THE AUSTRALIAN

Royal Dutch Shell takes aim at Arrow’s LNG

Matt Chambers

August 26, 2008

OIL major Royal Dutch Shell is in talks with Gladstone coal seam methane export hopeful LNG Ltd to buy liquefied natural gas, according to the global giant’s local partner.

Arrow Energy chief executive Nick Davies said yesterday that his company’s recent pairing with Shell had not changed Arrow’s aims to supply LNG Ltd with enough CSM for two or more small LNG trains. He said this was still seen as the best way to develop its Australian gas.

“They (Shell) are in discussions with LNG Ltd,” Mr Davies said yesterday, after Arrow logged a full-year profit increase of 109 per cent to $37 million.

“Shell would obviously like to take the offtake of the LNG plant and ultimately will be involved in various parts of the chain as well as negotiating to be the end buyer,” he said.

LNG Ltd’s plant is one of about five planned at Gladstone. Its first train, scheduled for a 2011 start, would have a capacity of 1.5 million tonnes a year, which is about half the size of the first phases of the $8 billion operations planned by Santos/Petronas and BG/QGC.

Earlier this month, LNG Ltd boss Maurice Brand said he planned to announce a buyer for its offtake in the middle of September, but would not name a likely candidate.

In a subsequent note, Citi analyst Di Brookman said Shell, which was finalising its deal to buy 30 per cent of Arrow’s reserves, was the most likely candidate for the offtake.

Norwegian LNG shipper Golar, LNG Ltd’s biggest shareholder, is another candidate, having said in its annual report this month that it might participate at the project level or as an LNG buyer “when judged appropriate”.

There had been speculation Shell’s agreement with Arrow might lead to development plans outside LNG Ltd’s vision for small, modular plants, but Mr Davies said this was not the case.

“We’re still believers that coal bed methane to LNG should be smaller trains, and modular, so that you can keep adding,” he said. “There is potential for as many small trains as the market can take.”

Mr Davies has previously said projects of the size Santos and BG are proposing will produce too much gas for local markets, as they ramp up.

A Shell spokeswoman declined to comment on any offtake agreement and Mr Brand, who is in Singapore, could not be reached.

Arrow had an agreement to supply LNG Ltd’s gas for the first train and Mr Davies said the company would be able to do this in time to meet LNG Ltd’s production timetable.

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