Chevron closer to PNG gas pipeline. "The biggest hurdle was cleared today - customers have signed up on the basis that it will go ahead"
By Diana Taylor
BRISBANE, Aug 12 (Reuters) - Chevron Corp's Chevron Services Australia Pty Ltd said on Thursday it remained confident but cautious about the viability of its A$3.7 billion Papua New Guinea-to-Australia natural gas pipeline project.
Chevron Services, operator of the project, earlier initialled in Port Moresby a preliminary agreement with the Queensland state government-owned regional electricity retailer, Ergon Energy, for the supply of gas.
Ergon's initialling of the deal to take 50 petajoules of gas a year for the next 20 years came two weeks after state-owned umbrella electricity retailer Energex signed a preliminary contract to take about 130 petajoules a year for 20 years.
And while the Queensland state government was on Thursday gushing in its enthusiasm for the 2,655 km project, Chevron told Reuters there was still many hurdles to pass before the project is considered viable.
``While this is a great milestone, there are still many things to finalise before we can call this a project,' Chevron Services manager of external affairs Cliff Leggoe told Reuters.
Leggoe said some of those hurdles include the completion of front end engineering work, the granting of numerous government and financial approvals and licences and the ability of the project proponents to successfully put financing in place.
Leggoe said while Chevron would fund its proportion off its balance sheet, other project proponents such as Oil Search Ltd , a 27.5 per cent shareholder in the giant Hides gas field, would need to raise money.
Project operators have already poured US$50 million into the project and Leggoe said there is enough confidence for operators to rubber stamp another $50 million for front end engineering and design work.
``There are a lot of investors who want to put money into this project,' Leggoe said.
``We see no show-stoppers between now and financial close in the next 12 months.'
The pipeline, which was initially to finish at Gladstone to take advantage of the gas requirements of a proposed A$1.2 billion Comalco Ltd alumina refinery, has now been extended to Brisbane, to take advantage of the southeast Queensland electricity market.
Comalco, which was initially singled out as one of the main clients for PNG gas, has been slow to sign on. It is considering whether to locate the refinery in Gladstone or Sarawak, Malaysia.
Comalco is expected to take about 27 petajoules a year.
In something of a stand-off, project operators say they can proceed without Comalco because there is sufficient demand from other users to make it viable.
``We welcome the move and see it as positive in terms that it will increase the critical mass, but also regard (the Ergon signing) as only a preliminary agreement,' Comalco general manager of external affairs Geoffrey Ewing said.
Ergon chairman Keith De Lacy said a large proportion of the 50 pj of gas was destined for the proposed Stanwell gas-fired power station in Townsville, but Ergon was talking with three other commercial entities about taking gas.
Stanwell would sit next to a proposed A$1.2 billion zinc refinery being built by Korea Zinc Co Ltd , which last week told Reuters it saw the Energex signing as a positive move and had undertaken some preliminary talks about taking gas.
``We've done exhaustive analysis and see it could be a very profitable exercise for us. We are confident the potential reward justifies the risk,' De Lacy told Reuters from Port Moresby.
"Listening today to suppliers and pipeline operators and you have to consider that the biggest hurdle was cleared today - customers have signed up on the basis that it will go ahead.
``We realise this is not the end of the road but the mood here is very optimistic.'
Chevron said more than four trillion cubic feet of gas reserves are available from the Kutubu gas fields in the PNG highlands which would support 30 year contracts using more than 110 petajoules of gas.
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