Resource tax and the LNG

THE LNG train game on Curtis Island is beginning to resemble a tug of war between producers and buyers with the Rudd government’s 40 per cent resource tax literally turning the whole LNG game into a circus act.

Curtis Island LNG proponents Shell and Santos indicated last week that they would consider consolidation, while Australian Pacific LNG (Origin and ConocoPhillips) were in two minds, with Origin chief Grant King saying it may happen but he’s not sure.

On May 6, Santos CEO David Knox told investors at an annual shareholders meeting that he would delay the LNG plant in Gladstone due to concerns over the government’s proposed new tax.

Santos was hoping to sign off the LNG budget as early as March 2010 but its failure to clinch a sales and purchase agreement with a third party had continued to dog the venture.

However, Santos announced last week the company’s liquefied natural gas joint venture was “very close” to signing another customer.

Until late 2009 the Santos Curtis Island LNG project was on track to become Australia’s first LNG project, but was overtaken by rival ventures led by the BG Group and Royal Dutch Shell.

The Gladstone LNG project will involve piping coal seam gas (CSG) from Santos’ eastern Queensland fields to a plant on Curtis Island, where the gas will be liquefied and loaded to ships for sale on world markets.

The Gladstone LNG project will produce 7.2 million tonnes per annum (mtpa) of LNG through two LNG processing trains, with a maximum potential production of 10 mtpa.

Santos has previously said that it would be comfortable reducing its stake in the Curtis LNG project from 60 per cent to 51 per cent.

The remaining 40 per cent is held by Malaysian energy company Petronas, which at present is the project’s only confirmed buyer.

One of the Asian companies Santos is talking to is state-run Korea Gas (Kogas).

Although Santos said earlier in April 2010 that it expected to name a foundation customer soon, negotiations with Kogas have dragged on for a year, with the South Korean firm blaming Santos’ reluctance to offer sufficient equity for the delay.

Now, with competition between LNG projects in Gladstone heating up, overseas investors are indicating they are after a bigger slice of LNG, ultimately changing Santos’ position.

Santos has now announced they are confident of a sale and have reiterated that it’s unlikely to merge with rival projects.

In the space of two weeks Santos has announced delays, uncertainty and trepidation regarding their Curtis Island LNG project.

However, like a trapeze artist balancing on a tight rope, they themselves are not certain as to where the project will fall and as to whether there will be a net to catch them.

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