By Spencer Swartz
LONDON--Turkmenistan on Wednesday awarded natural-gas contracts valued at $9.7 billion to several foreign energy companies, marking the latest step in the Central Asian nation's quest to become a major gas exporter to Asia and Western Europe over the coming decade.
U.K. oil-services company Petrofac /zigman2/quotes/202340229/delayed UK:PFC +0.78% Ltd. won the biggest slice of the contracts handed out in terms of deal value. The company signed a two-phase agreement valued at about $4 billion, according to a person familiar with the matter, to provide engineering services for the development of Turkmenistan's South Yolotan natural-gas field, one of the world's biggest.
State-run China National Petroleum Corp, which has been positioning itself in recent years to get a major chunk of Turkmenistan's hydrocarbons, was awarded a South Yolotan gas development deal valued at about $3.1 billion, according to a second person familiar with that agreement.
China has a 30-year gas deal with Turkmenistan that was underwritten by a Chinese commitment to lend Turkmenistan's state gas company $4 billion on preferential financial terms, of which $3 billion will go towards Yolotan's development.
Turkmenistan is hoping South Yolotan will help it become a major gas exporter to Asia and Western Europe over the next decade. The Central Asian state has historically sent most of its gas exports to Russia and that will continue near-term, but Yolotan is expected to change that down the road. The field is estimated to hold up to 14 trillion cubic meters of gas and will be developed in multiple phases.
Some analysts, however, have questioned how quickly the field's output will ramp up because of the Turkmen government's approach to contracts. The government wants to sign only service deals that usually aren't that profitable to major Western energy companies, which have the technology and know-how that could speed up development of the field. The Turkmen government has many other contracts to award.
"The government is still thinking it can look largely to service companies to develop South Yolatan," said Julia Nanay, an analyst at PFC Energy consultants in Washington, D.C.
LG InternationalCorp. said it and South Korea's Hyundai Engineering & Construction Co. also signed a $1.48 billion deal with the Turkmen government to build a major gas-processing facility.
The deals, which also included one awarded to Gulf Oil & Gas FZE of the United Arab Emirates, were formalized Wednesday in a signing ceremony in Ashgabat, the Turkmen capital.
Earlier this month, the leaders of China and Turkmenistan--together with the heads of state of other Central Asian nations--opened a section of a 4,350-mile gas pipeline that will run between their two countries via Uzbekistan and Kazakhstan. Turkmenistan is expected to start delivering gas through the new pipeline in 2010. Volumes are projected to rise almost sevenfold over the next five years to 40 billion cubic meters by 2015 as Yolotan's development gets going.
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