Tokyo Gas seeks stake in BG Australia LNG project


LONDON -- Tokyo Gas is in talks to acquire a stake of up to 10% in BG Group’s flagship $20 billion Australian liquefied natural gas project, a deal which would guarantee vital new energy supplies for Japan, a senior executive from the Japanese company said Tuesday.

The deal includes the purchase of 1 million tpy of LNG from the Australian project, which is under development, giving a vital boost to gas supplies that have been under extra pressure since Japan decided to shut down almost all of its nuclear power plants in the wake of the Fukushima meltdown.

It also offers UK-based BG Group a way to defray some of the soaring costs of LNG development, which increased by more than a third in May due to the rising cost of labor and raw materials in the booming Australian economy.

The transaction should be announced very soon, said Tokyo Gas representative director and executive vice president, Shigeru Muraki, on the sidelines of the Gastech conference in London.

Japan is in need of additional natural gas supplies to fuel power plants that are filling the gap left by the shutdown of its nuclear reactors. Almost all of the country's reactors were shut down after a large earthquake and tsunami caused partial meltdowns and radiation leaks at the Fukushima plant in 2011.

Some nuclear power plants have since restarted, but last month the Japanese government said it seeks an end to nuclear power by 2040. For this reason, Japan is expected to have significantly higher natural gas demand into the long term.

Japan imported nearly 80 million tons of LNG in 2011, a 13% increase over 2010, said BG Group CEO Frank Chapman in a speech at the Gastech conference. Imports next year could approach 90 million tons, close to Japan's maximum import capacity, he said.

BG Group representatives declined to comment.

BG Group has been seeking partners for the Queensland Curtis LNG plant since at least March, and was hoping to raise around $2 billion from the sale, a person familiar with the matter told The Wall Street Journal.

The project will extract natural gas from coal seams in Queensland, transport it around 540 kilometers to the coast of Queensland, and cool and liquefy it for export. The facility, on Curtis Island near the city of Gladstone, will produce 8.5 million tpy of LNG starting in 2014.

BG has found plenty of customers for the gas in Asia, but has also suffered from significant labor and raw material cost overruns due to the strength of the Australian dollar.

In May, the company unexpectedly increased the budget for the plant to $20.4 billion, from $15 billion previously, making it one of BG's most expensive developments.

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