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lng costs in focus as $60bn gas deals shelved

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    LNG costs in focus as $60bn gas deals shelved

    by: Matt Chambers and Rick Wallace
    From: The Australian
    May 29, 2013 12:00AM


    AUSTRALIA'S high-cost liquefied natural gas projects - the investment backbone of the nation's economy - are under increasing pressure from Asian buyers demanding steeper discounts amid evidence at least $60 billion worth of gas supply deals have fallen over.

    As burgeoning supply centres emerge in the US and east Africa, operators of Australia's $200bn project pipeline of LNG plants on the northwest coast of Western Australia and in Gladstone in Queensland will find keener pricing on supply deals, industry leaders warn.

    Already two big gas export deals with South Korea, worth $60bn, have been shelved as LNG buyers seek out deals elsewhere.

    Chevron, the builder of the $53bn Gorgon LNG plant on Western Australia's Barrow Island, said a 2009 agreement to sell $30bn of gas from the project to Korea Gas across 20 years did not get approval from the South Korean government and that the country would not be taking the gas.

    Local Chevron managing director Roy Krzywosinski revealed for the first time yesterday the deal fell over in late 2011. At the same time, another Chevron deal with Kogas, a $29bn supply deal from its West Australian Wheatstone project, was also axed.


    The prices now being demanded by the big Asian buyers often do not cover the cost of higher-priced Australian projects. The industry has already warned that $100bn of potential LNG investment is at risk as higher labour bills and regulatory burdens push costs in Australia up to 30 per cent higher than competing regions.

    "We had what we thought was a long-term agreement with Kogas for 1.5 million tonnes of LNG a year," Mr Krzywosinski said on the sidelines of the Australian Petroleum Production and Exploration Association conference in Brisbane yesterday.

    "It was approved by Kogas and then was sent to the government for approval and there was some dialogue and things just didn't work out." The agreement had been non-binding, he added.

    When the Gorgon deal with Kogas was announced, the heads of agreement (which precedes a sales and purchase agreement) was trumpeted by Chevron as the largest long-term sale of Australian LNG to South Korea. It is believed the deal was knocked back after Shell, Chevron's partner in Gorgon but not in the gas deal, and Total offered Kogas a better price for gas from the Prelude floating LNG project.

    LNG marketing sources said there had been a big recent push by LNG buyers for cheaper pricing, either linked to US gas prices or simply demanding a bigger discount in the traditional method of linking moves in LNG to moves in oil prices. In many cases they are said to be demanding prices that would be unprofitable for LNG operators.

    Chevron has replaced the lost volumes at Wheatstone but not Gorgon. Mr Krzywosinski said he was confident the volumes would be replaced at a decent price.

    "The closer we get to first LNG (production) the more valuable the volumes are going to be, so we're confident we'll be able to market those," he said.

    A spokesman for Chevron said last night South Korea remained "an important market for LNG and still has significant uncovered demand for LNG in the 2015-plus timeframe". He said Chevron's Gorgon and Wheatstone projects were "well positioned" to supply growing LNG demand.

    http://www.theaustralian.com.au/business/mining-energy/lng-costs-in-focus-as-60bn-gas-deals-shelved/story-e6frg9df-1226652612279?utm_source=The%20Australian&utm_medium=email&utm_campaign=editorial&net_sub_uid=39535194
 
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