Santos Commits to $16 Billion

Queensland LNG Project

January 13, 2011, 12:49 AM EST

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Jan. 13 (Bloomberg) — Santos Ltd., Australia’s third- largest oil producer, has committed to building a $16 billion liquefied natural gas project, helping the Queensland state economy recover from “devastating” floods.

Santos and partners Total SA, Petroliam Nasional Bhd. and Korea Gas Corp. will develop a venture at Gladstone that’s expected to produce 7.8 million metric tons of LNG a year and create 5,000 construction jobs, the Adelaide-based company said in a statement today. The site is about 550 kilometers (340 miles) north of the state capital Brisbane, which is experiencing its worst floods since 1974.

“These floods will have a lasting personal, environmental and economic impact on Queensland,” Santos Chief Executive Officer David Knox said on a call with reporters. “This project will be helping Queensland to get back on its feet.”

The venture is one of four on the central Queensland coast planning to liquefy gas extracted from coal deposits for shipment to Asian clients. BG Group Plc, the U.K.’s third- largest gas producer, said on Oct. 31 that it would build the Queensland Curtis LNG development at a cost of $15 billion.

“It’s all down to project execution now,” said Benjamin Wilson, an analyst at JPMorgan Chase & Co. in Sydney. Because of competition for labor, it’s important to approve engineering and construction contracts “as quickly as possible.”

Costs, Jobs

Santos rose after the announcement, advancing 2.2 percent to A$13.45 at the 4:10 p.m. close in Sydney, the most in more than three weeks, compared with a gain of 1.5 percent for the benchmark S&P/ASX 200 Index.

The oil and gas explorer has said it is signing contracts for the development of the project at fixed prices to reduce the risk that labor shortages will drive costs higher. Santos has awarded work to Bechtel Corp., Saipem SpA and Fluor Corp.

BG has said its venture is expected to generate 5,000 construction jobs during the next four years. BG’s project will have two processing units with a combined capacity of 8.5 million tons of LNG a year.

Santos anticipates 1,500 jobs from the project in the first half of this year and that construction will gradually “ramp up” before peaking in 2013, Knox said. The Australian company will own 30 percent of the project, while Kuala Lumpur-based Petroliam Nasional, or Petronas, and Paris-based Total will each own 27.5 percent. Korea Gas will have 15 percent.

Rebuilding After Floods

“Proceeding now with projects like this will be a tremendous boost to the Queensland economy as we recover from the devastating impact of the floods,” state Premier Anna Bligh said in the Santos statement.

The venture aims to begin exports in 2015, generating an average of $6 billion in annual revenue and has combined supply agreements worth more than $120 billion, Santos said last month.

“This project and economic development more generally is important in underpinning the skills, tax revenue, wealth and capacity to respond and rebuild in the aftermath of the current flood crisis in Queensland,” Australian Energy Minister Martin Ferguson said in the statement.

ConocoPhillips and Origin Energy Ltd. plan a rival coal- seam gas-to-LNG venture in Queensland targeting rising Asian demand for cleaner-burning alternatives to coal. Arrow Energy, acquired last year by Royal Dutch Shell Plc and PetroChina Co., proposes a fourth LNG project in the state.

Gorgon LNG

Santos is feeding its project with gas resources from the Bowen and Surat Basins in southeast Queensland and building a 420-kilometre pipeline to Gladstone. The floods aren’t expected to cause any delays to the development schedule, Knox said.

Santos has “plenty of reserves available to us” to support two LNG processing units, or trains, at the Gladstone site, Knox said on the call.

The Santos-led venture will have more than half the capacity of the A$43 billion Gorgon LNG project that Chevron Corp. and partners Exxon Mobil Corp. and Shell are building in Western Australia. The country’s largest resources development is due to begin LNG exports in 2014 from a three-unit, 15 million ton-a-year facility and may add a fourth and perhaps a fifth processing unit.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it’s converted back into gas for distribution to power plants, factories and households.

Sourced & published by Henry Sapiecha

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