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China moves in on TT gas

By Andre Bagoo Sunday, August 14 2011

click on pic to zoom in
High Speed Heroine: A model shows off a costume from the section Velocity - High Speed Hero during Island People's launch of its Carnival 2012 present...
High Speed Heroine: A model shows off a costume from the section Velocity - High Speed Hero during Island People's launch of its Carnival 2012 present...

IN A MOVE that arguably underlines the shifting of economic and political power in the region away from the US, China will this year acquire a substantial ten percent stake in the crucial Atlantic LNG plant at Point Fortin in a $5.5 billion deal.

The China Investment Corporation (CIC), the special-purpose company which manages China’s sovereign wealth fund, is to acquire the ten percent stake from French firm GDF Suez under a new memorandum of understanding signed between both and announced last Wednesday.

In exchange for joint-investment opportunities in Asia Pacific, including China, GDF Suez will, possibly before the end of the year, transfer its ten percent stake in Train 1 of the Atlantic LNG natural gas plant, as well as production payments associated with trains 2, 3 and 4 for EURO 600 million (TT$5.5b). CIC will also acquire a 30 percent of GDF Suez’s Exploration and Production division.

The transactions are subject to condition precedents and to approval by GDF Suezs’ employee representative bodies. The memorandum of understanding is to be administered by a steering committee chaired by Gérard Mestrallet, the chairman and CEO of GDF Suez and Lou Jiwei, chairman and CEO of CIC.

GDF Suez is one of five companies with interests in Train 1. The other companies are BG Atlantic 1 Holdings Limited; BP (Barbados) Holding SRL; NGC Trinidad and Tobago LNG Limited; and Repsol LNG Port-of-Spain B.V. CIC’s stake will represent the first time China has held a substantial interest in the plant since it began operations in 1999.

The deal comes after GDF Suez last October signed a medium term agreement to sell about 2.6 million tonnes of LNG to CNOOC Gas and Power Group Limited, a wholly-owned subsidiary of China National Offshore Oil Corporation, the largest importer of LNG in China.

In a statement last week, CIC’s Lou Jiwei described the deal as one of CIC’s most important.

“Our investment of 30 percent in GDF SUEZ E&P would be our first sizeable transaction in Europe to date and, together with Atlantic LNG, one of our most important investments worldwide. We are committed to working with GDF SUEZ E&P to achieve its growth prospects,” he said.

Mestrallet noted that the deal would help GDF Suez access strong networks and financing in China.

“We will work together with CIC to rapidly identify and implement areas of cooperation that could benefit other businesses in our group, with a geographic emphasis on China and Asia,” he said.

The acquisition of a ten percent stake at Atlantic LNG by China is a substantial development, in part because of the plant’s importance to US energy needs.

Atlantic LNG is the largest supplier of LNG to the US, providing an estimated 70 percent of US natural gas import needs in 2008. The plant is on a US State Department list of worldwide facilities among “critical infrastructure and key resources” in relation to US interests.

Atlantic LNG, which comprises four trains managed on behalf of the train holding companies, is capable of producing up to 100,000 cubic metres of LNG per day. This is enough energy to power the entire US for 14 months, according to the company. Train 1 at one stage was estimated to have a capacity of three million metric tonnes per annum.

CIC, a wholly state-owned company incorporated under the company laws of the People’s Republic of China, was established on September 29, 2007, by the issue of special bonds worth RMB 1.55 trillion by the Chinese Ministry of Finance.

CIC ranks fifth among sovereign wealth funds in the world by asset value, according to the US- based Sovereign Wealth Fund Institute. It ranks seven out of ten on the Linaburg-Maduell Transparency Index.

The announced deal arguably allows China to diversity its foreign reserve assets and offset risks from China’s huge US dollar foreign reserves, at a time when concern over the US and global economy has deepened.

China’s foreign reserves are approximately 30 percent of the world’s at about US$3.2 trillion (EUROS 2.23 trillion) as of June. The country is the largest foreign holder of US debt, with holdings of US$1.16 trillion in May. It is estimated that 70 percent of China’s US$3.2 trillion foreign reserves are dollar assets.

CIC is said to select investments based on long-running investment principles and does not usually take a controlling role or seek to influence operations in investment entities. Its approach is said to be to hold, manage and invest assets to maximise shareholder’s value. It is claimed that CIC has full operational independence and makes its investment decisions based on its assessment of economic and financial objectives.

GDF Suez SA is a French multinational energy company which operates in the fields of electricity generation and distribution, natural gas and renewable energy.

It is the world’s largest utility, employing 236,000 people worldwide, with reported revenues of EUROS 84.5 billion. This week, Energy Minister Kevin Ramnarine said while proven gas reserves are in decline, the country is not running out of gas.

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