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Shell deal fires up Gorgon gas hopes

The $11 billion Gorgon gas project, off the West Australia coast, moved a step closer yesterday with project partner Shell saying it had finalised the sale of 2.5 million tonnes of Gorgon LNG (liquefied natural gas) a year to the US west coast.

The announcement - 25 per cent greater volume than forecast - is a fillip for the ChevronTexaco-operated project which has run into difficulties securing a sales contract with potential equity partner, China National Offshore Oil Corporation.

If the Gorgon project goes ahead, it is likely the Shell deal will result in the joint venture stealing a march on rivals, BHP Billiton and Woodside, in developing markets for LNG on the US west coast.

Both BHP Billiton's Cabrillo Port project, supplied by the Pilbara LNG Project, and Woodside's Clearwater plan are awaiting the approval of Californian authorities and are unlikely to be shipping before the end of the decade.

Shell will supply up to 2.5 million tonnes of Gorgon LNG a year to the Energia Costa Azul terminal in Baja California, with first deliveries expected in 2010.

The terminal, now under construction, will be the first capable of delivering LNG to the US west coast, a market which the federal Government believes will be worth $50 billion to Australian gas producers over 20 years.

The value of the Shell deal at current prices is estimated at more than $US10 billion.

The Gorgon gas will replace some of the supplies the terminal has contracted to buy from Shell's Sakhalin II project in Russia's far east.

Last October, Shell and San Diego-based Sempra Energy disclosed a 20-year agreement to supply 3.75 million tonnes of Sakhalin II LNG a year, beginning in 2008.

But Sakhalin II has customers in North Asia who have contracted to take its gas from 2010, meaning that some of its Mexico contract volumes will have to be sourced from elsewhere.

At the time of the Sempra announcement Shell forecast there could be an opening for 2 million tonnes of Gorgon gas in the Energia Costa Azul terminal, which has been planned with an annual re-gasification capacity of 7.5 million tonnes.

BP's Tangguh in Indonesia is supplying the remainder.

Last week the Gorgon project was restructured after ExxonMobil agreed to add its massive Jansz gas discovery -- Australia's biggest single known reservoir -- into the development.

The general manager of Gorgon Area Gas, Paul Oen, said yesterday a number of recent developments had moved the project closer to commercialisation.

"We recently announced new commercial arrangements that will help facilitate the development of the vast Greater Gorgon gas resources. Today's announcement is another positive step forward for the project." he said.

ChevronTexaco is also trying to tie up a deal to supply up to 2 million tonnes of Gorgon gas for its own Mexico terminal which is awaiting final government approvals.

Shell's Gorgon project director Andy Calitz said the Anglo/Dutch group was very committed to the development of the Greater Gorgon area.

"Securing this strategic position in the North American market provides a very tangible example of the benefits which the global reach of the Gorgon Joint Venture participants bring to Australian LNG projects," he said.

The Gorgon project is still targeting potential customers in China, Japan and Korea.

Editorial Notes: With North America facing a Natural Gas crisis, there are many proposals for LNG terminals fighting it out for approval on the US West Coast. Martin Hastings, author of two recent articles on the Gorgon gas project, writes that the likelyhood of either BHP and Woodside's LNG projects getting the go ahead is 'virtual zero', thanks in part to earthquake vulnerability in the region. A US Geological Survey report released last September highlighted these dangers. We'll be publishing an article by Martin on these issues in the next couple of days. Martin Hasting's earlier pieces on the Gorgon Gas Project: Australia: Gorgon Gas Project – Ugly by name & Carbon sequestration - the hottest topic on the planet -AF

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