The major CSG players have been busy securing and locking up gas...

The major CSG players have been busy securing and locking up gas reserves; for the transmission and liquefaction stages they have to face up to consolidation through mergers or takeovers, which now appear inevitable. The need is emphasized by the ongoing high costs of capital expenditure. An article today highlights this.

From todays’s A.F.R. (30/03).

Major players in the Queensland coal seam gas sector had estimated the synergies from combining two of the four main proposed liquefaction natural gas facilities were as much as $2 billion.

Santos managing director David Knox later publicly pegged them at between $1 billion and $2 billion at the London Citigroup conference and is obviously focused on delivering these benefits through negotiation as a key means to keep value in his stock, and hence, the takeover dogs at bay.

Now Bank of America/Merrill Lynch’s utilities and infrastructure has come out over the weekend with a major research note that concurs.

The broker says there is enormous value in joining two of the projects through liquefaction plant scale benefits, pipeline savings and also providing the partners enough 2P (proved and probable reserves) for one LNG train immediately; thus bringing forward potential upside.

For example, if Origin/Conoco-Phillips linked with Santos/Petronas (or BG Group/QGC) to form a 7 million tonne per annum LNG train – rather than two separate 3.5 mtpa trains
- total capex benefit on a net present value basis of $930 million could be delivered.

Sharing knowledge and coupling the timing of train construction and rollout could cut capital expenditure by 20 per cent. For example, a unit cost of a pipe line is quoted in $/mm of diameter per kilometer and “as volume is exponentially correlated to diameter, a shared 400 (petajoule) pipeline could deliver capex NPV benefits of $210 million {versus two} 200 PJ lines”, the broker opines.

“In short it seems untenable to us that four LNG projects will co-exist separately at Gladstone, each supplied with its own individual gas transmission pipeline connevting from the central Queensland CSG fields.”