LNG rivals agree to gas sharing deal

For all its complaints that overlapping government regulatory approvals are contributing to delays and cost blow-outs, it is with no hint of irony that the oil and gas industry is now owning up to unnecessary duplication of its own making.

For all its complaints that overlapping government regulatory approvals are contributing to delays and cost blow-outs, it is with no hint of irony that the oil and gas industry is now owning up to unnecessary duplication of its own making.

"I think with 20/20 hindsight, that's how it might be perceived," Santos vice president of GLNG Rod Duke said.

He noted the unprecedented ramp up of three LNG mega-projects, all on Curtis Island in Queensland, meant each project had its own jetties, pipelines across to the mainland and other extensive infrastructure.

With the projects coming under scrutiny for cost blow-outs, Mr Duke said the operators of the projects were now building gas pipelines to connect the three plants with a view to entering into gas-sharing agreements to ensure supply contracts would be met.

"All three parties will be able to swap gas, or buy and sell ... in order to run our plants as efficiently as possible," he said.

The pipelines will be ready by the end of the year, Mr Duke said, ahead of Santos' first gas production at Gladstone in 2015.

Santos is operating the GLNG project, Origin Energy the APLNG project and QGC is running the QCLNG venture, with the three projects having a total investment of more than $60 billion.

Mr Duke said the market had moved on from the competitive phase where companies were "fighting for [their] place in the queue" to gain access to the gas acreage.

The gas-sharing agreement is another sign of the pragmatism and collaboration between the rivals in a tough cost environment, where overruns on the mega-projects on both the east and west coasts have become the norm, and have resulted in the industry urging governments to streamline its regulatory processes and address soaring labour costs.

Pressure is on Santos to rein in costs after a 15 per cent blow-out, to $US18.5 billion, in June last year.

Mr Duke said a way to remain on top of costs was to ensure there were no delays to construction. Santos' project was "smack bang on target" in line with the schedule agreed with contractor Bechtel.

Yet the sheer complexity and scale of the construction meant there was little scope for error.

If it could avoid more cost blow-outs, the project could prove a company-maker, and the huge amounts of LNG out of Gladstone would be a significant contributor to the shift in the world's energy supply mix, particularly as Asia's energy demands spiked just as its desire to wean off coal-fired power rose.

"This is machinery that turns methane into money," Mr Duke said. "We fully expect the plants to have an economic life of 40 to 50 years."

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