New LNG Project from Hess Set for Western Australia

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Researched by Industrial Info Resources Australia (Perth, Australia)--A $7 billion offshore natural gas production project by Hess Corporation (NYSE:HES) (New York) is set to go ahead in Western Australia after the Woodside Petroleum (Perth)-operated North West Shelf Venture (NWS) agreed to process and liquefy gas from Hess' Carnarvon Basin gas fields.

The gas would be processed for a fee by NWS's Karratha liquefied natural gas (LNG) plant. After discovering significant gas reserves in its WA-390-P and WA-474-P permits, Hess deemed it too expensive to build its own LNG production plant. Hess' proposed Equus project was put on hold until the company could find a third party to process gas from its Carnarvon fields, which are estimated to hold between 1 trillion cubic feet (Tcf) and 3 Tcf of gas.

Negotiations between Hess and WA LNG producers were ongoing for several years. Potential partners for the processing arrangement included Woodside's Pluto LNG venture and Chevron's (NYSE:CVX) (San Ramon, California) Wheatstone venture. After long negotiations, an agreement was finally reached between Hess and the NWS in December.

The agreement will provide Hess with a better opportunity to commercialize its natural gas resources. The company also will save costs by using the NWS Karratha LNG plant.

In return, the NWS Venture will receive much-needed revenue during a time when slow Asian LNG demand and declining prices are putting a strain on Australian LNG operations.

Hess plans to construct a semi-submersible floating production system (FPSO) 180 kilometers (km) off the coast of Western Australia. The FPSO will be moored in 1,070 meters of water, and is expected to process 320 million standard cubic feet per day. Hess also will install a subsea pipeline to connect the FPSO to the production plant in Karratha. According to Industrial Info, Hess is expecting to reach a final investment decision on the Equus proposal by the end of 2017 at the latest.

Hess' Equus project will be one of the few Australian large-scale resource projects to kick off in the next few years. Declining LNG prices and high construction costs in Australia have cast uncertainly over all future proposals. Industrial Info is tracking all LNG projects under consideration in Australia. Projects like Woodside Petroleum's proposed $40 billion Browse LNG venture are at risk of missing financial approval if prices don't improve.

Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and BHP Billiton Limited's (NYSE:BHP) (Melbourne, Australia) Scarborough floating liquefied natural gas (FLNG) joint venture proposal also is at risk of missing financial approval.

The Equus project would provide a timely boost for the West Australian economy through taxation royalties and the provision of jobs to contractors, who will otherwise find themselves out of work as the first wave of the LNG construction boom comes to an end.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.