Abu Dhabi - Shipping Unit.

ADGAS has at its disposal eight new LNG tankers owned by National Gas Shipping Co. Ltd (NGSCo), a unit of ADNOC. Four tankers of 135,000 cu m each were ordered from Japan and the other four, of 137,000 cu m each, were ordered later from Kvaerner-Masa Yards in Finland. They carry LNG from Das

island to Tokyo Electric and the short-term buyers in the West. NGSCo has also been chartering additional tankers to ship spot LNG. Oasis International Leasing Co., based in Abu Dhabi, was in late 1998 structuring a lease finance package for NGSCo's fleet. The deal will free up funds for ADNOC to finance its industrial expansions. NGSCo and five other units including the oil products shipping company ADNATCO were in October 1998 put under ADNOC's huge new Shared Services Directorate, as part of the NOC's restructuring (see who's who in next week's Review). The Tepco Deal & LNG Price: Tepco's first contract with ADGAS was for April 1977-1997, under which it bought 2.06m t/y of LNG at a CIF-Japan price indexed against light crude oils, plus most of the plant's LPG output. The LNG was shipped to Tepco's terminals at Futtsu (6,290 miles from Das) and Higashi- Ohgishima (6,310 miles). The contract was renewed in October 1990 to 2019, with a clause that Tepco would raise its LNG purchases. In October 1993 Tepco signed a 25-year contract to buy most of the third train's LNG output and some of its LPG yield. Tepco raised its LNG purchases gradually from late 1994, to reach 3.6m t/y in the Japanese fiscal years 1996 and 1997 and almost 4.7m t/y as from fiscal 1998. It also got the option to raise LNG purchases to 4.9m t/y. But it did not use the option because of a decline in demand. However, Tepco and ADGAS could not agree on a final CIF-Tokyo price formula. As a compromise, the two parties in April 1994 froze the price at $3.06/m BTU on the understanding that a final agreement would involve a higher price, and Tepco undertook to pay the difference retroactively to April 1994. For its part, ADGAS invoiced Tepco at an interim price of $3.46/m BTU. A new market price agreement was reached for fiscal 1997 which expired on March 31, 1998. It was agreed that, until another accord was signed, Tepco was to pay under a provisional system for a six-month period from April 1. This was calculated on the basis of Japan's weighted average LNG import price. In September ADGAS and Tepco began negotiating a new market price for four to five years. As oil prices fell steeply in the subsequent weeks, ADGAS and Tepco failed to reach an accord. But they agreed to another six-month extension of the provisional pricing system. ADGAS, in the meantime, asked for a revival of a formula discussed earlier on in the negotiations based on the CIF-Japan value of imported crude oils in BTU terms, plus a premium of 6.05 cents/m BTU. The formula was: A x JCC + B + C. This means the A component, which is equal to 0.1485, is multiplied by the average Japanese Customs Clearance (JCC) price of a basket of imported crude oils. Then to be added are a fixed B component equal to 0.8966 and the C component which is known as "S Curve". The S Curve, introduced in NWS' contracts with Tepco and other buyers of Australian LNG, provides a crude oil price floor of $13-16.95/barrel, to protect ADGAS against a collapse of oil prices, and a ceiling of $25.05-29/barrel to protect Tepco against wild price rises. The C component (S Curve) would be equal to zero when the JCC price is between $16.95 and $25.05/barrel. But when the JCC price is between $25.05 and $29/barrel, the C component acts as a braking mechanism to protect Tepco from the full impact of a rise in crude oil prices above the $25.05/barrel limit. When the JCC price is between $13 and $16.95/barrel, the C component is used as an accelerator to protect ADGAS from the full impact of a fall in crude oil prices under the lower limit.