Dunkerque LNG: The Power to Negotiate

For the last five years, Christophe Liaud, Commercial Director of Dunkerque LNG, has been a part of the development of what will be a major LNG project in Europe, a re gasification facility presently under construction that will have 13 bcm/annum capacity. Dunkerque LNG has been nominated for "Project of the Year" at the European Gas Conference taking place in Vienna, Austria 28 January - 1 February.

Of Dunkerque LNG, Mr. Liaud remarks, "When it comes online in 2015 it will be the largest re gasification facility in continental Europe."

He explains that Dunkerque LNG is supported by three main industrial shareholders: Electricite de France (EDF) - the former electricity monopoly in France and the world leading nuclear power plant operator who was the initiator and main supporter of the project, who holds 65%; Fluxys, the Belgian transmission system operator and operator of the Zeebrugge terminal with 25% of shares; finally, France's Total bears 10% of shares.

"This terminal will be directly connected to 2 markets - France and Belgium - and it will be a first in Europe," he adds.

In the medium term, says Mr. Liaud, Europe will need more gas importation, which contributes to the business case for Dunkerque LNG.

"So, first it's a new entry point for importation and at the same time it's a tool that can be used by the customer to negotiate supply with the producer. When you have an option to diversify your supply, for sure you can buy your supply a little bit less than expected."

He comments, "For EDF, which is an electric company, the competitiveness of its gas supply is very important, and to be in a better position to negotiate with the supplier you need to have your own tool, the terminal is on that point a part of it."

EDF has the capacity to generate approximately 11 GW of its electricity from gas-fired production and sells around 200 TWh of gas per year

Located in the north of France, Mr. Liaud says Dunkerque LNG is 70 kilometers from the Zeebrugge terminal and 25 kilometers from the Belgian border. "So that's why we decided to connect this terminal to France, and Belgium is not so far. For the first time the gas will be exported because it will non odorizedfrom France to Belgium while historically gas has been flowing in the opposite direction for decades Few may be aware that France is one of the rare countries in Europe where gas is at odorized at the transmission system level (it is not the case in Belgium). So it's a first."

In terms of the project's greatest challenge, according to Mr. Liaud it was simply making the final investment decision on such a huge scale project, "because basically it will have twice the capacity of existing terminals in Europe. This is a greenfield project, which means it needs to have the support of strong shoulders, and in this case that strength came in the form of a long term vision from EDF, Total and Fluxys - a long-term vision for the future of gas in Europe.

"On the other hand," he continues, "they decided to invest in a re gasification facility that is larger than the commercial capacity booked on the long term, meaning that today 20% of the re gasification capacity is still available for the market. Even if we have no customers for these available capacity because the market is so depressed today, these three major shareholders feel very confident about finding a new customer in the future, on a mid term basis."

Dunkerque LNG being located in the North Sea, at the entrance of the Emissions Control Area, means that it will very likely play a role in developing LNG bunkering fuel, which Mr. Liaud says is part of the project at that time but we're just at the beginning of this, because present. "We are focused on the construction of the main project," he says.

Work on site started 1 September 2011, he reports.

Dunkerque LNG is scheduled to go online in 2015 and Liaud says it is completely on track and on schedule, another challenge for the project, but one for which the company is well prepared.

"The terminal will be connected to a nuclear power plant to catch the hot water discharged for the purposes of supplying through a 5 km tunnel the calories necessary to re gasify the LNG - this is under construction," he says.

According to him, the economic model for the project is based on the long-term subscription of the customers, who are EDF and Total and have subscribed for 20 years, signaling their trust in the future of gas, enough that they made the investment in the terminal.

He recalls, "At the time of the decision, the market was incredibly depressed and the future of gas was questioned. The shareholders - Total, EDF and Fluxys - decided to build a larger terminal than the capacity sold, meaning that they have the same vision for gas with 3 bcm available. The lack of review of the capacity not sold is a burden for the shareholders on a short term but seen as a real opportunity for mid term."

He says another challenge for new LNG entrants with a re gasification facility is that costs are higher than for other, established facilities in Europe with amortized costs. "As a new LNG entrant one must develop a very attractive service which addresses the needs of your customers. Today, it's not only to supply gas to a captive market, but to arbitrate among various markets at a global level, meaning that the terminal will be a huge facility at the upstream level; shippers are not obliged to bring cargo to the terminal, but when they do they'll be making a large profit contribution on the downstream, because they'll have the possibility to fully manage the rate of their own send out to the grid system, choosing the best time to sell gas between two gas systems: the Belgian or the French one."

Mr. Liaud adds that Dunkerque LNG terminal offer indeed a great deal of flexibility to its customers on both upstream and downstream side, meaning that the shippers can optimize their LNG position at a global level.

He reports that there was no real public opposition to the development this huge project, although debate over it took place in 2008-09. "It mostly showed that our project was well accepted, locally because Dunkerque is an industrial city, and there was a real interest for increasing the traffic within the port. Today there's no limitation for traffic into the port – there is no tide constraints and there are no residents in the immediate vicinity, so the project is well appreciated and strongly supported by local decision makers and the local population."

Mr. Liaud sums up why he considers Dunkerque LNG to be an outstanding European energy project: "Because it was decided at a very difficult time and it's a very large LNG facility with an ability to process around 20 % of the total gas consumption of the 2 countries, meaning that it will make a great contribution to security of supply in Europe, and because it is a first to bring LNG to single import point for the French and Belgian markets, further physically consolidating the integration of these two markets and the north-west market of gas."

He says he believes LNG will play an important role as a main competitor to pipeline gas and the possibility to import LNG for buyers of gas is very important for negotiation with other gas producers. "I'm not sure what the real role of LNG will be; I think the important thing is to let LNG be imported to Europe to have bargaining power."

As to whether or not he believes European policymakers share such enthusiasm for LNG, he says he believes they share it to some extent, as Dunkerque LNG requested an exemption in 2009 which was granted by the French Ministry of Energy with European Commission consent.

Christophe Liaud comments, "European policy very much revolves around security of supply, but I'm not really sure that policymakers are aware of the real price of security of supply."