Regional LNG: Australian LNG projects to seek U.S. markets

Australia's North West Shelf venture, the nation's largest gas producer, said it's looking to sell liquefied natural gas into the $71 billion U.S. gas market to tap rising demand and prices that have surged 72 percent in a year.

The $6 billion venture, which includes Royal Dutch/Shell Group and BP Plc, Europe's two largest oil companies, joins two proposed LNG projects in Australia, ChevronTexaco Corp.'s Gorgon field and the Woodside Petroleum Ltd.-led Sunrise venture, in seeking customers in North America.

Federal Reserve Chairman Alan Greenspan has said the U.S. needs more LNG terminals to increase imports of the fuel as prices have more than doubled in six years, posing a "serious" problem for the economy. Mitsubishi Corp. and rivals plan to spend more than $3 billion building terminals in the U.S., including on the West Coast, which will clear the way for Australian sales.

"It's definitely positive from our perspective that Greenspan made those comments,'' John Banner, president of North West Shelf Australia LNG Pty, said in an interview. "We're optimistic some of the gas from here will end up in the U.S."

Banner's company markets LNG from the North West Shelf to buyers outside Japan. LNG is gas cooled to a liquid so it can be transported by ship to markets beyond the reach of pipelines.

Liquefied natural gas accounted for only 1 percent of U.S. gas supplies in 2001, according to the U.S. Energy Department. That percentage is forecast to increase to 7 percent by 2025 because of a decline in natural-gas production in the U.S., Yasuo Ryoki, general manager of Osaka Gas Co., said at a conference in Darwin last week.

Marathon, El Paso

None of the U.S.'s four existing importing terminals is on the West Coast, which is the most practical destination for Australian shipments. ChevronTexaco, Marathon Oil Corp., El Paso Corp. and Sempra Energy have joined Mitsubishi in planning terminals.

Sempra, the largest U.S. gas utility, is proposing LNG import terminals in Mexico and Louisiana. Mitsubishi, which owns a stake in the North West Shelf, plans to invest as much as $400 million to build an LNG terminal in California. It aims to sell surplus LNG from fields including the North West Shelf.

``Any terminals on the West Coast are good for all the projects in Australia,'' North West Shelf's Banner said. That would particularly be the case for ``one that isn't necessarily tied to a producer, like Sempra's, as it means they'll be out there looking for cargoes.''

Australian projects will face competition for sales to the U.S. from other Asia-Pacific producers such as Indonesia, the world's biggest LNG seller, and Malaysia.

Indonesia's Focus

"The U.S. will be our focus in the near future, aside from maintaining our traditional buyers such as Japan and Korea,'' Baihaki Hakim, president director of Pertamina, Indonesia's state oil company, said in an interview. ``For Indonesia, the U.S. is the market that we have to explore, especially amid tight competition and surplus in the Asian market."

Shell may sell LNG into the U.S. from the supplies of up to 3.7 million metric tons that it will buy from the North West Shelf's fourth production line between 2004 and 2009, Gordon Ramsay, an energy analyst at Citigroup Inc.'s Smith Barney unit, said in a report last week. Shell said last year it will use the LNG to develop market opportunities outside the venture's main Asian markets.

Shell's Australian unit couldn't immediately comment on the company's plans for the LNG. ChevronTexaco, Mitsui & Co. and BHP Billiton also have stakes in the North West Shelf.

Natural-gas prices in the U.S. have averaged $5.84 per million British thermal units on the New York Mercantile Exchange so far this year, two-and-a-half times the 1999 average of $2.32. Gas for July delivery rose 1 percent on the exchange on Monday to $5.86 per million British thermal units.

Gorgon

"You need to be aware that the gas price in the U.S. fluctuates dynamically by reflecting the supply-demand balance in the U.S. as a whole and in regional markets within the U.S.," Osaka Gas's Ryoki said at the conference. "From time to time, you'll need to minimize your exposure against an extremely low natural-gas price."

U.S. prices are up 72 percent from a year ago and Greenspan said on June 11 that market movements imply a 25 percent probability that the peak price will exceed $7.50.

"A higher average U.S. gas price in future years is expected to lead to increased potential for future (Australian) LNG sales into the U.S.,'' Smith Barney's Ramsay said. ``This could benefit Woodside by creating opportunities for additional North West Shelf project LNG sales."

Two Terminals

ChevronTexaco, the second-biggest U.S. oil company, may deliver LNG from its proposed A$6 billion ($4 billion) Gorgon project off northwestern Australia to the North American West Coast, where it has proposals to build two terminals, Audie Setters, vice president of the company's international gas business, said in an interview this month. Shell and Exxon Mobil Corp. are partners in Gorgon.

"Anything that improves the market in the U.S. West Coast is good news for Sunrise," Niegel Grazia, a Woodside spokesman said in an interview. Shell, ConocoPhillips and Osaka Gas also have stakes in Sunrise. "We continue to look for a blend of Asian volumes and U.S. volumes as the basis for moving the project forward." (Bloomberg)