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Shell’s FLNG plan given boost as PetroChina joins Browse venture

14 Dec 2012 18:33:46 | glm

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China's PetroChina has deepened its exposure to Australia's LNG sector after agreeing to buy BHP Billiton's stake in the planned Browse LNG export project in Western Australia (WA), Melbourne-headquartered BHP said on Wednesday.

Under the agreement, Chinese state company will pay BHP Billiton $1.63bn for its 8.33% stake in the East Browse licence, where most of the project's reserves are held, and a 20% interest in the West Browse permits, bringing its total holding in the Woodside Petroleum-operated project to around 10%.

The deal is the third change in the Browse shareholding structure this year, following the acquisition of a 14.7% stake by Japan Australia LNG - a joint venture between Mitsubishi and Mitsui - and an asset swap between Shell and Chevron, which boosted the Anglo-Dutch major's interest in the project to 27% and saw California-based Chevron exit the project. The shareholders possess pre-emptive rights on the deal, which is also subject to regulatory approval. However, observers said that PetroChina's entry is likely to bring greater partner alignment to the project while strengthening Shell's plan to monetise the Browse reserves using its proprietary floating liquefaction (FLNG) technology.

"PetroChina's decision to farm-in into the Browse project is a clear positive for Woodside and other stranded gas owners in the Browse Basin," Bernstein Research analyst Neil Beveridge said in a note. "With misaligned partners BHP and Chevron out of the project and Chinese and Japanese buyers in, effectively the partnership is now aligned on the development of Australia's last major greenfield development."

Boost for FLNG option?

Woodside is formally committed to develop Browse as a 12 million tonne per annum (mtpa) onshore project at the remote James Price Point (JPP) in WA's Kimberly region. It is in the process of reviewing tender bids for the onshore scheme ahead of the planned final investment decision in the first half of 2013, although analysts expect development costs to surpass $40bn.

The JPP option has been strongly supported by the WA government, which wants to develop JPP with the ability to process up to 50mtpa of LNG from the offshore Browse Basin from a number of prospective projects.

However, the Perth-based company has faced strong environmental opposition to the proposed location at JPP.

Moreover, rising cost pressures on Australian greenfield projects, coupled with growing supply competition from North America and East Africa, has prompted some of the venture partners to push for other monetisation options at Browse. Both BHP and Chevron were understood to favour sending Browse gas for processing via a 1,000km pipeline to the existing North West Shelf (NWS) facilities in Karratha. But Anglo-Dutch major Shell is understood to be pressing the current partners for an alternative development plan which would see it roll out its FLNG unit design, first deployed at the nearby Prelude LNG project.

"Browse was looking very shaky as it looks very difficult for the second phase of Australian greenfield to go ahead because of the high costs. PetroChina coming into the project is a significant vote of confidence, but at the same time it bolsters Shell's position [in Browse] as PetroChina are unlikely to oppose Shell's plans to develop Browse via FLNG," said Tony Reagan, principal at Singapore-based Tri-Zen consultancy.

Shell and PetroChina have forged a global partnership and the two companies are jointly developing the 8mtpa Arrow LNG project in Queensland, although Shell has recently indicated that it will postpone the planned 2013 final investment decision on the back of rising cost pressure in Australia.

The Chinese company had allowed a preliminary agreement to purchase 2-3mtpa of LNG from Browse lapse at the end of 2009, and its entry to the project now may also point to uncertainty over the prospects of the coal seam gas-based Arrow LNG project proceeding, Beveridge said.

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