Summary: -- LNG to be shipped to Japan, Taiwan from 2017 -- 70% of project's output will be shipped to Japan --Contractors are Samsung, GE, MDR
SYDNEY -(Dow Jones)- Inpex Corp. (1064.TO) and Total SA (TOT) have given the green light to build one of Australia's most expensive energy projects at an estimated cost of US$34 billion over the next five years.
The Ichthys gas-export development will tap a remote deepwater field off Australia's northern coast containing an estimated 12.8 trillion cubic feet of natural gas.
The hefty price tag is broadly in line with a Citigroup estimate in June of US$32.5 billion, and a recent Deutsche Bank estimate of A$31.9 million (US$33 billion).
Australia has close to a dozen giant gas projects in the pipeline to feed fuel-strapped Asian economies, including Japan, which is seeking more gas as an alternative fuel following the Fukushima nuclear accident, and rapidly industrializing economies such as China.
Demand for liquefied natural gas will surge, Inpex President Toshiaki Kitamura said.
"Japan is the world's top LNG importer. We can't secure stable supply by just waiting for developers coming up with cargoes to the market," Kitamura said, stressing the importance of Japan's investment in the upstream business.
Gas from the Ichthys field will be piped to a plant in Darwin that can produce 8.4 million metric tons of LNG each year for seven Japanese utilities and Taiwan's CPC Corp.
Ichthys, however, is the most expensive development per ton of LNG produced, mainly because of its remote location and the 885-kilometer pipeline needed from the offshore gas field to Darwin.
But Kitamura said, "We are confident of the profitability of this project," citing relatively large amounts of co-produced condensate and Australia's regulations that are "generous" to foreign investors.
Ichthys is expected to produce 100,000 barrels per day of condensate, a light oil, at peak production, and 1.6 million tons of liquid petroleum gas each year.
"Australia is well on track to becoming the major gas supplier in the Asia-Pacific region," Australian Resources Minister Martin Ferguson said Friday.
Still, Ichthys progress may be negative for rival developments, including Woodside's complex Browse project, which is also located in the remote Browse Basin.
Australia already has a tight labor market, and a shortage of skilled workers last year prompted Woodside to announce a third delay and cost overrun at its A$14.9 billion Pluto LNG project in Western Australia state.
Inpex chairman Naoki Kuroda said engineering, procurement and construction of the Ichthys onshore LNG facility will be carried out by a joint venture comprising JGC Corp. (1963.TO), KBR Inc. (KBR) and Chiyoda Corp. (8185.TO).
Samsung Heavy Industries Co. (010140.SE), General Electric Co. (GE) and McDermott International Inc. (MDR) are among companies to be awarded development contracts.
Roughly 70% of Ichthys' output will be shipped to Japanese utilities, including Tokyo Electric Power Co. (9501.TO), Tokyo Gas Co. (9531.TO), Osaka Gas Co. (9532.TO) and Kyushu Electric Power Co.
Inpex recently agreed to sell a 1.575% stake to Tokyo Gas, which will reduce its stake in the LNG project to 72.8%. Total owns 24% and is in talks with Inpex to raise its stake, Kitamura said.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com