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Bloomberg: Inpex Signals Delay, Cost Increase for Ichthys LNG (Update1)

By Angela Macdonald-Smith

Jan. 10 (Bloomberg) — Inpex Holdings Inc., Japan’s largest oil explorer, said the budget and schedule for its proposed Ichthys liquefied natural gas project in Australia are “under review,” signaling it may cost more and start later than planned.

The review means Inpex and its partner Total SA are “holding back” on a decision to start engineering and design work on the project, Sean Kildare, a Perth-based spokesman for the company, said today. The shares fell the most in almost five months.

Inpex and France’s Total plan to build two 3.8 million tons- a-year liquefied natural gas production units on the uninhabited Maret Islands off Western Australia. The Japanese company last year estimated the project may cost as much as A$10 billion ($8.8 billion) and deliveries may start in late 2012 or early 2013.

“Ichthys is a great resource, and the delay is indicative of the enormous challenges that most LNG projects are facing,” said Mark Greenwood, an oil and gas analyst at JPMorgan Chase & Co. in Sydney. “I think what’s happening is that boards are becoming uncomfortable to authorize the very large capital costs required for these projects. While current LNG prices are high, they need to become confident about the long-term price outlook and that the project will be executed to plan.”

A decision to start work on Ichthys had been due late 2007 or early 2008, in advance of an originally proposed date to commit to building the project late this year.

Chevron’s Review

Chevron Corp. is also reviewing the budget and schedule for its proposed Gorgon LNG project, also in Western Australia.

Inpex fell 7.1 percent in Tokyo trading to 1,170,000 yen, the largest drop since Aug. 17. Inpex was the biggest decliner among the 48 members of the MSCI AC Asia Pacific Energy Index.

The Ichthys project is one of at least eight potential LNG ventures in the Australian region, including an Exxon Mobil Corp.-led project in Papua New Guinea, Chevron’s delayed Gorgon venture and Woodside Petroleum Ltd.’s Sunrise and Browse projects. The Gorgon partners, including Royal Dutch Shell Plc and Exxon Mobil Corp., are working to improve the profitability of their project before committing to build it.

“Everybody in the industry is having to carry cost increases, and we are too,” Kildare said in a telephone interview. “As you move forward and engage with stakeholders, including governments, there are issues that arise that cause one to reconsider schedules and have an influence on things, so we’re also working through that right now as well.”

Indigenous Groups

Inpex’s plan to build the Ichthys LNG plant on the Maret Islands off the Kimberley coast is being opposed by some environmental groups including WWF-Australia. Tourism Australia describes the Kimberley region as “one of the world’s last true wilderness areas.”

The venture now expects to get environmental approval for the project at the end of 2008 or early 2009, later than originally expected, Kildare said. Issues over access to land from indigenous groups, equipment procurement and labor are affecting the schedule and costs, he said. The review of the project should be complete by the end of March, he said.

Inpex’s latest official estimate of proven and probable reserves at Ichthys is 9.5 trillion cubic feet of recoverable gas and 312 million barrels of condensates. The Japanese company owns 76 percent of the venture and is the operator, while Paris-based Total, the world’s second-biggest LNG producer outside government control, owns 24 percent.

LNG is natural gas chilled to a liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by pipeline.

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

Last Updated: January 10, 2008 02:08 EST

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