LNG Buyers May Fail to Win Queensland Fuel Discount, Arrow Says

By Angela Macdonald-Smith

Feb. 6 (Bloomberg) -- Liquefied natural gas buyers will probably fail to win much of a discount for fuel bought from export ventures in Australia’s Queensland, even as these plants rely on a previously unused supply source, said Arrow Energy Ltd.

Any perceived risk posed by producing the fuel from gas extracted from coal seams should be overcome by sellers such as BG Group Plc being able to source LNG from elsewhere in its business if needed, said Shaun Scott, head of the Brisbane-based coal-seam gas supplier’s Australian operations.

An LNG venture planned in Queensland between Perth-based Liquefied Natural Gas Ltd. and Arrow, Royal Dutch Shell Plc’s partner in coal-seam gas in Australia, is set to be the first in the world to export fuel made from coal-seam gas. BG, Santos Ltd. and ConocoPhillips are among other companies planning similar, larger LNG projects in northeastern Australia. No sales contracts have been announced for the projects.

“Certainly in the visibility we’ve had through to the customer side of things, the appetite has been pretty strong” from potential customers, Scott told reporters in Brisbane yesterday. “While from the heating value perspective there might be a little bit of a discount, I don’t think so in terms of confidence whether it’s going to work or not.”

LNG produced from coal-seam gas can have a lower energy content than conventional LNG because it may not contain fuels such as ethane, butane and propane.

Fisherman’s Landing

LNG Ltd. is overdue in announcing an accord for LNG sales from its planned Fisherman’s Landing project in Gladstone on the central Queensland coast. The agreement has been delayed by the completion of Arrow’s venture with Shell and will be in place by the end of March, Scott said.

The LNG sales contracts for the Fisherman’s Landing project will be based on a $40-a-barrel “floor” price for crude oil, offering protection from lower oil prices, Scott said. Depending on exchange rates, that would give Arrow Energy a price of about A$5 a gigajoule for its gas, he said. That compares with prices as low as A$2 in the Australian market, he said.

BG is planning a 7.4 million metric ton-a-year LNG venture on Curtis Island at Gladstone, set to begin shipments in 2014. It hasn’t released a cost for the two-unit project, which was put at A$8 billion ($5.2 billion) when first announced a year ago as a single unit plant. LNG from the venture may be supplied to Singapore and Chile, BG Chief Executive Officer Frank Chapman said yesterday on a conference call.

Japan is the largest buyer of Australian LNG, accounting for 79 percent of sales in 2007, according to BP Plc. Shipments also went to China, South Korea and Taiwan. LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.

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