Shell and Woodside Committed to Timor Sea LNG Project

Shell and Woodside Petroleum are continuing with plans for the A$5 billion floating LNG project in the Timor Sea, despite political pressure for the gas to be piped onshore. Northern Territory Chief Minister Clare Martin would like to see the gas piped onshore near Darwin to supply the local market in a development that would directly benefit the territory's economy and boost local employment. Phillips Petroleum backs the chief Minister's position. It is the opinion of Phillips that the domestic gas development is the best option for the joint venture and Australia. But Shell and Woodside say there is no customer support for onshore gas and that a FLNG facility is the only feasible way of developing the 9 trillion cubic feet of gas in Sunrise field. "These are all issues that require national debate before Australian resources are shipped offshore," Martin said. This disagreement is threatening the project, which is due to come onstream in late 2007.

As project leader, Woodside is hoping to resolve the matter by July when it plans to start initial design and front-end engineering work. In a statement, Martin said the FLNG plan was "clearly negated" by Phillips' assertions that it has identified a profitable customer base for Sunrise gas to come onshore. Martin also noted that last week miner MIM Holdings Ltd. said it is considering producing metal directly on site at its McArthur River lead and zinc mine in the territory, and that Sunrise gas would be an obvious source of power for a metal plant. Phillips last month said it had entered into "preliminary discussions with prospective customers" to buy quantities of natural gas "equal to the known reserves of the Greater Sunrise fields."

However a Woodside spokesman said that piping the gas nearly 500 kilometers to an onshore location is uneconomic at current gas prices. "We've spoken to MIM in the past and been to see them, and it was clear on our first engagement that our opportunities for development don't coincide," the spokesman said. Sunrise would need a 900 terajoules a day customer to make the domestic option viable, he said. Finding an industrial customer prepared to buy that amount of gas has "never been done before," he said. By comparison, domestic sales from Australia's major North West Shelf gas project in Western Australia last year averaged just 540 terajoules a day, despite established infrastructure and 20 years of marketing efforts. Woodside and Shell have spent around A$200 million in the past five years attempting to make Sunrise economic on the basis of supplying a range of domestic methanol, gas-to-liquids and mineral processing projects. But all were offering prices "well below that at which Sunrise can land gas into Darwin," he said. A Shell spokesman said the company has spoken to around 35 prospective customers in the past two years, but none were able to meet the volume and price commitments needed to justify development. "We'd like to bring gas onshore, but it needs to be commercially viable," he said. "We're not in the business of making patently uneconomic decisions." He said the proposed FLNG development will deliver A$8 billion in taxes and A$35 billion in export revenues. "That is good for the whole of the country, not just part of it," he said.

Woodside has a 33.44% interest in Sunrise, Shell has a 26.56% interest, Phillips has a 30% interest, and Osaka Gas Ltd. holds the remaining 10%.


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