Chubu Electric in Talks for Stake in Chevron Venture

By Megumi Yamanaka and Yuji Okada

Aug. 6 (Bloomberg) -- Chubu Electric Power Co., Japan’s third-largest generator, is in talks to buy stakes in liquefied natural gas projects planned by Chevron Corp. and Inpex Corp. in Australia as it seeks to diversify supplies.

The utility may buy less than 1 percent of the A$50 billion ($42 billion) Gorgon liquefied natural gas project, and aims to complete discussions with Chevron within the year, Yuji Kakimi, general manager at its fuel department, said in an interview in Tokyo yesterday. Nicole Hodgson, a Perth-based spokeswoman for Chevron, said talks with Chubu for a potential stake in the Gorgon project are ongoing.

Chubu Electric joins Tokyo Electric Power Co. and Tokyo Gas Co. in looking for new LNG suppliers, mainly in Australia, after Indonesia slashed exports to Japanese companies. Chubu is in early talks to buy supplies and a stake from Inpex’s $20 billion Ichthys venture in Darwin, Kakimi said. Inpex spokesman Kazuya Honda declined to comment when reached by phone in Tokyo.

“We’ve informed Inpex that we have a high expectation for the project,” Kakimi said. “Australia will be a good supplier for us as it needs to export LNG, unlike Indonesia where the fuel is diverted for domestic use to meet growing demand.”

Chubu’s talks with Inpex about Ichthys are at an early stage and haven’t addressed details such as the price, size of stake and the volume of supplies Chubu may buy, Kakimi said. He also declined to say how much Chubu may invest in Gorgon. The buyer of a 1 percent stake would have to bear about 30 billion yen ($316 million) in project costs, according to three analysts surveyed by Bloomberg.

Biggest Supplier

Australia will become the utility’s biggest LNG supplier after Qatar, from which Chubu Electric buys 40 percent of its LNG, or 4 million metric tons a year. The company signed a 25- year agreement in 2005 to buy 1.5 million tons annually from the Gorgon venture. It currently purchases about 1.1 million tons a year from Woodside Petroleum Ltd.’s North West Shelf venture.

Chevron and partners, Exxon Mobil Corp. and Royal Dutch Shell Plc, will make a final investment decision on Gorgon “in the coming months,” Chevron Australia Managing Director Roy Krzywosinski said in June. The venture plans to make first deliveries in 2014.

The Gorgon fields, some 200 kilometers (120 miles) off Western Australia, contain 40 trillion cubic feet of gas deposits and have an expected life of 60 years. Last week, Tokyo Gas Co., Japan’s largest gas retailer, said it will acquire a 1 percent stake in the venture.

Ichthys Project

Inpex, Japan’s biggest explorer, has been wooing Japanese LNG buyers to join the Ichthys project, one of about 10 proposed ventures in Australia. Tokyo Electric Power Co., Asia’s biggest utility, last month said it may buy around 1 percent in the venture. Inpex owns 76 percent of the project, with the remaining held by Paris-based partner Total SA.

Indonesia slashed volumes in February when it renewed contracts to sell LNG to six Japanese buyers. Supplies to Chubu, which gets about 30 percent of its LNG from Indonesia, will drop 75 percent to 950,000 tons a year in the five years to 2015, according to the company. The volume will fall again, to 630,000 tons, in the period from 2016 to 2020.

To fill the gap, Chubu will start buying fuel from Russia’s Sakhalin island project and from Malaysia starting in 2011, according to the company.

Shares Decline

Among Japan’s 10 regional utilities, Chubu generally relies most heavily on LNG thermal generation, which accounted about 45 percent of the company’s total power production in the year ended March 2009. It bought 10 million tons of the fuel in fiscal 2008, and will continue importing at that rate about 10 years, Kakimi said.

Chubu shares have declined 5.2 percent in the last six months compared with the 9.8 percent fall in the 17-member Topix utilities subindex. They dipped 1.3 percent to close at 2,275 yen in Tokyo trading.

Western Australian Premier Colin Barnett has estimated the value of the Gorgon project at A$50 billion, while Chevron hasn’t confirmed or denied the figure.

LNG is natural gas that’s chilled to liquid form for transportation by ship to destinations not connected by pipeline.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.