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Shell May Delay Australia’s Arrow LNG Project to 2014, CEO Says

By Bloomberg News – Nov 20, 2012 10:07 AM GMT

Royal Dutch Shell Plc (RDSA), the world’s biggest liquefied natural gas supplier, may delay until 2014 a decision on its Arrow LNG venture that’s forecast to cost $20 billion amid rising expenses for energy projects in Australia.

“We are in preparation of a potential final investment decision of that project somewhere in the 2013/14 time frame,” Peter Voser, Shell’s chief executive officer, said at a media briefing in Beijing today.

Costs for LNG plants are surging in Australia as it moves to challenge Qatar as the world’s biggest exporter of the fuel amid rising demand in Asia. Arrow Energy Ltd., owned by Shell and PetroChina Co. (857), said in March that it planned to decide in late 2013 whether to develop the LNG export project on Queensland state’s Curtis Island.

“Cost inflation is showing in many different segments and that forces us to find other ways of constructing our projects, or taking final investment decisions at the right time or postponing,” Voser said.

Energy companies in Australia are going ahead with seven LNG projects at a cost of about $180 billion even as rising construction expenses and competition threaten future developments. Arrow may not get off the ground and may opt instead to supply gas to LNG ventures already making headway there, Sanford C. Bernstein & Co. said in July.

Cost Inflation

BG Group Plc (BG/) said in May the bill for its Queensland LNG project jumped 36 percent to $20.4 billion. ConocoPhillips (COP) and Santos Ltd. (STO) are also developing LNG ventures on the coast of the northeast Australian state. Deutsche Bank AG has estimated that Arrow would cost more than $20 billion.

Gorgon LNG, another Australian project in which Shell has a stake, is “progressing in accordance with our estimates,” Voser said. Operator Chevron Corp. (CVX) is reviewing the cost of the A$43 billion ($45 billion) venture.

Shell is devoting a “significant” portion of the more than $20 billion earmarked to invest in natural gas projects through 2015 to supplying LNG to China, Voser said. Furthermore, it’s in “exploratory discussions” on raising LNG deliveries into the country, he said, without giving details.

The Hague-based company may also increase its planned annual spending of about $1 billion on unconventional gas projects in the country, depending on exploration and test-well results and if the company gets more acreage to drill, he said.

China Shale

Gas resources in China are “very promising” and it’s important to quantify those resources, Voser said. The country may hold 1,275 trillion cubic feet of “technically recoverable” shale gas, or 12 times its conventional natural gas deposits, according to a U.S. Energy Information Administration report published in April. That’s almost 50 percent more than the 862 trillion cubic feet held by the U.S., the EIA said.

Shell has partnered with China National Petroleum Corp., parent of PetroChina, on shale gas exploration at the Fushun- Yongchuan block in Sichuan province in western China. The schedule for commercial production will be determined in part by the outcome of a 15-well drilling program that will start at the end of the year or in early 2013, according to information e- mailed by Shell China’s press office today.

“The pace of developments in China is going to continue in the same way,” Voser said. “There will always be short to medium-term economic variations. We take a long-term view and we see a very strong development in the Chinese economy.”

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at [email protected]

To contact the editor responsible for this story: Alexander Kwiatkowski at [email protected]

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