Phillips Opposes Shell's Timor Sea FLNG Plan

Phillips Petroleum Co. opposes a plan by partner Royal Dutch/Shell Group to use a floating platform to develop a $4.9 billion liquefied natural gas project off Australia, saying it doesn't offer better returns. Shell said using a barge to process gas from the Greater Sunrise field could shave 40 percent off the cost of the project. Phillips wants to send the gas via a pipeline linked to its Bayu-Undan field and then to a plant in Darwin in northern Australia. "We don't share the view that Shell has expressed that that offshore plan will provide better returns," said Jim Godlove, Phillips' Darwin area manager. "We are very confident that our proposal is the preferred proposal."

Shell has stated that the owners of Sunrise must reduce costs to cheaply supply $20 billion of gas to El Paso Corp. in California and compete with rivals in Indonesia and Qatar. It may find it difficult to get support from Phillips, which owns the majority of Bayu-Undan and 30 percent of Sunrise. Phillips and its partners in the $1.6 billion Bayu-Undan project last week postponed indefinitely building a $500 million pipeline to shore because neighboring East Timor wants an extra $500 million in taxes. Analysts expect the tax talks with East Timor to be resolved.

Bayu-Undan is already being developed to pump out the oil and other liquids in the field, starting in 2004. Profits from the project will double, though, if the gas in the field can be sold as well. Sunrise, with about three times as much gas as Bayu-Undan, isn't planned to start producing until 2006 or later. Phillips and Woodside, Australia's second largest oil company, in March signed a letter of intent with El Paso, the largest U.S. gas pipeline owner, to supply 4.8 million metric tons of liquefied natural gas each year for two decades. With U.S. natural gas prices set to fall in the next few years, the Sunrise project must cut costs to be competitive, Parsley said.