Fears for Arrow as analyst says new LNG plants cost double

ARROW LNG may not go ahead as a standalone project, with an analyst working with Arrow saying Australian projects could halve their costs if they join current projects rather than build new ones.

Deloitte analyst Geoffrey Cann could not comment specifically on the $17.4 billion Arrow project proposed for Curtis Island, that the high cost of labour and the threat of competition from the US meant "brownfield" expansion was the best option for the sector.

Analysts have speculated that gas from Arrow's coal seam gas fields in the Surat and Bowen Basins could make its way into an expansion of one of the existing Curtis Island projects rather than Arrow building an entirely new plant.

"The biggest opportunity for Australia's onshore plants is in brownfield expansions and de-bottlenecking," he said.

The Gladstone LNG industry is already hard at work to alleviate those bottlenecks, as demonstrated just last week by the deal struck between APLNG and GLNG.

The two project players signed off on an agreement to share a coal seam gas pipeline from south-west Queensland to Curtis Island, meaning savings for both players.

Despite the best efforts of the local industry, new Australian LNG projects are still viewed as expensive by the big multi-nationals holding the purse-strings.

Mr Cann said Australian "greenfield" projects (or projects from scratch) were currently running at about $1500 per tonne of LNG produced.

By contrast, proposed projects in the US are running at about $600 to $900 per tonne.

"Australian projects in general are seen as some of the most expensive in the world right now, and there's really nothing on the horizon to suggest that costs are about to come down," Mr Cann said.

He said that costs associated with Australian brownfield projects, however, would be "more or less" on par with their US counterparts.

He said the main cost imposts on greenfield projects was needing to build infrastructure from scratch and the cost of labour.

According to consultancy Hays, the average oil and gas worker in Australia took home an average of just over $174,000 in 2012, compared with figures of $126,400 for workers in the US.

Mr Cann said the high cost of labour combined with lesser productivity in Australia compared with the US did not make good reading for any body trying to build a new project in Australia.

"So Australia's a good solid 20% to 25% higher than North American wage rates, which would be okay if we had 25% greater productivity, but we simply don't," Mr Cann said.

Arrow could not comment before deadline.

Read more: Full interview this Saturday in The Observer's Weekend section.

Topics:  arrow energy coal seam gas curtis island gladstone industry lng

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