THE WALL STREET JOURNAL: Shell's Gorgon LNG Deal Worth More Than US$10B: “A deal to sell liquefied natural gas from the Gorgon project offshore Western Australia to a Mexico receiving terminal is worth more than US$10 billion, project partner Royal Dutch/Shell (RD) said Monday” (ShellNews.net) Posted 11 April 05

By STEPHEN BELL

Of DOW JONES NEWSWIRES

PERTH -- A deal to sell liquefied natural gas from the Gorgon project offshore Western Australia to a Mexico receiving terminal is worth more than US$10 billion, project partner Royal Dutch/Shell (RD) said Monday.

"This could be the biggest ever trade deal that has been done between Australia and Mexico," a Shell spokesman told Dow Jones Newswires on the sidelines at the Australian Petroleum Production & Exploration Association conference in Perth.

Under the 20-year deal, Shell has committed to take up to 2.5 million metric tons per year from Gorgon for its half-owned Energia Costa Azul terminal in Baja California, starting in 2010.

"It increases the prospects for Gorgon taking a final investment decision in mid-2006 as a quarter of the project's proposed gas volumes are now committed," the Shell spokesman said.

The A$11 billion (US$8.5 billion) Greater Gorgon venture, half-owned by operator ChevronTexaco Corp. (CVX), is proposing to export 10 million tons per year of LNG to China and North America. Shell and ExxonMobil each own 25% of Gorgon.

The Energia Costa Azul terminal, which is owned by North American group Sempra Energy (SRE), started construction early this year. Shell has rights to 50% of the terminal's capacity.

The 7.5 million tons per year LNG terminal is due to begin imports in early 2008. Shell will initially fill its share of the terminal's capacity with LNG from its Sakhalin Two project in Russia.

Imports from Gorgon are due to start in 2010, after Sakhalin Two diverts some of its LNG to Japanese markets, the spokesman said.

The U.S. West Coast looms as a major market for Gorgon and Australian rivals such as the Woodside Petroleum Ltd. (WPL.AU)-operated North West Shelf project, which plans to give the go-ahead for a multibillion dollar 5th train expansion by midyear.

Gorgon Green Light Set For Mid-2006
Woodside is proposing to export LNG into the U.S. via its Crystal receiving terminal joint venture.

BHP Billiton (BHP), meanwhile, hopes to export gas from its Scarborough joint venture with ExxonMobil to the proposed Cabrillo port project offshore California.

BHP, Shell and ChevronTexaco are also part-owners of the North West Shelf venture.

The Gorgon partners last week rejigged ownership of their project, with ChevronTexaco to operate and own half of the combined "Greater Gorgon" fields, estimated to contain 40 trillion cubic feet of natural gas. The restructure simplifies ownership while more than doubling the amount of gas that can be marketed to customers in Asia and North America.

Gorgon hopes to commit to a front-end engineering and design, or FEED, phase, by midyear, leading to a final investment decision in mid-2006. It is due to ship its first LNG by late 2009.

Demand for LNG in Asia is rising as countries such as China and India prepare to join Japan and Korea as major importers of the fuel.

But Gorgon, one of Asia's biggest gas accumulations that was discovered three decades ago, faces intense competition from suppliers in Australia, along with the Middle East, Russia, Malaysia and Indonesia.

Gorgon, along with other projects in Australia, is also facing rising cost pressures due to an estimated 70% hike in steel prices over the past 12 months. A shortage of skilled workers is adding to the pressure.

The Gorgon partners signed an initial A$30 billion agreement in October 2003 to supply as much as 100 million metric tons of LNG to China National Offshore Oil Corp. over 25 years.

A combined ownership and gas offtake deal was meant to be finalized with CNOOC by the end of last year. ChevronTexaco now hopes to conclude the deal in the next "few months", the company said last week.

-by Stephen Bell, Dow Jones Newswires; 61-8-9245-5120
stephen.bell@dowjones.com

-Edited by Ian Pemberton
 

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