Economy Woes Won't Delay Inpex LNG Projects

TOKYO (Dow Jones Newswires), Mar. 27, 2009

Japan's oil and gas producer Inpex Corp. will push ahead as scheduled with two big offshore liquefied natural gas projects in Australia and Indonesia, despite the credit crunch, low energy prices and falling demand.

"You have to look at things with a long-term view. The bad economy won't be there for ever," company president Naoki Kuroda told Dow Jones Newswires.

"We'll make the final investment decision on Ichthys in 2010, and start production in 2014 or early 2015...the decision on Abadi will follow about a year later in 2011 -- all as planned."

Inpex plans to produce 8 million metric tons a year or more of LNG from the offshore Australia Ichthys field, at a facility near Darwin. It has a 76% stake in Ichthys, with France's Total SA holding the rest.

The Japanese company has a 100% holding in the Abadi field in the Timor Sea in Indonesia. It plans to start commercial output of 4.5 million tons of LNG in 2016 using a floating liquefaction facility.

"Maybe, you are worried about falling energy prices. But costs for the projects have also been reduced thanks to the bad economy," he pointed out, citing lower prices for iron ore and coking coal.

Inpex, which is partly government owned, was created in 2006 from a merger of energy companies Inpex and Teikoku Oil.

It is a minnow when compared with global oil majors -- the Japanese company had energy reserves equivalent to 4.37 billion barrels of crude oil as of March 31 in 2008, compared with BP's 61.6 billion barrels reported on March 3 this year.

However, Inpex has big ambitions and is keen to boost its energy output, and has been buying assets since its creation, which helps underpin resource-deficient Japan's energy security.

Ichthys and Abadi are seen by many as test cases for whether the Tokyo-based company can succeed with major energy projects.

Holding a majority stake and operating big international energy projects are historically very rare for Japanese companies.

Tough Competition

As a new kid on the block, Inpex is going up against some tough and well-established competition in the LNG market.

The Chevron Corp.-led Gorgon LNG project in Australia and Exxon Mobil Corp.-led Papua New Guinea LNG project are both active now in signing up customers for their gas.

Another competitor aiming to get its gas to market by 2012 could be the Liquid Niugini Gas project, led by Canada's InterOil, which is planning to invest up to $7 billion in building an LNG plant near Port Moresby.

Kuroda didn't directly respond to questions about how it could compete with rival LNG projects for customers.

But he was confident demand would be there. "Many LNG buyers have showed interest in our projects."

Inpex hasn't yet officially started marketing talks with potential customers, nor has it put forward any LNG pricing proposals, although it frequently updates them on the state of the projects, he added.

LNG demand will continue to rise in the longer term as natural gas emits much less carbon dioxide when burnt than oil and coal, especially when it is used at combined cycle power generation systems, Kuroda said.

Takayuki Nogami, an analyst with government-backed Japan Oil, Gas and Metals National Corp., said Inpex's strategy was a standard practice in the international upstream energy business, adding cash-rich big energy companies tend to buy assets and companies and start developing projects when energy prices slump.

"The last time we saw such trends in the late 1990s," crude oil prices hovered between $10 and $20 a barrel, Nogami said.

Inpex posted a Y141 billion group net profit for the April-December period, on a revenue of Y922.6 billion, producing a relatively high profit margin when compared with many other Japanese companies.

It hasn't released its own cost estimates for these two projects, but some media reports have suggested each of them could may require more than $20 billion.

In a typical LNG project, buyers and the LNG carrier share development costs with sellers, as supplies are usually contracted for a decade or longer.

Japan is the largest LNG buyer in the world by volume. It imported 69.3 million tons of LNG in 2008, up 3.7% on year and 17% from five years before, according to the Ministry of Finance.

Apart from its Australia and Indonesia projects, Inpex has energy investments in 26 countries, including Brazil, Kazakhstan and Ecuador.  

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

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