BG to Start Work on $15 Billion Australian LNG Project

Australian Treasurer Wayne Swan
"This is a very significant milestone for the Australian economy," Treasurer Wayne Swan said. Photographer: Luis Enrique Ascui/Bloomberg

BG Group Plc said it will proceed with a $15 billion liquefied natural gas venture in Australia’s Queensland state, the biggest single investment by the U.K.- based energy company.

BG’s Queensland Curtis LNG project faces 1,500 conditions imposed by state and federal governments to protect the environment and underground water supplies, the U.K.’s third-largest oil and gas producer said yesterday.

The Australian government’s Oct. 22 approval was “the final piece of the puzzle,” Catherine Tanna, managing director of BG Australian unit QGC Pty Ltd., said in a telephone interview. “It’s the end of an almost three-year process of engaging with state and federal agencies -- probably the most rigorous assessment of any project in Australia.”

BG, Chevron Corp., Royal Dutch Shell Plc and ConocoPhillips are among energy companies investing about A$200 billion ($198 billion) in LNG projects in Australia to tap Asian demand for cleaner-burning fuel to curb emissions, according to figures provided by the Australian Petroleum Production & Exploration Association. BG seeks to become the first to convert coal-seam gas to LNG for shipment to overseas markets, Tanna said.

While the BG development is first among the Queensland LNG projects to reach a final investment decision, Adelaide-based Santos Ltd. probably isn’t far behind in committing to a project that may cost $18 billion, Di Brookman, an analyst at CLSA Asia-Pacific Markets in Sydney, wrote in a report today.

BG’s Advantage

BG’s development may cost less than the one proposed by Australia’s third-largest oil and gas producer, partly because the U.K. gas supplier can negotiate better prices with contractors such as U.S. engineering company Bechtel Corp., which BG uses regularly, Brookman wrote.

BG will build two processing units with a combined capacity of 8.5 million metric tons of LNG a year. Santos plans to produce 7.2 million tons of LNG a year from two units at its Gladstone venture.

Santos is a partner with Malaysia’s Petroliam Nasional Bhd. and France’s Total SA. Its shares rose 0.7 percent to A$12.71 at the market’s 4:10 p.m. close in Sydney, while the benchmark S&P/ASX 200 Index gained 0.8 percent.

ConocoPhillips, partner with Origin Energy Ltd. in the proposed A$35 billion Australia Pacific LNG project in Queensland, expects to receive environmental approvals within the next month, the company said last week.

Four Years

The BG project will be built over the next four years and is due to start fuel shipments in 2014, the company said yesterday. It involves building a plant on Curtis Island 450 kilometers (282 miles) north of Brisbane, a 540-kilometer underground pipeline network, and expanding production in gas fields in the state’s Surat Basin, BG said.

BG has reached agreements to sell LNG to customers in China, Japan, Singapore and Chile and will also provide gas to markets in eastern Australia, the Reading, U.K-based company said in a statement yesterday. The project, which will have an operating life of at least 20 years, will likely create 5,000 construction jobs over the next four years, according to the statement.

China National Offshore Oil Corp. will have a 10 percent stake in the first LNG processing unit, while Tokyo Gas Co. will have a 2.5 percent interest in the second unit, BG said.

‘Milestone’ for Australia

Korea Gas Corp., the world’s biggest buyer of LNG, said earlier this month that it’s in talks to acquire a 15 percent stake in Santos’s Gladstone project. Korea Gas has likely agreed to terms and is now awaiting South Korean government approval, Citigroup’s Sydney-based analyst Mark Greenwood wrote on Oct. 21.

BG’s plant will have “significant potential to expand,” the company said yesterday. The project is expected to produce a third of Australia’s LNG in the first stage, Australian Treasurer Wayne Swan said at the briefing.

“This is a very significant milestone for the Australian economy,” Swan said.

The project will account for an 11 percent boost in Australia’s total foreign direct investment over the four years of construction, he said in an e-mailed statement.

The Curtis Island plant will be the most efficient in Australia and the second-most efficient in the world in terms of greenhouse gas emissions, generating about 35 percent less than other fossil fuels, BG’s Tanna said.

“When Australian LNG is used in place of coal to generate electricity in customer countries, up to nine tonnes of greenhouse gas emissions are avoided for every tonne produced in the production, liquefaction and export process,” the industry group said in an e-mailed statement yesterday.

Coal-seam gas fields in Queensland and New South Wales contain enough gas to power a city of one million people for 5,000 years, APPEA said, citing research from the Australian Commonwealth Scientific and Research Organization.

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