LNG rivals hit gas sharing deal

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

Rod Duke, Santos' vice-president GLNG, noted that the ramp-up of three liquefied natural gas (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 blowouts, Mr Duke said the operators of the projects were now building gas pipelines to connect the three plants together 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 operates the GLNG project, Origin Energy the APLNG and QGC the QCLNG venture. The three projects amount to a total investment of more than $60 billion.

On a site tour of GLNG, Mr Duke told reporters the market had moved on from the intense 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 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 deal with soaring labour costs.

Pressure is on Santos to rein in costs after it revealed a 15 per cent blowout, to $US18.5 billion, in June last year. Mr Duke said a sure-fire 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.

But if it can avoid further cost blowouts, the project could prove a company-maker, and the huge amounts of LNG produced at Gladstone will be a key contributor to the dramatic shift in the world's energy supply mix, particularly as Asia's energy demands spike just as its desire to wean off coal-fired power rises.

The reporter travelled from Brisbane to Gladstone as a guest of Santos.

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