CORRECTED-Qatar's LNG gift to Egypt to find foreign firms

Fri Jul 12, 2013 1:08pm EDT

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(In paragraph 11 makes clear Cairo not paying for five cargoes)

By Oleg Vukmanovic

LONDON, July 12 (Reuters) - Qatar's gift of five natural gas cargoes to fuel-short Egypt will likely be signed over to the foreign partners in Egyptian export plants, GDF Suez and BG Group, as compensation for declining exports.

Doha agreed last month to donate five LNG tankers to help Cairo cover obligations to foreign firms.

It is gas which Egyptian port facilities are not equipped to import, but the cargoes will allow Egypt to devote more of its own supply to its domestic market, where energy shortages helped fuel civil unrest.

According to talks held last week, GDF Suez will take delivery of three liquefied natural gas (LNG) cargoes in Europe while BG Group will send two shipments to Asia, a source at one of the companies said.

But the allocation of cargoes has not yet been finalised.

"The decision-making process is taking longer than expected due to the situation in Egypt," the source said, referring to last week's military-backed overthrow of Mohamed Mursi.

"There is a also question mark over whether leadership changes in Qatar could delay or suspend the deal," he said of the recent father-to-son power transfer in the tiny Gulf state.

LNG producer Egypt has curbed exports in recent years due to supply shortages and growing domestic needs, which in turn have disrupted deliveries to foreign firms who funded its export plants. Egypt can export LNG but it cannot import it without a floating terminal, which it has struggled to secure after cancelling a number of tenders.

BIGGER DEAL

As part of a bigger deal, Qatar pledged in May to supply 18-24 cargoes to firms such as BG Group and GDF Suez over the next year or more. But the number of cargoes under discussion has since shrunk to 13, said to a source at state-run oil company EGPC in Cairo.

That deal has been held up due to disputes over price.

While Cairo will not have to pay for the five cargoes, Qatar will still have to compensate the foreign partners in Qatargas II, the plant earmarked to supply the gas, for the value of the LNG.

Qatar cannot easily take unilateral decisions on where to send its LNG or to offer discounted rates because it is bound by strict commercial arrangements with its project partners.

The foreign partners in Qatargas II, Total and ExxonMobil, have agreed to be paid $13/mmBtu for the volumes - a price that could also be used to set the value of the other 13 cargoes, according to a confidential report by consultancy Poten and Partners, obtained by Reuters.

The five "gift" cargoes would act as the discount, one source familiar with the matter said, as Qatar is bound by commercial constraints and fears that cut-price supplies could jeopardise some of its long-term deals.

Although cash-strapped Egypt is reluctant to pay high prices, $13/mmBtu is understood to be the best deal Qatar can offer on a purely commercial basis, trade sources said.

It is the price of LNG sold in Asia, Qatar's main export market, minus the cost of shipping.

This swap would help free up more gas for the domestic market but it is not clear whether Egypt could redistribute gas normally destined for exports owing to pipeline constraints. The domestic grid would need to be opened up, a process that would take 3-4 months, one of the sources said.

GDF Suez and BG Group, who own stakes in Egypt's Idku export plant, declined to comment. (Additional reporting by Julia Payne in London and Maha El Dahan in Abu Dhabi; Editing by David Evans)

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