Sonatrach Declares Force Majeure on LNG From Arzew

By Dinakar Sethuraman

Oct. 21 (Bloomberg) -- Sonatrach, Algeria's state oil company, has declared force majeure on liquefied natural gas shipments from its Arzew plant because of a cracked pipeline, cutting supplies to Europe.

Production will fall 20 percent below its normal level in the next three months, Chawki Mohamed Rahal, executive vice president of Sonatrach, said at the LNG Supplies for Asian Markets conference in Singapore today. Sonatrach will divert spot supplies from Asia to help meet the shortfall in European shipments, he said.

The Arzew complex has 15 production lines with a total capacity of 19.3 million metric tons a year, according to World LNG Review, an industry publication. Force majeure is a legal clause allowing a company to miss deliveries because of circumstances beyond its control.

``Normal output should resume in January,'' Chawki said. ``The company is conducting checks on the whole pipeline and will make necessary improvements including adding insulation.''

Sonatrach has supplied 2 million tons to the Asian spot market so far this year, Chawki said. Supplies to the region in the fourth quarter will be reduced, he said.

LNG is gas that's cooled to liquid form for transportation and storage.

Chawki said plans are underway to expand the company's LNG production capacity to 32 million tons by 2012 from 22 million tons. ``We are doing work to satisfy domestic demand, which is rising as much as 16 percent this year,'' he said.

``The company is considering selling supplies based on medium-term contracts that last five years from the current 20- year agreements,'' Chawki added.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.