Santos, Petronas Are in Talks With LNG Buyers in Japan, China

By Angela Macdonald-Smith

Feb. 19 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, said its Gladstone gas export venture is in talks with potential customers in Japan, China and a third Asian nation and should reach initial accords this year.

The venture, owned 40 percent by Malaysia’s Petroliam Nasional Bhd., needs to at least conclude heads of agreements with customers on liquefied natural gas sales pacts before it can give the go-ahead for the A$7.7 billion ($4.9 billion) investment, David Knox, chief executive officer of Adelaide-based Santos, said today.

The partners are due to approve the Gladstone LNG project for development in the first half of 2010 and aim to start shipments in 2014 to meet rising Asian demand for cleaner-burning fuels. Japan, the world’s largest buyer of the fuel, purchases most of the LNG produced in Australia, while China and South Korean customers also have long-term contracts.

“We’re very much engaged in discussing GLNG in three Asian countries with very serious buyers,” Knox said on a conference call on the company’s full-year earnings. The venture’s gas “has been very well received in the market,” he said.

The GLNG project is one of five proposed ventures in the Gladstone region on Queensland’s central coast seeking to convert gas extracted from coal seams into LNG. Coal-seam gas hasn’t previously been used for an export project and no gas buyers have yet announced they will purchase this type of LNG.

LNG buyers, in their discussions with the venture, are “looking beyond the current financial crisis” and are seeking long-term security of supply,” Knox said. Some of the potential customers are companies that last year considered investing in the project, and so understand the Queensland coal-seam gas reserves, he said.

LNG is gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline. The venture’s marketing is being led by Petronas, as the Malaysian partner is known.

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