liquified natural gas

LNG looks good as oil prices continue to fallFont Size: Decrease Increase Print Page: Print Matt Chambers | March 23, 2009
Article from: The Australian
FALLING oil prices are raising interest in Australia's liquefied natural gas sector as oil majors look to boost vital reserves they can no longer secure in areas like Canada's oil sands.

Despite the steep drop in global energy prices over the past nine months, Queensland's coal seam gas sector has been strong as global and local Gladstone LNG proponents jostle for the state's reserves.

On the other side of the country, the long-delayed $50 billion Gorgon LNG project, potentially the nation's biggest development yet, is picking up steam, with operator Chevron labelling it the company's top 2009 priority.

Reserve replacement among international oil companies is a key driver of share prices, meaning they will not sit idle if one of the areas they are in dries up.

"Australia is key on the target list for many companies because they are opportunity constrained and that is evidenced by the numbers that are active here," PricewaterhouseCoopers global LNG leader Michael Hurley said.

"If you look at other investment opportunities companies have had in the past few years, there's been a big play for oil sands in Canada," he said.

However, oil sands require an oil price exceeding $US70 a barrel, he said, meaning oil price slides from heights of nearly $US150 in July to about $US50 had companies looking elsewhere.

Oil at $US50 was a sweet spot for LNG, where it was still profitable but not high enough to attract companies to alternative upstream sources, he said.

Chevron's Perth offices have become increasingly busy of late.

In a presentation to analysts earlier this month Chevron chief executive David O'Reilly said he hoped to approve the massive Gorgon project, to be built on Western Australia's Barrow Island, by the end of the year.

A decision on the nearby Wheatstone project, which is slightly smaller at 10 million tonnes a year, is planned for 18 months later.

Unlike oil, gas requires linkage to a market and an approved project to be classed as commercial reserves.

This was strengthening the incentive to go ahead with LNG projects, Mr Hurley said.

Mr O'Reilly said Gorgon could grow to four or five trains.

"Chevron is exhibiting similar characteristics to most of the other large integrated oil companies: an increasing reliance on very large projects to replace the more diverse existing production base," Credit Suisse analyst Mark Flannery said in a report following Mr O'Reilly's comment.

Also underlying the increasing focus on Gorgon, 25 per cent partner Exxon Mobil, which has previously been seen as a potential hurdle to the project going ahead, this month signed a deal to supply 2 million tonnes a year of gas from the project to PetroChina.

Chevron owns 50 per cent of Gorgon and Shell owns 25 per cent.

On the other side of the country, CSG-to-LNG plans have led to BG Group, Conoco Phillips, Petronas and Shell to team up or take over local companies as they vie for position in the burgeoning industry.

There are now five planned LNG projects at Gladstone.

While the gas might be there to sustain the projects, Mr Hurley said available resources would restrict development and consolidation was expected to continue.

"Within Australia, it will be difficult to build four LNG plants in parallel and do something with Gorgon in the west at the same time," he said.