Chevron Corp. (CVX) and Royal Dutch Shell PLC (RDSB) agreed Monday to swap stakes in two multibillion dollar natural gas projects in Australia, betting on the country's ability to feed Asia's growing energy demand just as competition from Africa and North America intensifies.
Chevron Corp. (CVX) and Royal Dutch Shell PLC (RDSB) agreed Monday to
swap stakes in two multibillion dollar natural gas projects in Australia,
betting on the country's ability to feed Asia's growing energy demand just as
competition from Africa and North America intensifies.
Chevron, the second-biggest
U.S.
oil
company by market value after ExxonMobil Corp. (XOM), said in a statement that
the deal involves transferring its interest in the proposed US$30 billion-plus
Browse project to Shell.
In return, Chevron will get the Anglo-Dutch oil company's interest in two gas
fields associated with the US$29 billion Wheatstone project being built in
Western Australia state and US$450 million in cash.
Australia
has
emerged as a crucial plank in both company's development strategies due to its
political stability and proximity to fuel-hungry Asian buyers. With close to a
dozen natural gas export terminals planned for its coastline, the country is
poised to leapfrog
Qatar
as
the world's top exporter of liquefied natural gas by the end of the decade. LNG
is natural gas chilled to a liquid so that it can be shipped by sea.
Chevron has been searching for more gas to expand its Wheatstone project at a
later date, including drilling new wells and discussing supply deals with
companies that have made large natural gas discoveries nearby.
The Wheatstone project will have an initial capacity of 8.9 million metric tons
of LNG from two production units, or trains, but Chevron wants to increase this
in stages to as high as 25 million tons.
The deal also represents a bold move by Shell to get involved more heavily in
Browse, a development led by Woodside Petroleum Ltd. (WPL.AU) that faces
substantial technical and environmental challenges before it can make its first
shipments in 2017 as planned.
Browse's associated resource, located in the deep waters of the
Browse
Basin
offshore northwestern
Australia
,
contains an estimated 15.5 trillion cubic feet of recoverable gas and
additional volumes of condensate, a type of light oil.
But the gas has high carbon dioxide content and will be technically challenging
to extract. It's also far offshore, requiring a long pipeline to be built to
processing facilities on the coast.
Due to be built in a place marked with one of the world's longest chain of
dinosaur footprints, the development is facing opposition from environmental
groups and has angered some traditional land owners. There has also been
disunity among the joint venture partners over the best way to process the gas
for export, although this may ease now that Chevron is exiting the venture.
Despite these development hurdles, the project received a big boost in July
when environmental regulators in
Western Australia
gave
the construction of the project a green light if enough safeguards are put in
place.
All of
Australia
's LNG
developments are likely to face rising competition from emerging gas-export
industries in
North America
and
Africa
,
which will make it tougher to secure customers, especially for project expansions.
Chevron is targeting an expansion of the 43 billion Australian dollar (US$45
billion) Gorgon LNG project in 2014, while four rival projects in
Queensland
state
to be fed with gas trapped in coal seams have acquired land that could
accommodate multiple LNG trains.
North America
currently has no established gas-export industry
but a plunge in domestic prices there, driven by the emergence of new drilling
techniques that allow the extraction of gas from tight rock formations, has
increased the appeal of export markets that can attract higher prices.
LNG from
East Africa
isn't expected until 2018 at the earliest, but the
scale of discoveries by companies including Anadarko Petroleum Corp. (APC)
offshore
Mozambique
,
Tanzania
and
Kenya
has
prompted talk of a new gas-export hub facing
Asia
.
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