By acquiring an interest in the Equatorial Guinea Liquefied Natural Gas (LNG) Project in July 2005, Mitsui & Co., Ltd. (Mitsui) began a new chapter in its long history in the LNG business. The Equatorial Guinea LNG Project enables Mitsui to serve the burgeoning LNG markets of the United States and Europe for the first time, consolidate its global LNG portfolio, and contribute to the development of Equatorial Guinea. Mitsui envisages the project becoming a regional gas hub in sub-Saharan West Africa.

Demand for LNG is surging in the Atlantic Basin. Although the Pacific Basin has always been the largest market for LNG, by 2015, demand around the Atlantic Basin is projected to draw level, before surging ahead through 2020. This is being driven by the United States and Europe, where the demand for natural gas is expected to grow steadily whereas the supply by pipeline from each area is not expected to increase. Also, in Europe, LNG is drawing attention as a means to diversify energy sources.

LNG is natural gas that has been removed of impurities and liquefied by cooling to minus 162°C. Liquefying natural gas reduces its volume by a factor of 600, enabling efficient transport over long distances when pipeline transport is not feasible. Increasing interest in LNG in the United States has put gas resources on the other side of the Atlantic Ocean and beyond into the spotlight as viable supply sources for the U.S. market. Identifying these changing dynamics, Mitsui seized the opportunity to extend its LNG business to the Atlantic Basin.

Mitsui's track record in LNG spans more than three decades. It began in the mid-1970s with the Abu Dhabi LNG Project. Mitsui took a 15% stake in this project, which has an output of 5.5 million metric tons per annum (mmta). In doing so Mitsui played a pioneering role in the LNG business, securing a stable supply of LNG for Japan and supporting Japanese utility companies' conversion from oil and coal to LNG in response to the 1973 oil crisis.

After Abu Dhabi LNG, Mitsui participated in the North West Shelf LNG Project in Australia (8.3%, 11.9 mmta), the Qatargas 1 Project (7.5%, 9.6 mmta), and the Oman LNG Project (2.8%, 6.6 mmta). These successful projects --typically operated in partnership with oil majors and state-owned oil companies-- continue to expand today, with new liquefaction trains coming on line and new customers forming contracts.

In addition, other projects in which Mitsui participates will start production in the coming years. The key Sakhalin II LNG Project is on track for first shipment in 2008 and is projected to produce 9.6 mmta. The Tangguh LNG Project in Indonesia (2.3%, 7.6 mmta) and the Qatargas 3 Project (1.5%, 7.8 mmta) are scheduled to come on-stream in 2009.

Through its close involvement in the creation of LNG industry infrastructure, Mitsui has also been contributing to the development of the supplying countries. Qatar is a case in point. When Mitsui first became involved in the Qatargas 1 Project in 1989, Qatar was producing around 400,000 barrels of oil per day. However, Qatar used the opportunity to develop the North Field gas field, through the country's first LNG project. By 2010 the small Gulf emirate is projected to produce 77 mmta of LNG, making it the world's largest LNG producer.

Mitsui won the right to purchase an 8.5% stake in the Equatorial Guinea LNG Project through a competitive bid that highlighted the company's proven capabilities in gas field development, liquefaction, distribution via specialized LNG tankers, and marketing. Only a handful of companies worldwide have the capability to undertake significant work in the knowledge- and capital-intensive LNG industry, and this perhaps influenced the decision of the government of Equatorial Guinea, and Marathon Oil Corporation --the project's leading participant-- to choose Mitsui.

From Mitsui's perspective, the Equatorial Guinea LNG Project enables the company to enter a new era of LNG business. The project will be Mitsui's first to serve the U.S. and European markets via the Atlantic, and its first in West Africa, a high-potential supply region with sea access to those markets.

Sea access to the U.S. and European markets is just one of the project's geographical advantages. Equatorial Guinea is comprised of a mainland territory and Bioko Island, which is nearer to Nigeria and Cameroon than to mainland Equatorial Guinea. The Equatorial Guinea LNG Project is located on the northwest of Bioko Island, beside Equatorial Guinea's offshore Alba gas field and conveniently close to the substantial stranded offshore gas reserves of its near neighbors.

The project's Train 1 liquefaction plant, which acquires its gas from the Alba field and produces 3.4 mmta of LNG, delivered its first cargo of LNG six months ahead of schedule in May 2007. The LNG is being sold to BG Gas Marketing Ltd. (BGML), a subsidiary of BG Group plc, under a 17-year purchase and sale agreement. BGML will primarily supply LNG to the United States, but will also supply European and other markets.

The advantages of the project's location will become even more evident with the development of additional trains. The project's partners awarded a front-end engineering and design contract for the Train 2 liquefaction plant in August 2006. Train 2, with a planned off-take of 4.4 mmta, is being designed with the intention of securing gas supplies from gas resource holders in the surrounding areas of Equatorial Guinea, Nigeria and Cameroon.

In this way, the Equatorial Guinea LNG Project will serve as a regional gas hub, providing a means of commercializing the region's significant stranded gas reserves. As part of this process, the project will make efficient, environmentally friendly use of flare gas --gas produced in association with oil production, which previously would have been burned off as waste.

The extension of Mitsui's LNG portfolio to include the Atlantic Basin will also provide Mitsui with greater flexibility to respond to short-term and longer-term demand imbalances in markets around the world. As the LNG business globalizes, supply contracts are beginning to diverge from the long-term contracts typical of the industry to date, which is leading to increased short-term trading in LNG. Mitsui's participation in the Equatorial Guinea LNG project enables it to meet the short- and long-term needs of customers in multiple markets.

The Equatorial Guinea LNG Project will not just benefit global energy consumers. As it has successfully done in Abu Dhabi, Qatar and elsewhere, Mitsui also intends to contribute through the project to the development of Equatorial Guinea.

A key aspect is the employment and training of local people. Development of Equatorial Guinea's human resources is crucial for the development of the country itself. Mitsui and its partners have therefore built centers to teach the engineering, construction and carpentry techniques required for development of LNG plant infrastructure, and providing on-the-job training to enable local plant employees to learn the business from experienced overseas LNG professionals. As this training progresses, positions on the project that had been filled by overseas staff are steadily being occupied by local employees.

The project's overseas partners are also contributing in areas such as AIDS education, water supply infrastructure, and coastal protection, and the project's largest shareholder, Marathon Oil, is leading a comprehensive attempt to eradicate malaria.

The future looks bright for Mitsui's LNG business --as it does for the Equatorial Guinea LNG Project and Equatorial Guinea itself. In the years to come, Mitsui hopes to participate in the successful development of numerous future trains as the project establishes its position as a key regional gas hub meeting ever growing demand for LNG in the United States and Europe. Mitsui also intends to apply the experience gained from the project to similar projects in sub-Saharan Africa and elsewhere, as part of its continued drive for leadership and growth in the global LNG industry.