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Bloomberg: Woodside Says LNG Market `Tightness’ Is Raising Costs (Update2)

By Angela Macdonald-Smith

Feb. 15 (Bloomberg) — Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, said an “unprecedented tightness” in the liquefied natural gas market is boosting costs and making it more difficult to develop projects on schedule.

Global trade in LNG may reach 370 million metric tons by 2015 from about 145 million in 2005, “nearly trebling in only 10 years,” Don Voelte, managing director of Perth-based Woodside, said in a speech delivered in Houston. Worldwide LNG demand could outstrip supply by as much as 20 million tons a year in 2008-2015, he said.

Woodside, operator of the North West Shelf LNG venture, is developing the Pluto LNG project, also in Western Australia, which it aims to build in a world-record time of less than six years from discovery of the gas to the start of production. The project may cost as much as A$10 billion ($7.8 billion), Voelte said in November, double the state government’s earlier estimate.

“LNG markets are seeing unprecedented growth,” Voelte said in the speech, a copy of which was lodged today with the Australian Stock Exchange. “As suppliers seek to meet this increasing LNG demand, the scarcity of human and material resources has contributed to rising costs and challenges in delivering new projects on time.”

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for delivery to destinations not connected by pipeline. On arrival it is turned back into gaseous form, for delivery to users such as power stations, factories and households.

Long-Term Contracts

The increased risk of building projects means long-term LNG sales contracts will probably become more important, in contrast to the predictions of some commentators that the market will soon be dominated by more flexible contracts, short-term trading and small-scale projects, Voelte said.
 
“Long-term contracts with less flexibility on issues such as percentage of take-or-pay volumes may be essential for new, large projects to come on line in time to satisfy demand,” Voelte said. “In today’s uncertain times, customers may agree to restricted flexibility in individual contracts to encourage development of more numerous and diverse supply sources.”

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected] .

Last Updated: February 15, 2007 02:04 EST

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