By Shigeru Sato and Angela Macdonald-Smith
Jan. 16 (Bloomberg) -- Inpex Corp., operator of a proposed $20 billion liquefied natural gas project in Australia, awarded a contract to JGC Corp., Chiyoda Corp. and KBR Inc. of the U.S. for initial engineering work, moving the plan closer to development.
The work to design the gas processing plant in Darwin will be carried out this year, with production slated to begin in late 2014 or early 2015, Inpex, Japan’s largest energy explorer, said today in a statement to the Tokyo Stock Exchange. A separate contract for the development of the offshore gas fields will be signed “in due course,” it said.
The plant, capable of producing at least 8 million metric tons of LNG a year, will process natural gas from the Ichthys field off northwestern Australia via a proposed 850-kilometer (528-mile) pipeline. The fuel will be shipped to Japan, the world’s biggest LNG consumer.
“You don’t go into this as a developer unless you think you’ve got a fair run at sanctioning the project 12 months later,” said David Hewitt, a Tokyo-based energy analyst at CLSA Asia PacificMarkets. “This is a significant step forward.”
The initial engineering contract may be worth between $50 million and $100 million and should be followed by a similar contract for the design of the offshore field development within about three months, he said. Prospective LNG customers will now engage with the venture in “serious and substantive offtake negotiations,” he said.
JGC shares climbed 7.7 percent in Tokyo trading, the biggest increase since Dec. 15, while Chiyoda rose 6.3 percent, outpacing the 2.8 percent gain in the benchmark Topix index. Inpex increased 6.8 percent to close at 694,000 yen.
‘Kiss Goodbye’
The agreement puts the three companies in a strong position to win the construction contract for the plant if Inpex and partner Total SA go ahead with the project, JGC spokesman Hideyuki Mizuno said.
“The three of us will spend at least a year on this initial engineering work,” he said by phone from Tokyo. “I don’t think Inpex will kiss us goodbye and ask other engineers to come in and build the plant.”
JGC will lead the initial engineering work, Inpex spokesman Kazuya Honda said by telephone from Tokyo, declining to disclose the cost of the first phase. Inpex and Total will decide whether to go ahead with the Ichthys project late this year or early 2010, according to the statement.
“This commencement of the major planning stage means we are just one step away from a final investment decision by Inpex,” Paul Henderson, chief minister of Australia’s Northern Territory, said today in a statement.
Additional Work
In addition to the LNG plant, the Ichthys project entails construction of facilities to produce 100,000 barrels a day of condensate, a type of light crude oil, and 1.6 million tons a year of liquefied petroleum gas.
The award of the contract comes as Henderson completes a visit to Tokyo and Osaka for meetings with Inpex and with LNG buyers. Henderson met Tokyo Electric Power Co., Asia’s biggest utility, Tokyo Gas Co., and Osaka Gas Co. during the trip.
The Ichthys project, estimated to produce for at least 40 years, is one of about 10 proposed LNG ventures in Australia, which has two operating plants and another under construction. Progress on some other projects, such as Chevron Corp.’s Gorgon venture, has been delayed amid a rise in construction costs.
The schedule for many LNG projects may fall behind should crude-oil prices stay “low for any extended period of time,” Andrew Williams, an analyst at Credit Suisse Group, said yesterday.
Benchmark crude oil prices in New York have plunged 74 percent in the past six months as slowing global economic growth reduces demand.
LNG is natural gas that is chilled to liquid form for transportation by ship to destinations not connected by pipeline. On arrival, it’s turned back into gas for distribution to power plants, factories and households.
To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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