Shell's Spending in Australia Will Exceed Other Regions on LNG Development

Royal Dutch Shell Plc, Europe’s largest oil company by market value, said it expects Australia to attract more of the energy company’s investment than any other region, driven by liquefied natural gas projects.

“It’s the biggest growth area we’ve got,” Ann Pickard, Shell Australia’s executive vice president of oil and gas exploration and production, said in an interview in Brisbane today. Shell said in March it will spend more than $100 billion globally by 2014 to revive production growth.

Shell is likely to increase its Australian workforce fourfold from a “couple of hundred” now, said Pickard, who started the job about six weeks ago after leading Shell’s African operations. She gave no timeline for the increased Australian spending or staff count at oil and gas projects targeting markets including Japan, China and South Korea.

Pickard made the forecasts even as Australia outlines plans for a 40 percent tax on profits from resource projects that threatens to delay coal-seam gas ventures in Queensland state. Australia is a key growth region for Shell as The Hague-based producer continues a shift toward gas, Chief Executive Officer Peter Voser said in March. Shell expects the share of gas as a proportion of output to increase to 52 percent in 2012.

“What’s driving this is that Australia has a lot of gas,” and is a politically stable country close to Asian markets, said Graeme Bethune, a consultant with Energy Quest who is attending the conference in Brisbane. “But one challenge is the uncertainty about government policy. A lot has changed.”

‘Key Strategic Area’

Chevron Corp., the second-biggest U.S. energy company, today also underscored Australia’s increasing importance to its global portfolio.

Chevron Australia has spent more than A$1 billion ($880 million) on drilling in the past three years and expects to allocate “hundreds of millions of dollars” on exploration this year, Roy Krzywosinski, managing director of the unit, told reporters in Brisbane.

“Australia is one of the company’s key strategic areas to drill and explore,” he said at the Australian Petroleum Production and Exploration Association conference.

Shell is adding workers in Australia while it scales back in other regions. Voser has targeted $1 billion in cost savings this year and will cut 2,000 more jobs by the end of next year.

Finding workers to help develop reserves in the country is a “challenge,” Pickard said earlier in her speech to the conference.

Floating LNG

PetroChina Co. and Shell agreed in March to acquire Australia’s Arrow Energy Ltd. for A$3.5 billion. Shell plans to convert coal-seam gas to liquid form in Queensland, and intends to use floating LNG technology to develop the Sunrise and Prelude ventures. After those ventures, Shell may expand the use of floating LNG to more Australian projects, Pickard said.

Shell is also a partner in Chevron.’s A$43 billion Gorgon project in Western Australia.

Consolidation among the companies planning coal-seam projects will depend on the ability of the ventures to sign up customers, Pickard said. Cooperation, including the sharing of pipelines, is one scenario that may play out, she said. The combination of Queensland projects is another possibility.

“It’s obvious when you have four LNG projects close together to look at what your options are,” Pickard said.

Australia’s proposed 40 percent tax on resource profits may prompt Shell, ConocoPhillips, BG Group Plc and Santos Ltd. to merge more than $70 billion of gas projects targeting fuel shipments to China, Japan and South Korea. The ventures may combine to form two developments, or one “mega-project,” Nik Burns, an analyst at RBS Morgans in Melbourne, said last week.

Santos said May 6 the tax plan may prompt it to delay an investment decision on its venture with Petroliam Nasional Bhd. of Malaysia. Origin Energy Ltd., ConocoPhillips’ partner in a rival Queensland project, said May 5 the levy would add a “significant” cost and may delay its development.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

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