Daewoo E&C close to Nigerian LNG deal

A consortium including Daewoo Engineering & Construction reached a tentative agreement with Nigeria LNG to build a liquefied natural gas (LNG) facility worth over $4 billion, the first time a Korean company has been included in such a deal as a contractor rather than a subcontractor.

The construction company said in a statement Monday that it received a letter of intent from Nigeria LNG for the construction of its Train 7 project on Bonny Island in Nigeria, which is expected to expand operations at the plant by 35 percent to produce 30 million tons of LNG annually.

Daewoo said it has a 40 percent stake in the project, which is estimated at around $4.3 billion in total, according to analysts. The consortium also consists of Italy’s Saipem and Japan’s Chiyoda.

The deal is subject to changes until a finalized agreement is signed.

“The final investment decision is expected to be finalized sometime in October,” said Lee Kwang-soo, an analyst at Mirae Asset Daewoo, in a report.

The deal marks an important cornerstone for Korea’s construction industry, which has struggled to break into the LNG plant market.

“There exists a cartel for important plant construction,” wrote Lee, explaining that Korean companies have lost out on such deals due to a lack of technology and experience. “Daewoo’s LNG liquefaction plant agreement has big implications. It goes beyond a simple project and ensures profitability and future growth overseas.”

Daewoo explained that its role in the construction of five earlier projects for the existing Nigerian LNG facilities helped land its the latest agreement.

Previously, the company took part in construction as a subcontractor.

“The Nigeria LNG project has good profitability and is expected to improve earnings in the plant business,” said a spokesperson for Daewoo.

Daewoo has focused on LNG plant orders as demand for the resource is set to rise gradually. According to British Petroleum, demand for natural gas is expected to rise by 35 percent from current levels by 2035.

Daewoo has taken part in 10 construction projects for the 90 global LNG liquefaction plants that are currently operational. It is currently taking part in LNG plant construction in Mozambique, Qatar and Indonesia as a subcontractor, while competing for LNG plant orders in Russia and Papua New Guinea.

Daewoo shares rose nearly 12 percent on Monday.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]