Inpex Picks Darwin for $20 Billion Australia LNG Site

By Shigeru Sato and Angela Macdonald-Smith

Sept. 26 (Bloomberg) -- Inpex Holdings Inc., Japan's largest oil explorer, picked Darwin in northern Australia as the site of a proposed $20 billion natural gas project that would be the biggest Japanese investment in the country.

Inpex and partner Total SA will decide whether to build the Ichthys liquefied natural gas project late next year or early 2010 and production may start in late 2014 or early 2015, the Tokyo-based company said today in a statement to the stock exchange. They dropped an earlier plan to build the plant off Western Australia, closer to the offshore gas field.

The fuel will be shipped to Japan, the world's largest LNG consumer, where demand for gas from power producers may rise 21 percent by 2030, International Energy Agency projections show. Inpex's estimate for the cost of the project is more than double the latest estimate from the Northern Territory government.

``Initial project costs may have grown by a few billion dollars to build a longer pipeline spanning the Ichthys field and terminating in Darwin, but rising LNG sales prices will easily help Inpex absorb incremental costs,'' Lalita Gupta, an analyst at Morgan Stanley in Tokyo, said by telephone.

Inpex gained as much as 4.2 percent in Tokyo trading to 1.016 million yen and was at 1.008 million yen at 11:23 a.m. local time.

Light Oil

The partners will start initial plant engineering work ``soon,'' Inpex said. The plant will be designed to initially produce more than 8 million metric tons of LNG a year, as well as 1.6 million tons a year of liquefied petroleum gas and 100,000 barrels a day of condensates, a type of light oil.

Should the Ichthys project go ahead, it will boost jobs and business opportunities in the Darwin region, Australian Resources and Energy Minister Martin Ferguson said in a separate e-mailed statement.

``The reserves are sufficient to support a major LNG export project for decades to come,'' Ferguson said. ``I hope this project will be one of many established over the next few years as we continue to unlock the wealth from Australia's immense gas and energy resources.''

Global consumption of LNG is set to increase 10 percent a year through 2015, more than five times the estimated gain in crude-oil demand, Citigroup Inc. said in April, as utilities switch to cleaner fuel for power generation.

Last 40 Years

The Ichthys project, which will have a life of at least 40 years, is one of about 10 proposed LNG ventures in Australia, which has two operating plants and another under construction. Woodside Petroleum Ltd., Chevron Corp. and Royal Dutch Shell Plc are among rivals proposing projects in northwest Australia.

Australia is the nation expected to show the biggest growth in LNG production capacity through 2022, with 16 percent of the total proposed in the world in that period, according to the Paris-based IEA. Australia had a potential 91.7 million tons a year of new capacity as of March 2008, the IEA said.

``Environmental, economic and engineering studies have demonstrated the viability of locating an LNG plant at Blaydin Point and have lent weight to this decision,'' said Naoki Kuroda, president of Inpex.

Earlier this year Inpex and Paris-based Total started studying the Blaydin Point site near Darwin amid opposition from environmental groups to their originally preferred location on the Maret Islands off Western Australia, closer to the Ichthys field. The partners would have had to negotiate an agreement with local Aboriginal communities to build the plant in Western Australia, and would also have been under an obligation to supply some of the gas into the local market.

Gas Pipeline

The selection of Darwin means they will need to build an 850-kilometer (528-mile) pipeline to transport gas from the offshore field, boosting project costs.

Inpex said today it expects the total cost of the project to exceed $20 billion. That's more than double the latest projection of A$12 billion ($10 billion) from the Northern Territory government and Inpex's original figure of about A$10 billion. Inpex owns 76 percent of Ichthys, while Total, Europe's third-largest oil company, owns the rest.

The forecast production from Ichthys represents about 50 percent of Australia's existing LNG output, 60 percent of LPG production and about 20 percent of crude-oil output, Inpex said.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net;