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ConocoPhillips, Santos projects in Australia will swap LNG to limit costs

10.25.2013  | 

ConocoPhillips and Santos, developing separate LNG projects in Australia at a cost of more than $40 billion, agreed to share pipelines and exchange gas to curb costs and reduce duplication.



ADELAIDE (Bloomberg) -- ConocoPhillips and Santos, developing separate liquefied natural gas projects in Australia at a cost of more than $40 billion, agreed to share pipelines and exchange gas to curb costs and reduce duplication.

The projects in Queensland state will build two pipeline connection points, according to a joint statement from Santos and ConocoPhillips’s partner, Origin Energy. Santos and Origin said they’re looking at opportunities for further collaboration.

ConocoPhillips and Origin are building a $24 billion project to liquefy natural gas for shipment to Asia, while Santos is developing an $18.5 billion development. BG Group is building another coal seam gas-to-LNG project in Queensland. Australia, forecast to become the world’s largest supplier of LNG with seven projects under construction, is facing rising costs that threaten the industry’s expansion.

“The CSG-LNG sector failed to capture the synergies of large-scale consolidation earlier in the planning phase and as a result the industry is being developed in an inefficient way,” Mark Wiseman and Anthony Ta, analysts at Goldman Sachs Group, said in a note. “Players are increasingly looking at areas where they can reduce project operational risk and capture cost savings.”

More Collaboration

Without the agreement, the projects would need 140 km of additional pipelines and multiple connection points to send their gas to plants on Curtis Island for processing for export, according to the statement.

“It heralds the beginning of future value-adding collaboration and cooperation between the various projects,” Trevor Brown, the Queensland VP for Santos, said on a call with reporters.

Both the Australia Pacific LNG project, led by ConocoPhillips and Origin, and the Gladstone LNG venture, operated by Santos, are due to begin exports in 2015. Arrow Energy, owned by Royal Dutch Shell and PetroChina, is considering a fourth development.

Santos and BG’s Australian unit, QGC Pty, reached an agreement in July to link pipelines on the Queensland mainland and on Curtis Island, where the plants that process coal-seam gas into LNG are based. Connecting the pipelines will allow the developments to buy, sell and swap gas at those points.

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