Regional LNG: Woodside eyes more China LNG deal: Report
Wednesday, November 19 2003 - 08:44 AM WIB
David Maxwell, the director of Woodside's gas unit, said talks are underway between the Woodside-operated North West Shelf and China to lift contract LNG sales to as much as 4 million metric tons per year.
"We started with a 3 million-ton contract," Maxwell told an investors briefing. "That grew to 3.3 (million tons) and discussions are underway at the moment to further increase the plateau volumes to 3.7 and possibly even 4 million tons per annum," he said.
Woodside expects to land the first LNG into China in 2006. The company is operator and one-sixth owner of the North West Shelf gas project offshore Western Australia, which is currently expanding by building a fourth LNG processing "train".
Analysts expect that a fifth train, costing around A$1.5 billion, may be needed to meet demand from China, though the venture has yet to approve the investment.
Maxwell said that the North West Shelf has enough reserves to support existing commitments, plus "extension of our Japan contracts, in the order of 7.3 million tons-a-year from 2009 onwards for up to 15 years".
"We have adequate reserves for a five-train operation, together with our ongoing and growing domestic gas commitments in the North West Shelf," he said.
The Shelf has been joined by ChevronTexaco Corp.'s Gorgon field in planning LNG sales into China.
ChevronTexaco said last month that it has signed an agreement with China National Offshore Oil Corp Ltd. that is expected to lead to "one of the biggest" LNG deals in the industry's history.
Neither party quantified the potential value of the signing, though the WA government said that the deal may exceed the value of the North West Shelf contract with Guangdong province.
Gorgon recently won conditional WA government approval to build an LNG processing plant on remote Barrow Island. Subject to a development commitment in 2005, the venture is due to begin exports in 2008.
Asian LNG Prices Linked To Crude Oil
Asked about potential synergies between North West Shelf and Gorgon, Maxwell said there could be "logistical" benefits in having another supplier to the Western Australian domestic gas market.
"It would be sensible for two projects with common parties and near proximity to find ways and means to reduce each other's cost," he said.
The benefits do not extend to the North West Shelf processing Gorgon's gas, he said. But he said Woodside would be "interested" in processing other gas reserves in the Greater Gorgon area that may be closer to the North West Shelf facility.
Turning to the LNG market, Maxwell said that LNG prices in Asia are closely linked to crude oil prices. "In a world where we are looking at oil prices in the range of US$28-US$32/bbl, you've certainly got very good LNG prices," he said.
He said that talk of Asian prices being forced lower, partly because of the race by suppliers to land LNG in China, was offset by developments in the U.S.
"What we've observed in the last three or four months is the increasing interest that is now being shown in the US West Coast by all projects," Maxwell said. "The volume of gas that can be consumed by the U.S. is significant, perhaps the limiting factor is the capacity, or the number, of LNG import terminals."
Maxwell predicted that the U.S. West Coast will effectively set a "floor" or " lower end" for Asian prices.
He said that longer-term prices in the US were likely to be in the range of US$4 to US$5 per million British thermal units. "Much above $5 and you start to get switching into other fuels, and much below $4 you really start to lose some of your supply," he said.
The North West Shelf is an equal six-way joint venture comprising Woodside, BHP Billiton, Royal Dutch/Shell, ChevronTexaco, BP Plc, and Japan Australia LNG, itself an equal joint venture between Japan's Mitsubishi Corp. and Mitsui & Co.
The Gorgon joint venture consists of ChevronTexaco with a 4/7th interest, Shell 2/7th and ExxonMobil Corp. 1/7th. (*)