Petronet, ExxonMobil Sign Deal to Take Gas from Australia's Gorgon Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's Petronet LNG Limited (BSE:532522) (New Delhi) and the Australian subsidiary of Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) have announced the signing of a 20-year sales and purchase agreement to procure about 1.5 million tons per year of liquefied natural gas (LNG) from the Gorgon gas project in Australia.

Earlier this week, the Environment Minister of Western Australia gave state approval for the Gorgon project. The project was passed to the Federal Environment, Heritage and Arts Minister for final environmental approval, which is required before the joint venture partners can make the final investment decision. The state approval was subject to conditions regarding the conservation of habitat for the native flatback marine turtle.

The Gorgon gas project is a joint venture between Chevron Corporation (Chevron) (NYSE:CVX) (San Ramon, California), which holds a 50% stake in the project, and Exxon Mobil and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands), each with a 25% stake.

The Gorgon gas fields are located in the Carnarvon Basin, approximately 130 kilometers off the coast of Western Australia, and are estimated to contain as much as 1.1 trillion cubic meters of natural gas. In addition to developing the gas fields, the project includes a three-train LNG-processing plant on Barrow Island, with an estimated production capacity of 15 million tons per year of LNG.

Petronet already operates an LNG terminal at Dahej, which has a capacity of about 10 million tons per year, and the firm's new terminal at Kochi will have a capacity of 2.5 million tons per year. Petronet has an agreement with Qatar's leading LNG exporter RasGas Company Limited (Doha, Qatar) to purchase 5 million tons per year of LNG, which is set to increase to 7.5 million tons per year from the last quarter of this year. Petronet also has an agreement in place to purchase up to 1.5 million tons per year from BP plc (NYSE:BP) (London, England) and other suppliers.

With production capacity at Petronet's Dahej and Kochi terminals totaling 12.5 million tons per year and the Gorgon project unlikely to be able to deliver until 2011 at the earliest, the firm has reportedly been in discussions with InterOil Corporation USA (NYSE:IOC) (Cairns, Australia) to purchase the entire output of InterOil's LNG project in Papua New Guinea. The project is expected to produce 3.5 million to 5 million tons per year of LNG, but is not scheduled to start shipments until 2014.

Reports also have linked Petronet with the purchase of LNG from Exxon Mobil's LNG project in Papua New Guinea, but the country's Trade Minister indicated this week that the partners in the project--Exxon Mobil, the Papua New Guinea Government, Australia's Oil Search Limited (ASX:OSH) (Sydney, Australia) and Santos Limited (OTC:STOSY) (Adelaide, Australia)--already had arranged for sale of LNG from the project.

In another move aimed at securing LNG sources, Petronet is also reported to be investigating the possibility of setting up its own LNG plant in Western Australia, possibly at the West Australian government's proposed Kimberley LNG hub. Using gas supplies that the government had earmarked for domestic supply, or alternatively through farm-in arrangements for gas fields, Petronet expects to be able to support an LNG plant with a production capacity of 5 million to 7 million tons per year over a period of 25 years.

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