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Chevron, Shell Swap Australian Natural Gas Assets

Published August 20, 2012: Dow Jones Newswires

Chevron Corp. (CVX) and Royal Dutch Shell PLC (RDSB) agreed Monday to swap stakes in two multibillion dollar natural gas projects in Australia, betting on the country’s ability to feed Asia’s growing energy demand just as competition from Africa and North America intensifies.

Chevron, the second-biggest U.S. oil company by market value after ExxonMobil Corp. (XOM), said in a statement that the deal involves transferring its interest in the proposed US$30 billion-plus Browse project to Shell.

In return, Chevron will get the Anglo-Dutch oil company’s interest in two gas fields associated with the US$29 billion Wheatstone project being built in Western Australia state and US$450 million in cash.

Australia has emerged as a crucial plank in both company’s development strategies due to its political stability and proximity to fuel-hungry Asian buyers. With close to a dozen natural gas export terminals planned for its coastline, the country is poised to leapfrog Qatar as the world’s top exporter of liquefied natural gas by the end of the decade. LNG is natural gas chilled to a liquid so that it can be shipped by sea.

Chevron has been searching for more gas to expand its Wheatstone project at a later date, including drilling new wells and discussing supply deals with companies that have made large natural gas discoveries nearby.

The Wheatstone project will have an initial capacity of 8.9 million metric tons of LNG from two production units, or trains, but Chevron wants to increase this in stages to as high as 25 million tons.

The deal also represents a bold move by Shell to get involved more heavily in Browse, a development led by Woodside Petroleum Ltd. (WPL.AU) that faces substantial technical and environmental challenges before it can make its first shipments in 2017 as planned.

Browse’s associated resource, located in the deep waters of the Browse Basin offshore northwestern Australia, contains an estimated 15.5 trillion cubic feet of recoverable gas and additional volumes of condensate, a type of light oil.

But the gas has high carbon dioxide content and will be technically challenging to extract. It’s also far offshore, requiring a long pipeline to be built to processing facilities on the coast.

Due to be built in a place marked with one of the world’s longest chain of dinosaur footprints, the development is facing opposition from environmental groups and has angered some traditional land owners. There has also been disunity among the joint venture partners over the best way to process the gas for export, although this may ease now that Chevron is exiting the venture.

Despite these development hurdles, the project received a big boost in July when environmental regulators in Western Australia gave the construction of the project a green light if enough safeguards are put in place.

All of Australia’s LNG developments are likely to face rising competition from emerging gas-export industries in North America and Africa, which will make it tougher to secure customers, especially for project expansions.

Chevron is targeting an expansion of the 43 billion Australian dollar (US$45 billion) Gorgon LNG project in 2014, while four rival projects in Queensland state to be fed with gas trapped in coal seams have acquired land that could accommodate multiple LNG trains.

North America currently has no established gas-export industry but a plunge in domestic prices there, driven by the emergence of new drilling techniques that allow the extraction of gas from tight rock formations, has increased the appeal of export markets that can attract higher prices.

LNG from East Africa isn’t expected until 2018 at the earliest, but the scale of discoveries by companies including Anadarko Petroleum Corp. (APC) offshore Mozambique, Tanzania and Kenya has prompted talk of a new gas-export hub facing Asia.

Write to Ross Kelly at [email protected]

Copyright © 2012 Dow Jones Newswires

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