By Ross Kelly
SYDNEY-- GDF Suez SA and Santos Ltd. backed away from a
multibillion-dollar plan to develop natural gas fields offshore
Australia using untested technology that can convert gas to a
liquid at sea.
The decision highlights the risks confronting Australian
gas-export projects as they grapple with high costs and competition
from North America and Russia, which are vying to provide Asian
utilities with cleaner-burning fuels. It is also a sign that
confidence in floating liquefied natural gas may be
diminishing--two years before a Royal Dutch Shell PLC-owned vessel
is due to begin processing gas for the first time.
A floating LNG project "doesn't currently meet the companies'
commercial requirements", GDF Suez and Santos said in separate
statements Thursday. The pair said they would look at other ways to
develop the Petrel, Tern and Frigate gas fields in the Bonaparte
Basin, including piping gas to an onshore processing facility in
Darwin around 170 kilometers away.
Vessels that can convert natural gas to a liquid at sea have
long captured the imagination of some of the world's biggest energy
companies because they allow for the development of relatively
small fields stranded hundreds of miles from shore. Developing
natural gas fields currently involves construction of expensive
pipelines to the coast, where large plots of land must be cleared
to accommodate processing hubs.
A major technical issue for floating LNG, however, is to design
a liquefaction and storage system that can cope with the movement
of the ocean, especially in stormy weather. That issue is being
addressed with containers designed to minimize sloshing and with
elaborate anchoring systems designed to minimize the movement of
vessels in the water.
Shell approved construction of the world's first floating LNG
vessel in 2011 to process gas from the Prelude field, also located
off Australia's northern coast. The giant vessel--longer than four
soccer fields when laid end to end--is being built in a South
Korean shipyard and is scheduled to start producing LNG in 2016.
Exxon Mobil Corp. and BHP Billiton Ltd. are also considering using
floating LNG to develop remote gas fields.
Still, budget overruns at several Australian LNG developments
have underscored the risks involved in building new projects.
Woodside Petroleum Ltd. last year shelved plans to build an onshore
plant to process gas from its deep water Browse field in Western
Australia state because it wasn't commercially viable.
Shell has estimated its Prelude project will cost up to $3.5
billion for each million tons of production capacity, indicating a
total cost of up to $12.6 billion.
GDF Suez in 2010 paid Santos up to US$370 million to join the
project, known as Bonaparte LNG. The deal included an upfront cash
payment of US$200 million for 60% of the three gas fields.
The company agreed to pay Santos an additional US$170 million
when a final investment decision was made on the proposed floating
LNG facility. Bonaparte LNG was slated to produce between 2 million
and 3 million metric tons of LNG each year. Santos was previously
aiming to begin construction in 2014, with delivery of first
cargoes around four years later.
GDF Suez--Europe's largest utility by market value--is looking
to sell assets worth as much as EUR11 billion (US$14.4 billion) by
the end of 2014 to boost its balance sheet at a time when weak
euro-zone growth is hurting energy demand and French regulators are
restricting its ability to raise natural-gas prices. The French
company is also involved in proposed LNG projects in the U.S. and
Cameroon.
Write to Ross Kelly at ross.kelly@wsj.com
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