Petronas buys into Santos CSM-LNG project

Rick Wilkinson
OGJ Correspondent

MELBOURNE, May 29 -- Malaysia's government-owned Petronas is to buy into Santos Ltd.'s proposed LNG project in Queensland that will be fed by the Adelaide-based company's coal seam methane assets in the Bowen basin.

Petronas will pay just over $2 billion for a 40% stake in the project, including the upstream, pipeline, and downstream marketing aspects.

The scheme, announced by Santos 11 months ago, involves piping coal seam methane (CSM) 450 km from its Queensland fields to the coast at Gladstone and across to a gas liquefaction plant planned for Curtis Island just offshore (OGJ Online, July 19, 2007).

Initial production is for one 3-million tonne/year train, but Petronas will pay an additional $500 million if and when a final investment decision is made to add a second 3-million tonne/year train to the project.

Financial close on the initial $2 billion deal is expected by August, pending approvals by the Foreign Investment Review Board and other regulatory agencies.

Santos will retain 60% of the project and will be upstream operator. A joint venture company will be formed with Petronas to operate the pipeline and LNG plant and direct marketing activities.

Santos says it has probable CSM reserves of 538 petajoules, possible reserves of 1,600 petajoules and contingent resources of 2,969 petajoules for the project.

Since announcing the project in July 2007, Santos has awarded dual pre-front-end engineering and design (FEED) contracts to Foster Wheeler and Bechtel to enable a decision on the most appropriate LNG process to proceed to the FEED stage, expected to begin late this year.

The timetable calls for a final investment decision on the first LNG train by yearend 2009 and first LNG production in 2014.

Petronas will contribute its technical expertise; it is the third-largest LNG producer in the world.

The company already holds interests in Australia, including 16.7% of pipeline group APA and a 25% stake in the Timor Sea Evans Shoal gas field in which Santos is a 40% participant and operator.

Petronas was a major participant of the now disbanded PNG-Queensland LNG scheme as a 50% operator-owner of the PNG-Australia pipeline.

The Santos-Petronas deal follows the recent announcement of the BG Group (British Gas) joint venture with another coal seam methane player Queensland Gas Co. for a gas liquefaction plant to be built at Gladstone.

Two other Australian operators, Arrow Energy and Sunshine Gas, also are planning LNG plants at Gladstone in the same timeframe.

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