site in Louisiana, where the oil and gas field is located?

Firstly, with regard to the Abbeville mine, it is my and my family's property. This land has been owned by my family since 1790, in the 30s of the last century, a field was really discovered there. Actually, thanks to this, I got into the oil and gas business. The site is not affiliated with Louisiana Natural Gas Exports. This is private property and is not part of LNGE's business.

Now let's talk about a part of the upstream project (exploration and production in oil and gas fields). For the overwhelming majority of companies in the United States that specialize in LNG, it is also unusual to have their own production. These are usually exceptions. In addition, according to the legislation, production and ownership of gas pipelines cannot be concentrated in one hand (the requirement of a third energy package, which is also implemented in Ukraine, - ed.). But since we and our partners have vast experience in the gas production business in the USA, we, unlike most companies on the market, nevertheless are considering the possibility of buying deposits. We would like to purchase them and conduct our own gas production.

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You had your meeting with Zelensky in Ukraine or in the USA?

We met in Ukraine, at the President’s Office. This project also meets the goals of the United States, which are interested in exporting liquefied natural gas. This is an important part of American foreign policy. The states are interested in a strong independent Ukraine and, in particular, are ready to help it in the issue of energy independence, which can be achieved only by ending dependence on Russian gas.

As far as I understand, you already have an idea of ​​what volumes of gas can be delivered from the USA to Ukraine, you name them? And it’s very important - what price will it be?

We are talking about 5.5 billion cubic meters of gas per year. We do not have a clear price agreement – this is still a matter of negotiation. I can only talk about what we offered Ukraine for our part. The price we offer will, on average, be more favorable than the prices of spot contracts on a TTF hub (based on the prices of this hub in Ukraine, the price of the gas PSO for the population is calculated. The prices of the hub are considered one of the most affordable in Europe, - ed.). If we look in the future, and we expect that in the case of a successful implementation of the project, deliveries will begin no earlier than 2023, then the price at which we enter our model will be more competitive in comparison with TTF, and in addition, it will be less volatile.

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The most important question is whether Ukraine should undertake to buy a certain amount of gas under the project? What model of calculations, in this case, are we talking about?

The volumes are 5.5 billion cubic meters per year - this is what we propose to include in the contract (compulsory purchase). The scenario in which this volume of gas will not be in demand in the country is unrealistic. We also offer our help, but if Ukraine wants, it can cooperate on this issue with other companies – hedge price risks (in case of a price failure, if the LNG, supplied under a contract with an American company, turns out to be much more expensive than pipeline gas supplies in Europe, - ed).

But the cost of the project is about $ 200 million. Could you afford it?

Just look at how similar interconnectors were founded in Eastern Europe, and you will have a good idea of ​​how we will finance this project. Wherever it comes to capital-intensive infrastructure projects, both in Europe and in the USA, the company that implements the project makes initial investments and attracts the remaining funds from credit institutions. We have already held preliminary negotiations with the US Eximbank, the International Development Corporation, and perhaps European financial institutions will also want to participate, because all over the world no one is implementing infrastructure projects at their own expense. It is much more economical to attract funds from credit institutions, and if these are state institutions, you can be sure of providing financing on good terms.

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Who exactly are the partners with whom you spoke previously from Poland? Gaz-system? Representatives of the Polish government?

In particular, we talked with the Gaz-System, but we cannot begin detailed negotiations until we receive confirmation of the Ukrainian side’s interest in the form of a signed memorandum of cooperation. Now we have a general assessment of the project, but, of course, it requires more in-depth study, in particular the technical side. This is a huge area of ​​work, but it will need to be completed, since we want to be sure that we are getting the optimal project with which all parties agree.

Naftogaz’s Executive Committee Andriy Kobolev doubted the viability of your proposed project. Have you met with him in person or have you met with any of Naftogaz’s representatives on the issue of cooperation in the project?

I can’t imagine on what basis Mr. Kobolev came to the conclusion that we do not meet the requirements of their compliance. Nobody (from Naftogaz) asked for any information or documents from us. His statements, which we saw in the public sphere, are not confirmed by any facts. If Naftogaz really is our side in the negotiations, I will be very glad to have the opportunity to sit down with Mr. Kobolev and answer all his questions. When we work with large international banks, when we work with the Chinese state corporation CNPC, none of them had questions about compliance. I am absolutely sure that we can reassure Mr. Kobolev and his team.

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