Shell and Arrow Energy to Develop Four LNG Trains for Australia's Curtis Island Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) , has announced details of the proposed liquefied natural gas (LNG) facility in Gladstone on Curtis Island, Queensland. The coal seam gas (CSG) to LNG conversion plant will be capable of transporting nearly 16 million tons per year of gas. The project is being implemented in collaboration with domestic CSG major Arrow Energy Limited (ASX:AOE) (Brisbane, Australia). Gas produced from the facility will primarily be exported to Asia, with the first shipment slated for 2014.

The Shell-Arrow joint venture facility will be the fifth CSG-to-LNG conversion project in Queensland. The largest of the four rival projects is being set up by Origin Energy Limited (ASX:ORG) (Sydney, Australia) and ConocoPhillips (NYSE:COP) (Houston, Texas). The other firms that have detailed plans to develop LNG projects in the region include BG Group plc (OTC:BRGYY) (Reading, United Kingdom) and Santos Limited (NASDAQ:STOSY) (Adelaide, Australia) along with Petronas Gas Berhad (KUL:PETGAS) (Kuala Lumpur, Malaysia). The BG Group and the Santos-Petronas projects fared better than those of Shell-Arrow and ConocoPhillips in securing CSG supplies, obtaining government approvals and negotiating agreements with buyers.

The size of the Shell-Arrow project is as large as the Origin-ConocoPhillips plant. The four LNG trains constituting the plant will be constructed in phases. Shell will secure CSG supplies for the first LNG-processing plant from fields owned by Arrow Energy. Shell signed a deal in June 2008 to acquire a 30% stake in Arrow's domestic CSG fields and a 10% stake in international operations at a cost of $776 million. Shell is also in talks with Arrow and other CSG firms to procure additional gas supplies for the Curtis Island project.

Shell has obtained approval for the initial advice statement for the project from the government. The company is currently working on the next phase of the project, which is to study the impact on the environment. CSG has a high percentage of methane gas on the surface of coal. Hundreds of holes are drilled on the surface to extract this gas by reducing the pressure on the seams. The natural gas is then chilled to form LNG and subsequently shipped to various destinations. The project is extremely challenging, as the methane gas extraction process produces large quantities of saline water. The company plans to submit the environmental report by April 2010. The project is estimated to generate employment for 3,000 people during the construction period.

Australia's east coast, and Queensland in particular, has vast reserves of CSG. Production of CSG increased from 86 petajoules (PJ) in 2006-07 to 125 PJ in 2007-08. Nearly 70% of the gas demand for Queensland is addressed by CSG. Abundant CSG reserves in the region have created international interest, attracting many companies to invest in CSG-to-LNG conversion projects. The sector is estimated to receive investment funding of about $22 billion from leading oil and gas firms, primarily to cater to the growing demand for gas in Asia.

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