SYDNEY (Dow Jones)
Three significant deep water gas discoveries off the west coast of Australia announced this week by Chevron Corp. (CVX) and Woodside Petroleum Ltd. (WPL.AU) could support the expansion of two giant liquefied natural gas projects, adding momentum to the nation's emergence as a top natural gas exporter.
Chevron on Monday said its Acme well about 150 kilometers off the coast of Western Australia state encountered a net gas pay of 896 feet, making it "one of our most significant natural-gas discoveries in Australia". It was one of nine discoveries by Chevron in the area since August 2009 and twice the size of its next biggest discovery there.
It came as Perth-based Woodside said the Larsen Deep-1 and Alaris-1 wells struck material amounts of gas. Larsen Deep-1 is owned in a joint venture with Hess Corp. (HES).
A projected surge in demand for cleaner-burning fuels from developing Asian economies is prompting energy companies to invest billions of dollars on exploration campaigns and large-scale gas export projects.
Chevron, America's second biggest oil company, is building two LNG projects in Western Australia state: Gorgon and Wheatstone.
Australia's stable political environment, substantial gas reserves and proximity to Asia make it an attractive place to invest, particularly with U.S. gas prices kept low by ballooning domestic supplies.
Gas found offshore Western Australia would be piped to onshore LNG processing facilities, compressed into liquid, then loaded onto tankers for export.
Chevron is investing so heavily in Australia that it could be as big a profit-driver for the company as its U.S. operations are now by 2020, former Chairman and Chief Executive David O'Reilly predicted in October.
Vice Chairman George Kirkland told Chevron's most recent quarterly earnings briefing that the company already has enough gas to support four LNG production units, also known as trains, at Gorgon, located on an island nature reserve capable of accommodating five trains.
The Wheatstone site, at the town of Onslow on the Australian mainland, is big enough to accommodate six trains and Chevron said Monday that it expects the Acme discovery to help underpin a potential expansion of Wheatstone from a current two-train development.
Initially, Chevron and its Gorgon joint venture partners, Royal Dutch Shell Plc (RDSB.LN) and Exxon Mobil Corp. (XOM), want to build three trains at Gorgon capable of producing 15 million metric tons of LNG a year for an estimated cost of A$43 billion. Chevron also wants to build two trains at Wheatstone by 2016 and expects to sanction that development in the second half of 2011.
It announced last month that Wheatstone will have a maximum annual production capacity of 25 million tons.
To support Wheatstone's foundation development, it has already agreed to buy third-party gas from Apache Corp. (APA) and Kuwait Foreign Petroleum Exploration Co. to combine with its own discoveries. "We see Wheatstone as a hub," Kirkland said last month. "It's a hub to bring in our gas and other industry gas."
Its plans for Wheatstone are attracting the attention of others, including BHP Billiton Plc (BBL), which have undeveloped discoveries in the same area and are looking for cost-effective ways to bring their gas to market.
Chevron is competing for gas supplies with Woodside, which has big LNG ambitions of its own.
Woodside operates Australia's biggest operational LNG terminal, the North West Shelf, and wants to build another three LNG terminals: Pluto, Browse and Sunrise.
On Tuesday it said Larsen Deep-1 encountered 50 meters of gas, equivalent to 162 feet, over several intervals, its second gas discovery off the coast of Western Australia in as many days.
The discovery is a lot smaller than a 185 meter continuous gas column Woodside encountered at the Alaris-1 well, reported Monday, but is much closer to the coast and within 9 kilometers of the previous Martell and Noblige discoveries.
Both discoveries firm up Woodside's chances of sanctioning an expansion of its Pluto LNG project to two trains by the end of 2010. If it develops the larger Alaris discovery, however, Woodside will have to build a 400 kilometer pipeline to an existing platform in the Pluto field.
Woodside wants to sanction a third train at Pluto by the end of 2011 and said its onshore site, near the North West Shelf terminal at Karratha, could accommodate five trains.
The 2010 final investment decision target for train two was notably absent from Woodside's second quarter production report last month, following a few disappointing exploration results.
The company is expected to provide an update on the expansion when it releases its first half profit results Wednesday.
E.L. & C. Baillieu director Ivor Ries said an initial analysis indicates the Noblige-Martell-Larsen structure has the potential to contain between 5.4 trillion and 6.8 trillion cubic feet of gas, more than enough to support a second LNG train at Pluto.
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