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Vol. 12, No. 31 Week of August 05, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Woodside OKs Pluto LNG, setting $10.5B budget

Project will tap offshore field near northwest Australia to deliver energy to Japanese utilities, perhaps as early as 2010

Allen Baker

For Petroleum News

Woodside Petroleum Ltd. of Australia has approved a plan to spend US$10.5 billion to tap its Pluto offshore gas field and produce LNG for export, mostly to Japanese utilities. The go-ahead was announced July 27.

It’s a hefty chunk of money, and double the company’s low estimate suggested just a few months ago. But capital costs have been rising quickly in the resource extraction sector, particularly for the kind of specialty steels and other equipment needed for the big LNG cooling units.

When Pluto was discovered in 2005, Woodside’s leader, Don Voelte, set an ambitious timetable, and so far he’s sticking to it. The plan envisions first shipments in late 2010, just as supply-demand balance for world LNG is expected to be most strained, and probably most lucrative.

The supply situation just got even tighter, at least in the short term, with the closure of the world’s largest nuclear power plant, damaged by the July 16 earthquake in northwest Japan. Tokyo Electric Power Co. Inc. plans to shop for an additional 1 million tonnes of LNG from now through next March, and also double its oil purchases in that period.

Work already under way

Woodside started site preparations for the LNG plant at the beginning of this year, and is proceeding based on a preliminary approval earlier in July from Australia’s Environmental Protection Authority. The project, near the big Woodside-operated North West Shelf LNG plant, still needs final environmental approval and other permits.

For Pluto, Woodside is getting equity participation from two Japanese utilities, but still is retaining 90 percent of the total project, which already has cost more than US$700 million.

Pluto and a smaller satellite, Xena, are off the northwest coast of Australia, about 120 miles from Karratha. Pluto will be developed initially with five big-bore subsea wells tied to a platform in about 275 feet of water. A 36-inch pipeline will connect that platform to the LNG plant on the Burrup Peninsula.

5 tcf reserve base

Pluto and Xena are now expected to yield 5 trillion cubic feet of gas, up from an earlier estimate of 4.5 tcf. That will provide about 20 years of production to the plant, which is expected to send out 4.3 million tonnes annually from the initial train. Woodside wants to add more LNG trains at the site, and possibly a domestic gas hub, and Voelte says he’ll open its doors to other producers who want to market their gas through it.

The complex could take gas from Woodside’s own Browse basin or from other sources in the gas-prone region. Woodside just added to its exploration acreage in the area with a major permit obtained in late July in partnership with Hess Corp. The permit calls for exploration spending of more than $170 million.

The big elephant in the neighborhood is the Chevron-led Gorgon complex, which holds about 40 tcf. Chevron hopes to build its own LNG export plant on Barrow Island, but it has run into environmental concerns there, as well as steadily rising estimates of the total cost. Some reports now put the project at nearly $20 billion in U.S. currency, a big commitment even for the supermajors involved.

The Gorgon fields are only about 30 miles from Pluto and its pipeline, but the Gorgon partners want to use Barrow Island, which has been producing oil since 1964 and has potential for reinjecting the huge quantities of carbon dioxide that are in the Gorgon gas stream. ExxonMobil and Shell are the other partners in Gorgon, discovered way back in 1981 but still undeveloped.

Customers in Japan

Most of the LNG from Pluto initially will go to two Japanese utilities, each with a 5 percent equity stake in the project. Tokyo Gas and Kansai Electric will take up to 3.75 tonnes annually for 15 years, about 85 percent of the first train’s production. Each company will operate one LNG tanker, while Woodside itself will lease another.

Contracts with the Japanese utilities are expected to be signed within a month. The two supply pacts won’t leave much excess LNG to send to the U.S. West Coast, where Woodside has proposed an LNG terminal off California that would use special ships with onboard regasifying equipment.

Woodside, which is one-third owned by Shell, will pay for its 90 percent share of the project using free cash flow from operations, debt issues, and a dividend reinvestment plan.

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