Knox shuts door on Gladstone LNG consolidation
SANTOS managing director David Knox seems to have pretty much shut the window on project consolidation negotiations with the other Gladstone coal seam methane wannabes only a week after his new chairman reportedly said he wanted to keep options open until mid-year.
The affable, straight-shooting Knox yesterday talked down the possibility that Santos remained a player in the consolidation game by reaffirming that December 2009 was the deadline for dialogue.
At the same time Knox expressed certain confidence that his plans to transform Curtis Island into a globally significant LNG hub were "up and away" and that a final investment decision on the first stage of what could be a $16 billion, 7 million-tonnes-a-year, two-train project is little more than a boardroom formality.
"We believe our project is up and away and we will officially confirm that in the boardroom sometime in the mid-year," he said. Asked later whether we could all now bank on Santos moving forward with LNG, Knox smiled and said: "Yes, you can, because we certainly are."
Now Knox is an oilman by inclination and experience, so his relentless optimism must be taken into account here. Nonetheless, this public certainty over the shape and timing of Santos' sector-leading bet on LNG in Queensland might come as a bit a surprise to his chairman, Peter Coates.
Last week, Coates was reported as saying the "window of opportunity" for collaboration with one of three other consortia planning to build LNG plants at Gladstone would probably stay open until the final investment decision. And both Coates and Knox agree the FID is not due to be voted on by the Santos board until sometime around the middle of this year.
Santos is one of four consortia that have plans to invest about $55bn in building a total of seven LNG trains (plants) on and around Curtis Island near Gladstone. Three of those projects, the ones led by Santos, Arrow Energy and Britain's BG Group, plan to start delivering gas by 2014 while Origin's $17bn joint venture with ConocoPhillips is aiming for 2015.
Little wonder then that Knox, Coates and many others in the gas industry maintain that infrastructure consolidation around Gladstone would be a very, very rational thing. And it is not just the concert of ambition and timing that makes the idea of alliance sensible.
Throw in factors like the skills shortage and the potential that any sort of delay on hitting these tight targets for production might well mean that gas demand windows close and investment metrics are blown.
When BG first came knocking on the door at coal seam dreamers Queensland Gas back in 2006, it kept talking about the gas demand window that was emerging for projects that could deliver gas between 2012 and 2015.
At the same time, it warned that anyone attempting to sell new LNG into Asia after say 2015 would risk doing so in a buyers market and that those conditions may persist for at least two or three years -- and maybe beyond that.
BG's view is now pretty much the industry wisdom. And that is why Knox and Santos are driving so hard to make Gladstone LNG a reality.
Speaking to the Melbourne Mining Club yesterday, Knox confirmed again that he has new customers for Gladstone product on the line and that, outside of the increasing certainty of his project, one of his brightest lures is that Santos is prepared to sell a share of the project to secure a long-term LNG contract.
Santos has already done exactly that with Gladstone LNG. In 2008 Malaysia's Petronas paid $US2.5bn for a 40 per cent share in the project and the coal seam methane reserves that will support it.
A year later Petronas signed a binding, 20 year contract to take 3 million tonnes a year of Gladstone output.
Further, it gave Knox an option to put another 1mtpa to Petronas should it not find other customers for the gas.
Now given that Gladstone is to be a two step, two train development and that each train will produce 3.5mtpa, this deal left Knox with the task of placing only another 500,000tpa to underwrite the first stage of his project.
Given Santos wants to retain control of the project, it would be prepared to vend another 9.9 per cent to potential customers or, for that matter, anyone else prepared to pay the price.
It will be interesting to see just how Knox goes about putting the final touches to his marketing program.
Will he, for example, follow the path blazed by Woodside's Don Voelte, who has ended up selling chunks of individual trains at Pluto to different customers to secure their contracts. That approach would result in, say, one customer getting maybe 9 per cent of Gladstone Train I and other getting a similar chunk of Train II.
The other interesting issue is the price that Knox might be expecting to get. Based on the Petronas metrics, 9.9 per cent of the project would generate something like $US600 million.
But that price surely reflected Petronas' standing as a foundation investor and, by its nature, the investment and the sales contracts signed subsequently would suggest the valuations have to move upwards. That said, there has been a lot of talk recently that LNG is becoming a buyers market.
Friday 5 February, 2009
The Australian
Friday 5 February, 2009
The Australian
