Dubai to set up $1 billion LNG facility

The company is teamed up with the Dubai Multi Commodities Centre (DMCC) and Dubai Techno Park and follows the signing of a Memorandum of Understanding between LNG Impel and the DMCC in June to jointly pursue the project.

This new LNG storage hub will offer customers the ability to store, trade and plan supplies of LNG.

"The launch of this facility would offer greater flexibility to both buyers and sellers and would release them from being tied to strict and inflexible supply schedules over long periods of time," said Tilak Doshi, executive director for Energy at DMCC.

The facility, to be known as Dubai LNG Storage Hub, will have a storage capacity ranging from 40 to 65 billion cubic feet and will be built in three phases. The first phase is scheduled to be completed by 2011 and the whole project is to be completed by 2013.

The hub will also provide other services such as LNG loans and LNG quality blending. Over time, it is expected to offer financial derivatives around LNG and shipping. DMCC and Impel will begin the open season bid process for storage capacity with an initial non-binding bid round commencing on August 28.

Doshi explained: "The Dubai-based storage facility will enable core LNG suppliers and buyers to capture value by storing and trading across different months, as seasonal price variations are a key attribute to global LNG pricing. It will also allow multiplicity of buyers, sellers and traders to arbitrage across several regions and support derivatives trading as a spot market emerges around the storage facility."

Demand for natural gas is growing fast, as it is a clean fuel and allows diversification from less clean fuels like oil or coal, he explained. The LNG will be shipped mainly from major producers such as Abu Dhabi, Qatar and Oman, as no LNG is produced in Dubai. This allows for the facility to be run by an independent operator.

Elrahal also said: "The city is centrally located between supply and demand of LNG. Dubai is within one and a half sailing days from major suppliers in the region, about 10 days sailing from major customers in the Near and Far East, and 14 days sailing from Europe." He explained that Impel's partnership with DMCC is designed to ensure that transaction costs for the customer are minimised.