Australia's North West Shelf venture finds alternative LNG cargo buyers

The North West Shelf Venture, Australia's biggest liquefied natural gas producer, has found alternative buyers for about 20 cargoes as demand softens in Japan, its largest market, and production increases.
The shipments will account for the "lion's share" of the gas expected to be available this year beyond contracted volumes, Peter Cleary, president of the project's LNG marketing arm, said in Perth. They include the first delivery to the UK by the Woodside Petroleum-operated venture, he said.

North West Shelf started up a A$ 2.6 bn ($ 1.9 bn) expansion in August, increasing capacity by 37 % to 16.3 mm tpy. The A$ 25 bn venture has sales contracts with buyers in South Korea and China apart from Japan, where the global recession has led to a decline in energy demand from households and businesses.
"We are starting to see opportunities arising in other markets and we've tapped into those," Cleary said. "My expectation is that some will end up in the general Asia region, some may go to Europe."

The venture hasn't had any cargoes ordered under long- term contracts refused, Woodside Chief Executive Officer Don Voelte told in Perth. The long-term prospects for the company's LNG ventures "still look very strong," he said.
"We see a strong growth coming out of the recession and gas is a preferred fuel source due to its emissions at the burner tip," Voelte said. Still, the spot market at the moment is "really sloppy," he said.

Woodside owns one-sixth of the North West Shelf project and is building the A$ 12 bn Pluto LNG project, also in Western Australia.
The 20 cargoes sold to customers not under long-term contracts ties up with JP Morgan Chase & Co.'s estimate that the North West Shelf will sell about 9 % of its LNG volumes on the spot market, said Mark Greenwood, a Sydney-based energy analyst at the firm. JP Morgan estimates the venture will deliver 247 LNG cargoes this year.

The North West Shelf, which includes BP and Woodside's 34 % shareholder Royal Dutch Shell, invited bids for the shipments and received "pretty strong demand," Cleary said. The sales are a mix of delivered cargoes and shipments on a "free-on-board" basis, where the buyer pays for shipping costs.
BG Group, the biggest supplier of spot LNG shipments to Asia, agreed to buy five cargoes from the Australian venture, Raleigh, North Carolina-based energy consultant PanEurasian Enterprises said earlier. Asian LNG demand may drop by as much as 10 % this year, New York-based Poten & Partners said in March. Production of LNG is set to surge, with about 55 mm tpy of new capacity due to start up this year in countries including Indonesia, Russia, Qatar and Yemen.

Woodside still expects the global LNG market to continue to expand for at least the next decade, growing by about 7 % a year to about 400 mm tons by 2020, up from about 180 mm, Chairman Michael Chaney said at the annual shareholders meeting.
The size of the drop in demand caused by the economic decline varies between the North West Shelf venture's 10customers in Japan, Cleary said. Shipments to Korea Gas Corp. haven't been affected as much, he said, declining to comment on the pricing of cargoes. More sales are expected to India, after an initial delivery last year, he said.

The venture's fifth LNG production unit at Karratha in Western Australia will shut down for about a month of maintenance, said Eve Howell, Woodside's executive vice president for the North West Shelf. Work during the shutdown, which was brought forward from September, should remedy a fault that caused the 4.4 mm tpy unit to run at 80 to 90 % capacity since it started at the end of August, she said.
Production at the fourth LNG unit, or "train," and at either Train 2 or 3 will be halted for 20-25 days in the third quarter for routine maintenance, Perth-based Woodside said April 24. Those stoppages are already factored into delivery schedules, Howell said. The unit that isn't closed in the third quarter will be shut down in May 2010 for work, she said.

The partners in March last year approved a A$ 5 bn investment, the venture's largest ever, in an offshore gas production platform to underpin supply commitments. The North Rankin 2 project is due to start up in 2013.
The venture won't seek to conclude more long-term contracts until that and other investments are completed, Cleary said. "We certainly don't think it's the right time to be doing that from our project's point of view," he said.

Once the fifth production unit runs smoothly, the venture may make some operational "tweaks" that may "squeeze a little bit more out" for contracts, Howell said.
BHP Billiton, Chevron and a unit jointly owned by Mitsui & Co. and Mitsubishi have stakes in the North West Shelf. LNG is gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.