SYDNEY--A senior Royal Dutch Shell PLC (RDSB) executive said
Wednesday the cost of building energy projects in Australia is
becoming "very worrisome" as the European oil giant prepares to
decide whether it will spend billions more dollars in the
resource-rich nation.
"Shell has committed almost US$30 billion that's under
construction right now in Australia, spread over the next five
years. But I've got another US$50 billion out there poised to come
in that range. So the costs have to stay competitive," Ann Pickard,
the head of Shell in Australia told a conference.
Australia is central to the growth plans of many big oil
companies including Shell and Chevron Corp. (CVX) as they attempt
to meet intensifying demand for cleaner-burning fuels from
fuel-strapped Asian nations such as Japan and rapidly
industrializing countries such as China. Natural gas has overtaken
oil to count for 51% of Shell's total fossil fuel output.
Australia's vast natural gas reserves, political stability and
proximity to Asia make it an attractive place to invest. Over
US$175 billion worth of gas-export projects under construction on
its coastline stand to catapult the country above Qatar as the
world's biggest liquefied natural gas, or LNG, exporter by the end
of the decade. LNG is natural gas chilled to liquid and exported by
sea.
The industry here though faces challenges. A lack of skilled
labor combined with a surge in development activity that's also
occurring in the country's booming mining sector has squeezed labor
supplies and made Australia one of the most expensive places in the
world to produce LNG. And a soaring Australian dollar is making
locally-based skills and equipment more expensive for foreign-based
companies.
Such cost pressures are building at a time when companies mull
whether to start exporting LNG to Asia from North America and East
Africa, potentially increasing competition for Australian projects,
particularly those not currently under construction.
Shell hasn't yet made a final decision on whether to proceed
with a massive LNG venture in Queensland state with PetroChina Co.
(PTR) that will attempt to chill gas trapped in coal seams for
export. And although Shell's just increased its shareholding in the
Browse LNG development in Western Australia state, an investment
decision on that project isn't expected until next year.
"I'm hoping we can get some more projects going but the costs
here are getting to be very worrisome," Ms. Pickard told
reporters.
Shell is hoping it can source workers more easily and more
cheaply by timing a final investment decision on its Queensland LNG
joint venture a few years after three rival developments there.
Still, Ms. Pickard said it's possible Shell could process its gas
through a rival LNG plant in Queensland rather than build its own
plant.
"That's certainly an option. But the intent of PetroChina and
Shell, of course, it to continue with our own project," she
said.
As for Browse, joint venture partners including Woodside
Petroleum Ltd. (WPL.AU) are spending over US$1 billion
investigating the commercial viability of piping the gas to a new
LNG plant in the environmentally-sensitive Kimberley region.
Shell's decision this week to almost triple its stake in the
project by taking Chevron's 17.5% interest has fanned speculating
the resource could be processed on a floating LNG, or FLNG, vessel
instead. A pioneer of FLNG technology, Shell is targeting first
production from the world's first FLNG vessel from its Prelude
field, located near Browse, in 2016.
"We'll take the cost estimates and see if we've got a commercial
project in the Kimberley or not. Then, obviously in consultation
with the government, we'll make a decision on whether we'll go
forward in the Kimberley or look at other alternatives."
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
Ross.Kelly@dowjones.com
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