Natural Gas Procurement Challenges for a Project Financed Cogeneration Facility

Abstract

A decision to project finance a 110 megawatt combined cycle cogeneration facility in 1986 in place of conventional internal financing greatly changed the way in which natural gas was normally procured by Union Carbide Corporation. Natural gas supply security for the term of financing was a major concern of the financing interest, while competitive fuel cost greatly concerned Union Carbide. In addition, the natural gas contract had to be in place prior to construction financing finalization. This paper will explore the thought process that went into evaluating the various natural gas supply proposals that ultimately resulted in the final contractual arrangements. While the information presented will be deliberately non-specific to the suppliers involved or the contractual terms, the discussion will cover the following areas: PROJECT FINANCING REQUIREMENTS, GAS SUPPLY CONSIDERATIONS, SUPPLY TRANSPORTATION EXPEDITIOUS INTERNAL APPROVAL, and SUPPLIER INTANGIBLES.