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Peru LNG Project Gets Green Light by Hunt Oil, Repsol, SK Corp.

Hunt Oil said it awarded a $1.5 billion engineering, procurement and construction (EPC) contract to Chicago Bridge & Iron (CB&I) for the Peru LNG project (PLNG) in Pampa Melchorita, Peru. The project, which is expected to provide about 4.4 million metric tons of LNG per year to the West Coast of Mexico and possibly the United States, has been given a green light to proceed by the international consortium of Hunt Oil, Spain's Repsol and SK Corp. of Korea.

"The PLNG project continues to be on schedule with the strong support we are getting from the Peruvian government as well as the confidence we have in the country's stability," said PLNG President Steve Suellentrop, "and we anticipate project completion in the first half of 2010 as originally planned."

The total cost for the project, including the liquefaction plant, related marine and pipeline facilities and development and financing costs, is about $3.8 billion, making it the largest foreign direct investment in Peru's history. The project has support from the Peruvian government and is expected to lead to economic growth and jobs in the country.

It is being designed to take 620 MMcf/d of natural gas from the Ayacucho Mountains through a 250-mile, 32-inch diameter pipeline to the single-train liquefaction plant on the coast south of Lima, where it will be put into tankers bound for the western seaboard of North America. Exports are expected to commence in mid-2010, the companies said.

The LNG project is the next step in marketing gas from the Camisea development project, which consists of several natural gas fields located in the Ucayali Basin of southeastern Peru. The project has 8.7 Tcf of estimated reserves and adjacent development is expected to access another 3.5 Tcf of reserves.

Camisea production started in 2004 with capacity at 450 MMcf/d of gas and 34,000 bbl/d of natural gas liquids (NGL). Transportadora de Gas del Peru (TGP), a consortium led by Techint, constructed natural gas and NGL pipelines to carry Camisea production to Lima and to a fractionation plant in Paracas. Belgium's Tractebel holds a contract for gas distribution to industrial consumers and gas-fired power plants in Lima. However, gas production from the Camisea project will likely exceed domestic demand for the foreseeable future, so project sponsors would like to export any excess to the North American West Coast.

Financing for the project is expected to come from a variety of sources, including the Inter-American Development Bank, with which Peru LNG signed an $800 million mandate letter in July 2006.

The EPC contract awarded to CB&I for the LNG plant and marine facilities represents the largest single investment of the project. The entire project is expected to take four years to complete.

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