Mcfarlane: Australia to Miss Mexican LNG Sales

Dow Jones Newswires

CANBERRA Oct 6, 2006 (Dow Jones Newswires)

With most of its short-term liquefied natural gas output under contract, Australia looks like it is missing out on a chance to increase LNG sales to energy-hungry Mexico, Resource Minister Ian Macfarlane said Thursday.

Citing concern early cargoes to a Mexican gas terminal may not arrive, Macfarlane said it was unlikely Australia could make up the shortfall.

Sempra Energy's (SRE) Energia Costa Azul gas terminal on the coast of Baja California, Mexico, is due for completion in 2008, with initial cargoes to come from Russia's Royal Dutch Shell PLC-led (RDSB.LN) Sakhalin gas fields and Indonesia's BP PLC-led (BP) Tangguh project.

"Sakhalin in Russia and Tangguh in Indonesia are running well behind schedule, and in fact, there is now some concern about where those initial cargoes may come from," Macfarlane said in a telephone interview with Dow Jones Newswires from Mexico.

"I'm not sure...that Australia can be in a position to supply any initial cargoes," said Macfarlane, in Mexico for a G8+ energy ministers meeting.

Australia's LNG exports are expected to rise 24% to 15.3 million metric tons in fiscal 2007, with the value of LNG exports leaping 30% to A$5.7 billion.

Mexico's Energy Secretary Fernando Canales Clariond approached Macfarlane Wednesday to express his disappointment that Australian LNG supplies were under contract for the next four to six years.

"That is an opportunity for Australia but one which, in the short term, we won't be able to meet because, basically, we're sold out," Macfarlane said.

Macfarlane promised his Mexican counterpart he would investigate the availability of Australian LNG post-2010 LNG supplies and discuss the matter further in November, when Mexican President Vicente visits Australia.

Further hampering LNG expansion opportunities in Australia is a dispute between the federal government and the state government of Western Australia, where most LNG projects are located.

The West Australian government wants to reserve a portion of the state's LNG output for domestic use, a policy the federal government is considering challenging to allow the accelerated development of LNG projects under consideration.

"The reservation policy is causing serious concerns among project proponents," Macfarlane said. "There is also international concern about it."

The government is considering legal advice on whether it can use constitutional powers to override the state government on the issue, he said.

Mexico's interest in Australian LNG could also be thwarted by India, which is in talks with Australia's US$11 billion Gorgon project.

The Gorgon LNG development, off the coast of Western Australia, is a joint venture between three global oil and gas majors. Chevron Corp. (CVX) is operator of the project and has a 50% stake, while Royal Dutch Shell and Exxon Mobil Corp. (XOM) each hold 25%. The project has been set back by environmental concerns, but the partners are confident of getting the green light from the Western Australian state government.

Chevron and Shell have already sold most of their production, but ExxonMobil, which is yet to announce any deals, has confirmed it is in ongoing discussions with Indian companies.

Another potential Australian LNG source is the North West Shelf project, a joint venture between six parties - Woodside Petroleum Ltd. (WPL.AU), BHP Billiton Ltd. (BHP), BP, Chevron, Shell and Japan Australia LNG, a Japanese venture of Mitsui & Co. Ltd. (8031.TO) and Mitsubishi Corp. (8058.TO).

The LNG from the project is sold under long-term contracts, some of which are currently up for renewal and being renegotiated.

Woodside is also developing the nearby Pluto field and has already announced two offtake deals with Japanese customers. Woodside hopes to later develop the Browse field, off the Kimberley Coast further to the north, but no sales have been made from this project.

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