Korea Gas May Need More Australian LNG After Chevron Deal, Citigroup Says

Korea Gas Corp., the world’s biggest importer of liquefied natural gas, may need more Australian LNG after signing an initial accord to buy supplies from Chevron Corp.’s proposed Wheatstone project, Citigroup Inc. said.

“I don’t think this precludes other LNG projects signing up with Kogas,” Mark Greenwood, a Sydney-based analyst at Citigroup, said by phone today. “We think Kogas is short gas in the 2015, 2016 time frame. I wouldn’t be surprised if they signed up with another one or two Australian LNG projects,” to acquire a further 4 million metric tons a year.

Santos Ltd.’s Gladstone LNG project and Inpex Corp.’s Ichthys development, among more than a dozen proposed LNG projects in Australia seeking to tap rising Asian demand for cleaner-burning fuel, are possible sellers, Greenwood said.

Korea Gas expects to purchase 1.5 million tons of LNG annually from Wheatstone for as long as 20 years and agreed to acquire a 5 percent stake in the gas venture, Chevron’s local unit said today. The state-run utility in 2009 signed a pact to buy 1.5 million tons of LNG a year from Chevron’s A$43 billion ($37 billion) Gorgon project off northwest Australia.

Chevron, the second-largest U.S. oil company, targets a final decision in 2011 on whether to proceed with Wheatstone. The Korea Gas deal “adds further momentum” to the development, John Gass, president of Chevron Global Gas, said in a statement.

Competing for Labor

The agreement with Korea Gas may be worth about A$33 billion, based on Western Australian Premier Colin Barnett’s estimate of a previous sales deal. Chevron’s contract announced in December to supply Tokyo Electric Power Co. with 4.1 million tons of LNG a year was valued at A$90 billion by Barnett.

Korea Gas said in May that it had started discussions to buy a stake in the Gladstone gas project in Queensland led by Santos, Australia’s third-largest oil and gas producer.

The Australian LNG ventures are competing to obtain customers and find workers. Australia’s resources industry faces a shortage of 36,000 tradespeople by 2015, according to a July 15 report by a labor taskforce set up by the government.

The taskforce recommended introducing new labor agreements designed specifically for “mega” resources projects to make hiring of labor outside Australia more efficient and proposed five-day deadlines for completing visa applications.

Chevron’s decision to approve the Gorgon project was the “initial impetus” for the taskforce, the document showed. Australia has 75 advanced resources projects worth about A$110 billion in the development pipeline, the committee said.

Wheatstone may generate 6,500 jobs during construction, with first LNG shipments planned for 2016, Chevron Australia said in a publication posted on its website. The project is “hot on the heels” of Gorgon, Wheatstone General Manager Geoff Strong said in May at a petroleum conference in Brisbane.

Chevron’s progress may add to pressure on competitors to attract workers, Greenwood said. “With an impressive lineup of projects -- Gorgon being the largest resource project Australia has ever seen -- and then Wheatstone, they are in a good position to manage their workforce,” he said.

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

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