21-01-08 The majors are looking to LNG to lift output as access to oil reserves tightens. But delays in bringing complex projects on stream may derail their growth plans.
The large size and intricacy of LNG projects, along with their difficult locations and cost inflation, has led to mishaps, hold-ups and contract cancellations. The delays may hasten an era of higher gas prices, given expectations that global demand will soar.

The 7.8 mm tpy QatarGas 4 project is unlikely to start up before September, meaning that it could miss its already delayed second-quarter 2008 target. The plant, owned by state-owned QP, ExxonMobil and Total, was originally due to come on stream late last year, but the size and complexity of the project -- which will use commercially untested turbines and heat exchangers -- caused the latest setback.
Difficult terrain and project complexity may delay Russia's 9.6 mm tpy Sakhalin-II project operated by state-controlled Gazprom, in which Shell has a 27.5 % stake. The project missed a pipe-laying schedule late last year, slowing construction as winter set in.

Any delay could prove costly to Shell's growth as it plans to double LNG liquefaction capacity to 20 mm tpy by 2010. Shell's production growth is expected to be around 1-2 % per year to 2010, mostly from LNG. Its image as an LNG specialist, leveraging technology to partner state-run companies in projects, could be dented.
Total is projecting 13 % per year growth at its LNG activities in 2007-10, up from 9 % in 2006. But the company faces setbacks at the 10 mm tpy Pars LNG project in Iran, in which it has a 30 % stake. Costs have jumped to $ 14 bn from $ 5 bn, and political pressure to leave the country is threatening its plans.

And Total will be hit by a redesign of the 4.2 mm tpy Snoehvit project operated by Norway's StatoilHydro, in which it has 18.4 %. Snoehvit is well behind its late 2006 deadline, meaning that plateau production will not be reached until 2009. BP has much smaller exposure to LNG manufacturing projects, with a 13.6 % stake in Angola LNG.
The Chevron-operated Gorgon project off northwest Australia is key to the company's plans to lift LNG output to 21 mm tpy in seven to eight years, from 3.7 mm tpy now. But Gorgon's first train has been put back beyond 2010 as the company and partners ExxonMobil and Shell redesign the project to cope with escalating costs. Planned capacity is now 15 mm tpy, up from 10 mm tpy, to improve project economics.

Security and costs are a worry at 22 mm tpy OKLNG in Nigeria. Shell, Chevron and the UK's BG have stakes in the facility, which looks unlikely to meet its 2012 start-up deadline.
BG chief executive Frank Chapman admits that OKLNG is "facing significant cost pressures, translating into schedule pressures". The facility has become a target for Niger delta rebels, encouraging BG to send teams to work with the local population to defuse tensions.

Costs and security concerns are hampering 10 mm tpy Brass LNG in Nigeria. A final investment decision on the project -- first estimated at $ 3.5 bn but now at $ 8.5 bn -- is expected at the end of 2008. It was originally due on stream in 2009. This delay means that first LNG from Brass will come in late 2012 or early 2013, later even than its revised start-up date of 2011.
Chevron quit the project in 2006, saying it prefers to focus on OKLNG, leaving stakeholders state-owned NNPC (49 %), Shell (25.6 %), Total (15 %) and Italy's ENI (10.4 %).