I pulled this article off the Santos forum. I thought it was interesting in terms of the context of the market and the reluctance to merge the Qld entities which might mean they look south to increase their supplies for Gladstone.
SYDNEY (Dow Jones)--Mergers between competing liquefied natural gas projects focussed on Gladstone in Queensland state are becoming increasingly unlikely as each individual project becomes more advanced, Santos Ltd. (STO.AU) Chief Executive David Knox said Thursday.
In a speech designed to reignite confidence in the company's Gladstone LNG joint venture amid growing regional LNG supply glut fears, Knox also reiterated a bullish forecast from consultant Wood Mackenzie predicting Asia Pacific LNG demand to double by 2025.
Investors reacted by snapping up Santos shares, which closed 4% higher at A$13.76 while the benchmark S&P/ASX 200 index fell 0.6%.
A candid display of enthusiasm for consolidation by any Gladstone LNG proponent could be seen by investors as a sign of weakness, and while the heads of rival projects have said mergers could happen, they've been reluctant to present themselves as prey.
"The gap in the market between that contracted (LNG) supply and forecast demand is the contestable market for those who can genuinely deliver," Knox said at a business lunch in Melbourne, suggesting that only select LNG projects will find customers for their gas.
Santos' Gladstone joint venture with Malaysia's Petroliam Nasional Bhd. (PET.YY) is on track to make a final investment decision midway through the year and is in "detailed and advanced" talks with more potential customers, Knox said.
It is one of five LNG terminals planned for Gladstone, each to be fueled by coal seam gas. Others include ventures by BG Group PLC. (BG.LN), Royal Dutch Shell PLC. (RDSB.LN) and a joint venture between ConocoPhillips (COP) and Australia's Origin Energy Ltd. (ORG.AU).
Knox said that consolidation between plants would have needed to have taken place by the end of 2009 before projects began to take their final shape.
"Any consolidation or collaboration partner would like to be involved in the design of the house. That's becoming past now, so I think it is becoming increasingly unlikely," Knox said.
Knox's use of the word "collaboration" suggests that Santos is also becoming increasingly less open to sharing major infrastructure with other plants, such as LNG production units or pipelines.
His comments contrast a little with those made last year by Origin Energy Ltd. (ORG.AU) Chief Executive Grant King.
King said that while mergers between projects are "extremely unlikely", dialogue on potential operational coordination, like sharing infrastructure such as pipelines, has occurred and is expected to continue. It has, however, been three months since King made those remarks.
The head of Shell's international upstream operations, Malcolm Brinded, who was touring Australia last October, said Shell is in consolidation talks with other ventures, but he added it's well placed to "go it alone".
Santos has already agreed to sell 2 million metric tons of LNG a year to joint venture partner Petronas, with an option to go to 3 million tons.
Knox said current discussions with other potential Asian buyers are focused on both of the project's two proposed 3.6 mtpa LNG production trains.
He reiterated that Santos is aiming to make a final investment decision on the second production train about 12 months after the first, and is still keen to sell down its equity in project to 51% from its current 60% level.
BG Group is expected to make a final investment decision on its project by June 30 and is considered by analysts to be slightly ahead of the pack. Origin and ConocoPhillips are aiming for a final investment decision by the end of 2010 and Shell has been tightlipped on its target.
Arrow Energy Ltd. (AOE.AU) is involved in the construction of a smaller-scale project at Gladstone. Santos, Arrow and BG Group have signed up one customer each, although Santos' pact with Petronas is the only one that's binding.
-By Ross Kelly and Alex Wilson, Dow Jones Newswires; 61-2-8272-4692; [email protected]
ESG Price at posting:
76.5¢ Sentiment: LT Buy Disclosure: Held
