Law firm coffers fuelled by UK’s switch to liquefied natural gas

Consumers may be up in arms, but a host of law firms are reaping the benefits of the UK’s dwindling gas supplies as preparations hot up for the country’s first liquefied natural gas (LNG) import terminals.

Shearman & Sterling is advising Dragon LNG, a joint venture between Petroplus, British Gas and Petronas, on the planned ‘Dragon’ LNG terminal at Milford Haven in South Wales. A six billion cubic metre-capacity LNG storage facility, the Dragon terminal is set to become the UK’s first LNG import terminal.

The deal is unusual in that it is expected that the funding will take place using project finance techniques. Ordinarily, the oil and gas giants simply dip into their coffers to fund similar projects.

The results of a tender for the construction contractor will be announced by the end of this month and construction will begin soon after, with completion expected in 2007. Allen & Overy and Berwin Leighton Paisner are advising Petroplus on the project.

Herbert Smith, meanwhile, is advising Centrica on its first LNG supply deal, the 15-year, £4bn LNG supply contract with Asean LNG, a subsidiary of Petronas. Tiny energy boutique LXL Law, led by former Clifford Chance and LeBoeuf Lamb Greene & MacRae partner Alan Jones, is advising Petronas.

The deal will see Petronas supply over 45 billion cubic metres of LNG to British Gas at the Dragon terminal.

The UK, like the US and China, has struggled with an ever-increasing demand for gas, combined with dwindling reserves in the North Sea. Last month, after the Petronas deal closed, British Gas announced that it was raising its gas prices for consumers by 12.4 per cent, blaming record wholesale prices for the increase.

LNG, which is easily transportable, non-flammable and non-toxic, is being touted as the solution to depleted local supplies. The UK is accelerating its push into LNG with plans for three LNG import and regasification terminals across the country. It is anticipated that, by 2006, the UK will become a net importer of gas.

In addition to the British Gas-Petronas-Petroplus terminal in Milford, National Grid Transco (NGT) is developing a terminal at the Isle of Grain, Kent. Denton Wilde Sapte’s Charles Wood is advising Grain LNG, the NGT subsidiary operating the project.

The project sees the redevelopment of NGT’s LNG storage facility at the Isle of Grain to accommodate importation tankers. Last year, NGT agreed a contract with BP and Sonatrach for the sale of the LNG capacity at the Isle of Grain to BP and Sonatrach, a deal which represents around 5 per cent of the UK’s gas demand. The project is scheduled for comm-issioning next year, with Linklaters advising BP.

Meanwhile, Exxon Mobil and Qatar Petroleum also have plans to develop an LNG terminal, the South Hook LNG facility, at Milford in Wales, which will see LNG imported from a gas reservoir in Qatar.