BP wins big in Argentina LNG supply tender

Reuters

By Oleg Vukmanovic

LONDON (Reuters) - Argentina's state-run energy firm YPF has picked BP (LSE:BP.) to supply the bulk of its liquefied natural gas (LNG) needs in 2014 and 2015 following a major recent tender, a source with direct knowledge of the deal said.

South America's No. 3 economy last month launched its annual tender to secure approximately 5.57 million tonnes of LNG over the 2014-2015 period to help cover its energy needs.

BP is to supply around 40 of the 48 cargoes sought by YPF for delivery into the Bahia Blanca import terminal, the source said.

Gazprom Marketing & Trading (MCX:GAZP) is set to bring in a further five cargoes to the terminal, 400 miles south of Buenos Aires, and Norway's Statoil (OSL:STL) will deliver the final three, trade sources said.

Argentina will pay around $15 per million British thermal units (mmBtu) for deliveries in 2014, and a premium of around $10/mmBtu above the U.S. Henry Hub gas price for deliveries the following year, a source said.

Gazprom, Statoil and YPF declined to comment.

The state-run firm also picked Spain's Gas Natural Fenosa (GNF) to deliver around 2.7 million tonnes of LNG into the country's other terminal at Escobar on the Parana River.

The award was given despite an Argentine judge's ruling last week that banned GNF from participating in the tender due to a potential conflict of interest.

It remains to be seen whether subsequent court actions could overturn the award to GNF, traders said.

BANNED

The reason for the ruling given was that GNF's major shareholder, Repsol, also holds a stake in YPF, the tender manager.

YPF, which has appealed the ruling, went ahead and awarded GNF the contract earlier this week.

Its chief Miguel Galuccio on Wednesday said of this decision: "We are going to keep going. If the justice system says no, we'll stop.

GNF was widely tipped to win the Escobar part of the tender after YPF's revised terms of participation this year appeared to clear the way for the Spanish company, traders said.

Those terms include YPF's decision to seek a single supplier for Escobar - last year Vitol supplied around a third of Escobar's requirement, with GNF delivering the rest- as well as a marked shift in how the LNG will be priced.

Last year the pricing mechanism for Escobar deliveries was based on U.S. Henry Hub gas prices, but this year YPF proposed a link to Brent crude oil instead, which GNF prefers, two traders said.

In spite of the preferential terms, GNF is one of few global LNG suppliers that has the small ships needed to supply the river terminal, which is unable to receive standard tankers due to water depth restrictions.

As a result of that, one trader pointed out that GNF is best placed to supply Escobar at the lowest cost.

Given the shallow waters, only half-full standard sized tankers can unload at the terminal, which increases the shipping cost and lifts the overall price of LNG, energy analysts at Waterborne added in a recent report.

"Gas Natural is a collateral victim of the battle between Repsol and the state," said one LNG trader of the ban levied against GNF.

He was referring to a high-profile dispute between Repsol and Argentina after authorities nationalized YPF, the Spanish firm's subsidiary at the time.

Repsol has filed lawsuits against the country for its loss of YPF valued at $10.5 billion.

Fuel imports have been growing in Argentina due to a persistent fall in local production and an increase in demand, especially for gas.

Argentina's fuel imports rose 31.9 percent in August 2013 from the same month last year. Led by liquid natural gas purchases, imports totalled $942 million, according to Argentine government data.

(Additional reporting by Karina Grazina in Buenos Aires, Nerijus Adomaitis in Oslo and Tracy Rucinski in Madrid, editing by William Hardy)

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