Armed with a war chest of US$6.9 billion, Temasek-owned Pavilion Energy has bought into its first upstream LNG asset, paying US$1.288 billion for a 20 per cent stake in offshore liquefied natural gas exploration concessions in Tanzania.

The company announced yesterday that it has entered into an agreement with Ophir Energy to purchase a one-fifth interest in Tanzania Blocks 1, 3 and 4, with first gas deliveries expected in 2020. It marks Pavilion's first major upstream investment to build a diversified LNG portfolio to meet fast-growing Asian gas demand.

"The investment is a key milestone for Pavilion Energy to build up our LNG portfolio. It supports our plan to secure long-term energy supply at competitive prices to meet the need for clean energy in Asia," said group CEO Seah Moon Ming.

"It is also an important milestone for us as we work to develop an Asian LNG hub," he added. Pavilion said that recent major gas discoveries off the shores of Tanzania are set to position the country as a key LNG exporter. Currently owned 60:40 by BG Group and Ophir Energy, the Tanzania Blocks 1, 3 and 4 are estimated to hold about 15 trillion cubic feet of gas in moderate water depths. The offshore exploration concessions cover a 28,050 sq km area of the Mafia Deep Offshore Basin and northern portion of the Ruvuma Basin, located in water depths ranging from 100 metres to more than 3,000 metres.

BG Group is the designated operator of the Tanzania concession from which first gas delivery is expected in 2020.

BG is also Singapore's initial LNG aggregator or buyer. Singapore is now starting the process of picking a buyer, even possibly two, for its next batch of long-term LNG supplies, beyond the current volumes imported by BG.

Pavilion Energy chairman Mohd Hassan Marican said that "the natural gas developments in Tanzania hold tremendous potential - not just for Pavilion Energy but for Singapore and Asia".

"Pavilion Energy looks forward to the partnership with BG Group and Ophir Energy in realising the LNG project. The LNG from the Tanzanian project will provide another source of supply to the Asian markets," he added.

The investment is subject to regulatory, governmental and other required third party approvals, as well as approval by Ophir's shareholders by way of a general meeting. The transaction is expected to complete in the first quarter of 2014.

Pavilion's latest upstream investment follows two LNG supply deals reported by the company last month.

These comprised a 10-year LNG supply deal for 0.5 million tonnes per annum, estimated to be worth US$500 million annually, and with first LNG deliveries into Singapore and Asia in 2018; and a spot deal with delivery to Asia next February. It has yet to identify the sellers for these.

The company was set up by Temasek Holdings in April to trade and ship LNG, and also to invest in both LNG upstream assets as well as downstream ones, including regasification terminals.

-- By Ronnie Lim