Subject: Australian: Timor venture on hold

The Australian November 19, 2001

Timor venture on hold

By Nigel Wilson

DEVELOPMENT of the vast Sunrise gas reserves in the Timor Sea has been delayed at least two years.

A meeting of joint venture participants in Perth on Friday failed to agree on a commercial arrangement for development.

Doubts have also been raised about the costing of Shell's proposal for the world's first floating LNG plant.

First LNG production from Sunrise reservoir, which is estimated to contain about nine trillion cubic feet of gas, is now predicted for 2007.

This is one year after the original target and two years later than the planned domestic gas development.

News of the delay comes as senior Australian government officials prepare to travel to Dili for a round of talks with the new East Timorese Government, in a bid to resolve differences over the Timor Sea Arrangement signed in July.

Friday's meeting of the Sunrise venturers – Woodside, Phillips Petroleum, Shell and Osaka Gas – failed to achieve the objective of aligning participants behind one of two competing LNG development proposals.

Shell is understood to remain confident that its plan will eventually be accepted.

But its partners want more information before committing themselves to a project that is likely to cost more than $4 billion.

Woodside, which is the project operator, said yesterday the joint venturers recognised that floating LNG "may be the most economic approach, but that there are significant outstanding issues".

These included technical aspects of the process, marketing arrangements and agreement on a commer cial structure for the project.

Shell announced in August that it would take the market and development risk for the world's first floating LNG technology on Sunrise.

Chief executive Alan Parsley claimed at the time that the FLNG proposal was 40 per cent cheaper than a $6.8 billion on-shore plant in Darwin proposed by Phillips Petroleum.

This assessment was based on removing the cost of a 550km pipeline from the FLNG project and putting the onus for funding domestic gas from Sunrise on to potential customers.

Phillips maintains it still has a valid letter of intent with US energy utility El Paso to supply 4.8 million tonnes of LNG from Darwin from 2005, with gas supplied through its Bayu Undan gas-recycling project.

Shell has no confirmed markets for Sunrise FLNG.

Rather, its strategy is to market LNG on a merchant basis, meaning that it does not need substantial foundation customers.

Woodside said yesterday a final investment decision on Sunrise development would be made in 2003.

Jim Godlove, Phillips' Darwin manager, said that the company remained confident that its LNG proposal was economic.

He noted that whatever decision the Sunrise participants made, Phillips would proceed with its Bayu Undan project.

It is understood that a stumbling block for other participants is Shell's proposed commercial structure.

While the company is believed to have drawn back from its originally announced plan to take 100 per cent of the market risk for 100 per cent of the reward, its latest proposal is unacceptable to the others.

They are believed to be arguing that the returns from the FLNG project should relate to their equity in Sunrise – which now stands at 33.33 per cent for Woodside, 30 per cent for Phillips, 26.66 per cent for Shell and 10 per cent for Osaka Gas.

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