Queensland Gas Says Bigger LNG Project to Cost More

By Angela Macdonald-Smith

Aug. 5 (Bloomberg) -- Queensland Gas Co., BG Group Plc's partner in a natural gas export venture in Australia, said the project may cost as much as 75 percent more than an initial estimate should the capacity be doubled as proposed.

The project may cost A$12 billion ($11 billion) to A$14 billion ($13 billion) should the partners decide to build two LNG production units in its first phase rather than one, Managing Director Richard Cottee said today. The cost of a one- unit project was previously estimated at A$8 billion.

Brisbane-based Queensland Gas said last month the partners granted a contract to Bechtel Group Inc. to carry out design work on a two-unit LNG plant near Gladstone in Queensland state. Their venture, one of five rival proposals for LNG plants in Queensland, still needs to prove it has enough reserves for the project before committing to building the project.

The cost of the expanded project ``should be somewhere between A$12-A$14 billion, depending on exploration costs,'' Cottee said in a telephone interview. He was speaking after Queensland Gas announced it extended his contract as managing director until 2014.

Queensland Gas fell 33 cents, or 7.1 percent, to A$4.29 in Sydney trading on the Australian stock exchange, lagging a 4.6 percent drop in the exchange's benchmark energy index after crude-oil prices fell to a three-month low in New York.

Gas Reserves

BG is bidding A$13.8 billion to acquire Origin Energy Ltd., Australia's biggest coal-seam gas producer. Should that bid fail, BG and Queensland Gas still believe they should have enough gas for a two-unit LNG project at the outset, Cottee said from Melbourne. The project may involve two units, each of as much as 4 million metric tons a year of LNG, Queensland Gas said last month. It also involves developing coal-seam gas fields and a pipeline.

Cottee committed to remain as managing director until June 30, 2014, at least six months after the scheduled start-up of LNG deliveries, Queensland Gas said today in a statement to the Australian stock exchange. Since Cottee was appointed in October 2002, the company's market value has surged from A$28 million to A$4.4 billion, while proven and probable reserves have increased from none to 1,932 petajoules (1.8 trillion cubic feet), or 2,415 petajoules including BG's share, it said.

The board reviewed Cottee's salary as part of the renewed employment contract. His fixed salary, of A$900,000 in the year ended June 30, will almost double to A$1.75 million this year, and he will also have short-term and long-term incentives subject to performance targets, the company said in the statement.

``The board wanted to make sure they made me an offer I couldn't refuse, I guess,'' Cottee said in the interview. He said his priority over the next years will be ``to navigate the company to grow even faster and harder.''

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net