Regional LNG: Osaka Gas, Chevron near deal on Gorgon LNG supply

Japan's Osaka Gas Co. is close to an initial agreement with Chevron Corp. for the long-term purchase of liquefied natural gas from Australia's Greater Gorgon venture, which is half-owned by Chevron, according to officials familiar with the talks.

A draft agreement will likely be reached in the next few weeks, the officials told Dow Jones Newswires.

If completed, the deal would help Osaka Gas reduce its heavy reliance on Indonesia as its main source of LNG imports.

If realized, Osaka Gas, Japan's second largest gas utility, will buy 1.0 million to 1.5 million metric tons a year of LNG from the Gorgon venture for 20-25 years starting from 2010, an official said.

A spokesman for Osaka Gas, however, declined to comment on negotiations being held between his company and Chevron Australia Pty Ltd.

Similarly, Chevron in Australia declined to comment when asked about the potential purchase.

The contract with Gorgon LNG would mark the third deal by a Japanese power and gas utility to import LNG from the Chevron-led project.

Osaka Gas annually imports about 6.1 million tons of LNG, with half of this coming from Indonesia through long-term supply contracts. In 2011, some of its contracts with Indonesia, covering 1.74 million tons of LNG, are set to expire.

Over the last two months, Tokyo Gas Co. and Chubu Electric Power Co. have reached, respectively, initial agreements with Chevron Australia to purchase LNG from the Greater Gorgon project.

Tokyo Gas will start buying 1.2 million tons a year of LNG over 25 years, while Chubu Electric plans to purchase 1.5 million tons a year under the 25-year deal.

Tokyo Gas and Chubu Electric are also in talks with Chevron Australia, respectively, to acquire stakes in the Gorgon LNG project.

Osaka Gas is also in talks with Chevron Australia to acquire stakes in the Greater Gorgon LNG project, the sources said.

Under its three-year business plan through fiscal 2008, Osaka Gas says it will expand its participation in overseas oil and gas exploration and production projects.

"This is to gain stable natural resource supply, given our expectation that global LNG supply will tighten in the years ahead," Osaka Gas said in the business plan, which was unveiled in October.

Osaka Gas has other gas interests in the region. It holds a 10% stake in the US$5 billion Sunrise natural gas project in the Timor Sea.

The Greater Gorgon area, off Australia's northwest coast, contains an estimated gas resource in excess of 40 trillion cubic feet.

Under the project, the Gorgon venture will construct two LNG trains on Barrow Island, each with a production capacity of 5 million tons a year. Commercial operations are slated to begin in 2010.

Royal Dutch Shell PLC has committed to take up to 2.5 million tons a year from Gorgon for its half-owned Energia Costa Azul LNG import terminal in Baja California, starting in 2010.

Chevron, the project operator, holds a 50% stake in the Gorgon LNG venture, while Shell and Exxon Mobil Corp. own 25% each.(*)