Ichthys LNG Project to Start as Late as 2018, Bernstein Says

Inpex Corp., Japan’s biggest energy explorer, may start production of liquefied natural gas from its Ichthys project off the coast of Western Australia as late as 2018 and at a higher cost than originally projected, according to Sanford C. Bernstein & Co.

The project may cost as much as $44.2 billion, up 30 percent from the $34 billion the company estimated last year, Neil Beveridge, a Hong Kong-based analyst at Bernstein, wrote in the report. His prediction is based on an analysis of LNG projects over the past 10 years.

“LNG projects typically over-run on cost by 30 percent from the sanction estimate and are delivered 12-18 months late relative to schedule,” Beveridge said. “Based on what we have seen so far, it would seem highly likely that Ichthys will experience the same fate.”

Inpex hasn’t changed its projected costs or completion date for the Ichthys project, Keisuke Yano, a Tokyo-based spokesman for the company, said today by phone.

“We stand by our projection of production to start at Ichthys by the end of 2016 and capital expenditure of $34 billion as we announced in 2012,” he said.

The Ichthys project’s final bill is likely to rise to $44.2 billion, or about $3,800 per metric ton of LNG, due to a shortage of skilled labor and high infrastructure costs for new undeveloped fields, according to Bernstein. This is relatively inexpensive compared with the Gorgon and Wheatstone facilities in Western Australia, which will produce LNG for about $4,000 a ton, or nearly 50 percent more than original estimates, Bernstein said.

The Chevron Corp-led Wheatstone and Gorgon projects in will produce a combined 24.5 million tons-a-year, according to the company’s website.

Flexible Labor

“One benefit Ichthys may have is that it is likely to be the last major green-field LNG project sanctioned in the wave of recent Australian LNG projects,” Beveridge said. “As construction comes to completion on other projects, Ichthys is likely to benefit from a more flexible labor market from 2015 onwards.”

The slowdown in the mining sector in Australia and the likely end of appreciation for the Australian dollar mean Ichthys may end up with lower cost inflation, according to Bernstein.

Ichthys is the largest upstream project owned by Inpex, the report said. Inpex has a 66 percent share, with Total SA holding 30 percent and Japanese utilities Tokyo Gas Co. Ltd, Osaka Gas Co Ltd, Toho Gas Co Ltd and Chubu Electric Power Co Inc. taking up the remaining 3.93 percent, according to Bernstein.

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