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Two favourites to merge with Shell on Gladstone gas/LNG projects

The Age - Australia, Mathew Murphy, June 18, 2009

EARLY bets on which of Queensland’s coal seam gas (CSG) players will be the first to consolidate their projects equally favour Santos/Petronas and Origin Energy/ConocoPhillips to tie up operations with Shell.

Deutsche Bank analysts say Shell’s announcement last week that it planned to produce 16 million tonnes of liquefied natural gas (LNG) a year — equal to four production lines or “trains” — from Curtis Island off Gladstone, could be a move to accelerate mergers in the crowded Queensland market.

“We note that Shell’s current equity 2P (proved and probable) reserves are around 600 petajoules, or 20 per cent of one train,” Deutsche Bank said. “As a result, we see the Shell announcement as the company attempting to stir the pot and encourage consolidation in the CSG-to-LNG sector.

“We would identify the GLNG (Santos/Petronas) and APLNG (Origin/ConocoPhillips) projects as potential consolidation targets, especially given Petronas’ existing relationship with Shell in operating projects in Malaysia, while ConocoPhillips and Shell are joint-venture partners in the Sunrise project in Australia.”

Shell said on Friday it could produce its first LNG train by 2014, putting it in line with more advanced rivals Santos/Petronas, BG Group, and Origin/ConocoPhillips.

BG has signed a 20-year deal with China National Oil Corporation to supply LNG. Santos has said it is “very, very close” to signing a deal to sell LNG to Korea. Analysts say that puts Santos and BG in front despite the Shell and Origin proposals being expected to be the largest.

Sources have also told BusinessDay that Santos’ environmental impact statement is “on the final desk” in the office of Queensland’s Co-ordinator-General and might be signed off within a week. It had been expected to get approval before now but the volume of the document has delayed its assessment.

Shell admits it will need to source more CSG reserves to deliver the 16 million tonnes of LNG but says it is in negotiations to secure more gas.

Despite speculation on which of Gladstone’s LNG projects will make it to production, Deutsche Bank says it believes the ExxonMobil-led Papua New Guinean LNG project has a 90 per cent chance of going ahead. The joint-venture partners have said they will spend $US600 million ($A751 million) on initial works before a final investment decision this year.

http://www.shell.com.au