Shell Moves Sakhalin LNG Manager to Australia to Build Project

Royal Dutch Shell Plc has brought the former manager of Sakhalin-2, Russia’s first liquefied natural gas project, to Australia to oversee development of a proposed venture that may cost more than $20 billion.

Shell, OAO Gazprom’s partner in the $22 billion Russian project, moved Hilary Mercer to Queensland state, Ann Pickard, chairman of the company’s Australian unit, said in an interview. Shell and PetroChina Co. this week completed the purchase of Arrow Energy Ltd., gaining gas for an LNG venture that may produce 16 million metric tons of fuel a year.

Mercer led construction at Sakhalin-2 in Russia’s far east, a development Shell calls “one of the most challenging engineering feats ever achieved.” Shell, BG Group Plc and ConocoPhillips are among companies planning rival Queensland ventures that would be the first in the world to convert coal- seam gas into LNG for export.

“There are enormous complexities with LNG projects, and cost overruns are a frequent issue,” Evgeny Solovyov, an analyst at Societe Generale, said by phone from London. “Shell is one of the best in the world as far as complex integrated energy projects are concerned, and LNG in particular.”

Mercer will serve as vice president of LNG and integration for Arrow Energy, Melbourne-based Shell spokesman Phil Connole said today. Arrow will continue to be based in Brisbane, with a board of directors composed of Shell and PetroChina executives.

Shell may spend $50 billion in Australia over the next decade as Europe’s largest oil company continues a shift to gas, Pickard said Aug. 19. In Australia, Shell is a partner in the A$43 billion Gorgon LNG project led by Chevron Corp. and plans to become the first to develop floating LNG ventures.

‘Fortifying Australia’

Shell said it aims to make a decision whether to proceed with the Curtis Island LNG development in Queensland by 2012. Pickard called the venture a “$20 billion plus” project and said Mercer is one of Shell’s “top project developers.”

Shell, which expects gas to account for more than half of its total production by 2012, is “fortifying its Australian business,” Societe Generale’s Solovyov said. “Sakhalin is an important project, but they did what needed to be done there.”

Sakhalin-2 is “equivalent in size to five world-scale projects, located in a hostile sub-arctic environment and covers a vast area in a region with almost no existing infrastructure,” Shell says on its website.

Moscow-based Gazprom wrested majority control of Sakhalin-2 from Shell in 2007 after government pressure over rising costs and environmental lapses. Shell in 2005 said the second phase of the project would cost $20 billion, double an initial estimate.

Asian Markets

The LNG plant started last year and allowed Russia, holder of the world’s biggest gas reserves, to export fuel to the Asia- Pacific. Gazprom controls Sakhalin Energy, operator of the Russian plant, and Shell owns 27.5 percent of the project. Mitsui & Co. holds 12.5 percent and Mitsubishi Corp. 10 percent.

Shell’s Pickard succeeded Russell Caplan as chairman in Australia after taking over in March as executive vice president of exploration and production for the country. She previously spent five years with Shell in Nigeria.

Andrew Faulkner, who joined Shell in 1982, became chief executive of Arrow following the A$3.5 billion ($3.1 billion) takeover of the gas company.

Santos Ltd., BG and ConocoPhillips partner Origin Energy Ltd. also plan projects in Queensland that will convert gas extracted from coal seams. LNG is gas compressed to a liquid for transportation by ship to destinations not linked by pipeline.

Shell may partner with Adelaide-based oil and gas producer Santos in developing LNG in Queensland, analysts including Aiden Bradley of Goldman Sachs & Partners Australia, have said.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.