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Shell may delay Arrow LNG as Australian costs rise

11.23.2012  | 

Royal Dutch Shell could postpone a decision on its Arrow liquefied natural gas (LNG) project on Curtis Island in Queensland, Australia, until 2014. Costs for Australian LNG facilities are climbing as the nation looks to overtake Qatar as the world's largest exporter of LNG, amid burgeoning Asian demand.

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Royal Dutch Shell could postpone a decision on its Arrow liquefied natural gas (LNG) project on Curtis Island in Queensland, Australia, until 2014.

The venture, which is owned by Shell and PetroChina, is forecast to cost $20 billion (B) amid rising energy project costs in the country.

"We are in preparation of a potential final investment decision of that project somewhere in the 2013–2014 timeframe," CEO Peter Voser said.

Costs for Australian LNG facilities are climbing as the nation looks to overtake Qatar as the world's largest exporter of LNG, amid burgeoning Asian demand.

"Cost inflation is showing in many different segments, and that forces us to find other ways of constructing our projects, or taking final investment decisions at the right time or postponing," Mr. Voser added.

Energy firms are moving forward with seven LNG projects in Australia, estimated to cost $180 B, even as growing construction costs and competition put the development of future projects in jeopardy.

Deutsche Bank AG has estimated that Arrow alone will cost more than $20 B. Shell, BG Group, Santos Ltd. and ConocoPhillips all have LNG projects under development along the Queensland coast.

Shell is considering a plan to combine its Arrow gas resources with those of third parties, said Director of International Production Andy Brown. "With three projects under construction at Curtis Island, it makes sense to think about the best value solution for Shell, and get the timing of an LNG project right," Mr. Brown explained.

Meanwhile, Gorgon LNG, a Chevron-led Australian LNG project in which Shell has a 25% stake, could cost as much as $50 B, according to Deutsche bank AG. The project is 50% complete.

After discovering more than 40 trillion cubic feet of gas, Shell and Chevron are reviewing a plan to build a fourth production unit at Gorgon. Mr. Brown said that the decision on the proposed fourth train will be made next year.



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