-- Rising costs and strong Australian dollar a challenge for LNG...

-- Rising costs and strong Australian dollar a challenge for LNG plans

-- Decision on second Australia Pacific LNG train by end-year

-- Goldwyer shale gas exploration drilling expected in 2012

(Recasts, adds detail on production costs, currency, workforce, Woodside project, LNG buyers, options to develop project)


By Stephen Bell
Special to DOW JONES NEWSWIRES

PERTH (Dow Jones)--Australia's burgeoning liquefied natural gas sector faces a "struggle" in the near term because of rising cost pressures and the impact of a strong Australian dollar, U.S. energy group ConocoPhillips (COP) said Tuesday.

Despite this, ConocoPhillips remains confident of approving by the end of the year the second phase of its US$20 billion Australia Pacific LNG project in Queensland with partner Origin Energy Ltd. (ORG.AU), said Todd Creeger, Conoco's Australia President.

It is also eyeing a potential LNG development for its Browse gas assets offshore Western Australia should a near-US$500 million drilling program, due to begin later this year, be successful, Creeger said at a business function.

ConocoPhillips expects to double its local workforce of more than 550 over the next few years, but it is wary of costs pressures that have hit other projects, Creeger said, adding that exchange rates are an added burden as revenues from Australian LNG projects generally are priced in U.S. dollars.

"U.S. fiscal policy hasn't helped us out much and so revenue is becoming worth less," he said.

In June, Woodside Petroleum Ltd. (WPL.AU) announced a six-month delay and A$900 million cost increase for its Western Australia A$14.9 billion Pluto LNG development.

Creeger said that LNG sales talks to justify a second processing unit, or train, at its Australia Pacific LNG venture, are well advanced.

Last week, the partners gave a green light for the $14 billion first phase, which includes building the first of two planned LNG trains with a total capacity of 9 million tons annually.

ConocoPhillips and Origin expect to make an announcement on the second train "before the end of the year", Creeger told reporters.

While China's Sinopec is the foundation customer, LNG sales from the second train will likely be split between two or three buyers, Creeger said. Countries like Japan, China, Korea and India remain the targeted markets, he said.

Drilling at Conoco's Browse exploration joint venture with Karoon Gas Australia Ltd. (KAR.AU) may resume by end-2011 after significant delays caused by regulatory issues.

Expected to cost "close to 500 million U.S. dollars," the five-well program will establish the amount of reserves, though ConocoPhillips believes the field may contain "multiple" trillions of feet of gas, Creeger said. Drilling is expected to take 18 months to two years.

Development options include a floating LNG plant, a facility at James Price Point onshore Western Australia, or tying into Inpex Corp's planned Ichthys project, from where gas could be piped to Darwin LNG, Creeger said.

ConocoPhillips is optimistic of agreement this year with Perth-based New Standard Energy (NSE.AU) on exploring the junior company's Goldwyer shale gas project in the onshore Canning Basin, Western Australia. A non-binding deal was announced by New Standard recently.

"Our plan is to secure a rig and start drilling next year in that basin," Creeger said.

-By Stephen Bell, contributing to Dow Jones Newswires; 61-8-9244-4243; [email protected]