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Santos Gas Project Approval to Carry Conditions, Citigroup Says

Santos Ltd. is expected to win Australian government approval for an A$18 billion ($17.6 billion) natural gas project in Queensland state with conditions that shouldn’t be “overly onerous,” Citigroup Inc. said.

Santos may face increased water monitoring requirements and closer scrutiny of its Gladstone liquefied natural gas venture, Mark Greenwood, a Sydney-based analyst at Citigroup, said in a report. That may add as much as A$20 million to costs, “which is small relative to total” capital expenditure, he said.

Environment Minister Tony Burke is due to announce today whether he has approved projects planned by Santos and BG Group Plc. The companies intend to liquefy gas taken from coal seams and export the fuel to Asia.

“We are not concerned” about the Santos development getting clearance, “given that the Queensland government has already provided environmental approval and we believe the federal government wants to approve these projects to send a message that Australia is open for business,” Greenwood wrote.

Australia has A$200 billion of proposed LNG projects targeting rising demand for cleaner-burning alternatives to coal to curb emissions, according to figures from the Australian Petroleum Production and Exploration Association.

Santos rose 1.8 percent to A$12.48 at 12:44 p.m. in Sydney trading. The S&P/ASX 200 Index gained 0.2 percent.

Contaminated Wells

BG Group, the U.K.’s third-largest oil and gas producer, and Santos plan to make investment decisions by the end of the year to proceed. The Santos project may cost A$12 billion with one production unit and A$18 billion with two units, Greenwood estimated in his report, dated Oct. 21.

Santos, the country’s third-biggest oil and gas producer, may seek to raise A$1.5 billion by selling shares if it proceeds with two LNG processing units, or trains, and keeps a 40 percent stake in the venture, he said. That number may be reduced if it sells more of the project or disposes of assets, he said.

A rival venture in Queensland proposed by Origin Energy Ltd. and Houston-based partner ConocoPhillips found traces of banned contaminants in eight exploration wells in the Surat Basin, the Sydney-based company said on Oct. 19. The project detected benzene, toluene, ethylbenzene and xylene, together known as BTEX, Origin said.

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