GDF Suez, Santos Scrap Floating LNG Project

Posted by Joseph Keefe June 19, 2014

Other options could include pipeline to Darwin; Santos remains bullish on LNG demand outlook.

GDF Suez SA and Santos Ltd have dropped plans for a multibillion dollar floating liquefied natural gas (LNG) project off northern Australia, citing poor expected returns, and said on Thursday they aim to consider alternatives swiftly.

The decision comes amid worries about $180 billion worth of future LNG projects in Australia, as costs have soared on projects already underway with rivals competing for labor and equipment instead of partnering to develop gas resources.

The Bonaparte LNG project, under study for more than three years, was to produce 2.4 million tonnes a year for sale into Asia-Pacific markets starting in 2019, but the economics for a floating LNG plant did not stack up at this point, France's GDF Suez and its Australian partner Santos said.

"There were no technical showstoppers. There were no safety concerns with the technology," Santos vice president John Anderson told Reuters.

"The decision here is really that the rate of return was not high enough to cover off a major project with complexity and a high level of capital exposure," he said, declining to comment on what the rate of return was on the FLNG project.

Santos dismissed concerns about gas from places like Russia and North America weighing on the outlook for LNG prices in the Asia-Pacific region.

"Santos remains very bullish on the LNG market, and particularly the LNG market out of Asia," Anderson said.

GDF Suez and Santos plan to look at other options besides floating LNG, which may involve supplying gas from their Petrel, Tern and Frigate fields to rival projects.

They may build a pipeline to Darwin about 250 km (156 miles) away, which could feed into the Ichthys project being developed by Japan's Inpex and France's Total or U.S. ConocoPhillips (COP)' Darwin LNG plant, or could use Italian group ENI SpA (E)'s Blacktip infrastructure in the Bonaparte basin.

"We'll move now to the alternative concepts very quickly," Anderson said, adding it was conceivable that by using other companies' infrastructure there may not be much delay in producing first gas.

GDF Suez is 60 percent owner and operator of the Bonaparte project, while Santos owns 40 percent. GDF Suez bought into the project for $200 million in 2009 and is due to pay Santos a further $170 million when a final investment decision is made on the gas development.