Shell Targets Gladstone LNG Output in 2014 or 2015

SYDNEY (Dow Jones Newswires), Jun. 12, 2009

Royal Dutch Shell Friday shed its dark horse image in Australia's coal seam gas rush, signaling that it's firmly in the race to build a massive liquefied natural gas project at Gladstone in Queensland sate.

In its initial advice statement for the project, released Friday by the Queensland government, Shell said it's planning to produce first gas from its terminal at Gladstone in 2014 or 2015.

The timetable puts the Dutch major on a par with three other large-scale LNG projects to be fed by CSG slated for construction at Gladstone.

Now Shell, BG Group PLC (BG.LN), ConocoPhillips (COP) and Malaysia's Petroliam Nasional Bhd. (PET.YY), or Petronas, have laid out detailed plans to team up with local companies to convert Australian CSG to LNG for export to lucrative Asian markets.

Shell last year acquired 30% of Arrow Energy Ltd.'s (AOE.AU) CSG assets but some analysts have expressed concerns that it hasn't got access to adequate gas reserves to feed a large-scale LNG plant.

There were also concerns that a current slump in global LNG demand and forecast supply glut would deter Shell from progressing its plans.

Defying such concerns, Shell said Friday that its LNG facility is expected to produce 16 million metric tons a year of LNG, involving phased construction of up to four LNG processing units. That puts the project's size on a similar scale to the joint venture between ConocoPhillips and Origin Energy Ltd. (ORG.AU), estimated to cost A$35 billion to build and operate through to 2020.

Between itself and Arrow, Shell said it's already got enough gas to feed the first processing unit.

"Shell is currently in negotiations with Arrow Energy and others to procure the additional gas necessary to support this project," Shell said in the initial advice statement.

A Shell spokeswoman said earlier this week that Shell is open to consolidation with other LNG plants at Gladstone. "We are in a good position to establish a CSG-LNG facility; however, we do recognize that consolidation should not be ruled out," the spokeswoman said.

Several of the other large-scale ventures have already said that they would be open to some form of project collaboration at the plant or gas reserves levels.

Shell in February said it had commenced feasibility studies for an LNG plant at Gladstone but it has since been relatively coy about its intentions.

The Queensland government Friday granted the venture "significant project status", allowing Shell to submit an environmental impact statement.

In its initial advice statement, Shell also said it is proposing to build a gas pipeline from Gladstone City Gate, most likely to an LNG site on Curtis Island.

Shell said LNG demand is expected to remain generally strong in the mid- to long-term. It estimated it will employ 2,500-3,000 people to work on its plant during peak construction.

A company spokeswoman declined to say when Shell is planning to make a final investment decision on its project. But the company said it's planning for final submission of an environmental impact statement in April 2010.

Other LNG ventures planning to build at Gladstone include a partnership between Petronas and Santos Ltd. (STO.AU) and a standalone project by BG Group PLC (BG.LN).

Arrow Energy has also agreed to feed gas to a smaller-scale project being built by Liquefied Natural Gas Ltd. (LNG.AU).

At 0228 GMT, Arrow shares were up 3.0% compared to a 0.4% rise in the broader market. Santos shares had slipped 2.5% and Origin was down 0.1%.  

Copyright (c) 2009 Dow Jones & Company, Inc.