Happy for CTP to pursue UGL/GTL/CTL. Hope BG doesn't push them into something they don't want to do.
ConocoPhillips concedes coal-seam gas price lag
Ross Kelly | October 14, 2009 Article from: Dow Jones Newswires
CONOCOPHILLIPS has become the first company building a liquefied natural gas project fed by coal-seam gas to acknowledge it probably won't get as much money for its product than a traditional LNG project, according to Credit Suisse analysts.
Five separate ventures are planning to make history by converting CSG to LNG for export, a feat never achieved anywhere in the world, and all are trying to pull it off at Gladstone in Queensland.
An unconventional source of gas, coal-seam gas is about 98 per cent methane and is, therefore, drier and has a lower heating value than conventional LNG.
Most analysts expect participating companies will have to offer a discount on their LNG to account for CSG's lower calorific value, especially in Japan, where some utilities have stricter quality control standards.
Executives from companies involved in the projects have consistently played down such concerns despite some analysts estimating they will have to slash the price of their product by about 10 per cent.
Credit Suisse analysts Andrew Williams and Jenny Wong said in a client note that Credit Suisse's team of US energy analysts met ConocoPhillips's Australian operation president Joe Marushack recently.
And according to them, Mr Marushack indicated that CSG's lower calorific content was likely to effect the price ConocoPhillips's Gladstone LNG joint venture with Origin Energy could get for its gas.
He said the gas would either be sold as leaner LNG, or sold to customers who would spike it with liquefied petroleum gas to lift its heating value.
"We believe this is the first time a major CSG JV has publicly acknowledged the pricing issue," Mr Williams and Ms Wong said.
Other vehicles trying to build LNG plants at Gladstone using CSG include a pairing between Santos and Malaysia's Petroliam Nasional Berhard, standalone projects from BG Group and Royal Dutch Shell, and Liquefied Natural Gas has a smaller-scale project in the works.
The price they get for their gas is critical to the economics of their developments and important information for investors and analysts trying to calculate likely rates of return.
Several projects have signed a customer but none has disclosed the pricing terms of the deals.
Like most analysts, Credit Suisse expects BG Group's to be the first of the four large-scale projects to make a final investment decision, although risks of delay exist for the others.
The broker has stuck to its estimate that LNG from CSG will be sold at a 10 per cent discount to traditional LNG from natural gas, which is typically sold at a 15 per cent discount to oil price parity.
Santos vice-president at Gladstone LNG Rick Wilkinson said in June that CSG's lower heating value was not fazing the Japanese and that spiking LNG with LPG was cheap and "not rocket science".
Mr Wilkinson said Japan had been importing low heating value gas from Alaska since the late 1960s and that some oncoming LNG projects sourced with traditional natural gas were "at the lower end of the scale" in terms of their product's heating value anyway. But one source said last month that at odds with that sentiment Tokyo Electric Power (Tepco) was not likely to buy stakes in Australian liquefied natural gas projects that used coal-seam gas as feedstock, or sign any long-term deals.
The source said this followed talks between Tepco and the developers of several Gladstone LNG projects, including Santos.
But just days later, Japan's Toyota Tsusho, partly owned by Toyota, agreed to buy the first 1.5 million-tons-a-year of LNG from Liquefied Natural Gas's proposed smaller-scale Fisherman's Landing project at Gladstone.
Arrow Energy has agreed to feed that project and chief executive Nick Davies said late last month that there were many Japanese LNG users interested in buying LNG produced from CSG.
