Australia's Ichthys LNG Strengthens Position in International Gas Market

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Researched by Industrial Info Resources Australia (Perth, Australia)--The full foundation phase of the Ichthys liquefied natural gas (LNG) project, which is owned by the Inpex Corporation (TYO:1605) (Tokyo), has been contracted. The 8.4 million-metric-tonne-per-year LNG production plant is scheduled to export its first LNG shipments in 2017. The Ichthys LNG plant will be constructed at Blaydin Point, which is near the city of Darwin in Northern Territory. However, the natural gas will be extracted from the Ichthys gas field in the heavily resource-rich Browse Basin, which is off the shore of Western Australia. An 885-kilometre pipeline will transport the natural gas to the LNG production plant.

The Ichthys project also has a new project participant, with Osaka Gas Company Limited (TYO:9532) (Osaka, Japan) acquiring 1.2%. Inpex, the project operator, now owns 74.8% of the project, while Total S.A. (NYSE:TOT) (Paris, France) has retained its 24% share.

Project development has been slow but steady, with Inpex taking every possible step to ensure the economic viability of the project, with consideration placed upon the high cost of fabricating and installing such a long pipeline as part of the already cost-intensive project. The final investment decision has been delayed several times by Inpex and its project partners; this is Inpex's first development of an LNG project in Australia. Full environmental permits have been granted by the state and federal governments of Australia. Inpex was required to obtain a production license from the Western Australian government, as well as the development permits by the Northern Territory government, and is awaiting approval from Federal Government due to the sheer size of the project, as is the standard for all LNG production plant projects in Australia.

The finalization of sales and purchase agreements for all 8.4 million metric tonnes per year of LNG is the final impediment to expenditure approval that is being faced by the Ichthys Joint Venture partners. The festive season, however, is expected to stall the process. Inpex plans on making the final investment decision by January 12, and analysts expect the project's total investment value to be more than $30 billion.

The Japanese government has put pressure on Inpex to ensure that the economic benefits of the Ichthys project are strong for Japan. A total of 70% of the LNG has been sold to five major Japanese utility companies, including Tokyo Electric Power Company Incorporated (TYO:9501) (TEPCO) (Tokyo), Tokyo Gas Limited (TYO:9531) (Tokyo), The Kansai Electric Power Company (TYO:9503) (Tokyo), Osaka Gas Company Limited (TYO:9532) (Osaka, Japan) and Kyushu Electric Power Company. Earlier this year, Chubu Electric Power Company (TYO:9502) (Nagoya, Japan), Toho Gas Company Limited (TYO:9533) (Nagoya,Japan) and CPC Corporation (Taipei, Taiwan) finalized sales and purchase agreements, in addition to the LNG off-take agreements made with INPEX and Total S.A. affiliates.

Australia, particularly the Northern Territory, will reap the economic and socio-economic benefits of the Ichthys project, as will Japan, where it will produce positive economic benefits for the power and energy industries via natural gas import deals.

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