The Dubai Multi Commodities Centre (DMCC) has denied claims its LNG storage facility will cost twice its original estimate. Oil industry media reported the project would now cost US $2 billion, an increase of US $1 billion on the DMCC’s original estimate.
“It definitely will not cost US $2 billion for nine tanks, as was reported,” said Tilak Doshi, executive director of energy for the DMCC. “The statement about doubling capital costs was misconstrued. Our original US $1 billion estimate was very general and didn’t take into account details such as location of the facility.
“The important thing to remember is that our original estimate was made in August last year. Since then, steel prices have gone up considerably, which has a knock-on effect for our cost predictions. We expect final costs to be around 30% higher than first thought.”
Last year state-run DMCC unveiled plans to develop a gas storage facility with LNG Impel as a means of establishing an LNG derivatives market in Dubai. TechnoPark owns the location in Jebel Ali for the proposed facility.
Doshi is confident the 30% increase in cost estimates will not affect the viability of the project, which will be operational by 2013.
“Our original timelines have not changed, but the negotiation process may longer than we originally planned because the novelty of the project means we have to spend more time marketing and educating some of our potential clients,” said Doshi.
Doshi said the DMCC’s original equity partners would retain up to a 51% stake in the project. Foundation customers which join the venture in the early stages will be invited to purchase a share of the remaining 49%. So far there has been no agreement on the distribution of shares between LNG Impel and the DMCC.
“The LNG industry has been evolving in recent years,” said Doshi. “The need for flexibility has increased and storage is playing a critical role. The classic LNG model revolves around the buyer in contract with the seller. Everything is locked in place for up to 25 years, with strict and inflexible schedules. The requirement to vary the volume of cargo and divert it from one destination to the other has led to the need for flexibility. Storage provides this as you are not forced to take delivery at a specific time, or consume gas when you don’t need to.”
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