Australia's largest oil and gas producer, Woodside Petroleum Ltd., said on Thursday buyers were prepared to pay higher prices for liquefied natural gas (LNG) as crude oil continues to surge.

Woodside Chairman Michael Chaney told shareholders at the company's annual meeting in Perth that increasing demand for LNG would underpin the company's growth for decades.

"Consumption is expected to continue to grow at a rate in excess of 2 percent a year to 2030, with the economies of Asia and the Indian sub-continent again providing the bulk of that growth," Chaney said.

LNG prices have soared in recent weeks as the price of crude oil climbed to over $100 a barrel.

Chinese utility Guangdong Dapeng LNG announced last week it had bought some spot cargoes at around $14 per British thermal unit (BTU).

Woodside, 34 percent owned by the Royal Dutch Shell group, has been criticised for selling LNG too cheaply.

In 2003, the company and its partners in Australia's first LNG project, the North-West Shelf venture, agreed to supply China with 3.3 million tonnes of LNG a year at $3.14 per BTU for a 25-year period.

Apart from the Woodside-operated North-West Shelf project, which started production nearly 20 years ago, the company has other projects in the pipeline, including its 100 percent owned A$12 billion ($11.2 billion) Pluto project which will also exploit natural gas reserves off the north west Australian coast.

"Our Pluto LNG project will begin deliveries in just 32 months and we are aiming to begin construction of another two developments - Browse and Sunrise - within the next few years," Chaney said.

Woodside and its partners in the Browse and Sunrise projects are yet to sanction development but Chaney said Asian buyers will be keen to source LNG from the two projects because of their proximity to markets while the company had already developed a reputation as a reliable supplier.

Australia's position close to the fast-growing Asian markets is drawing other LNG players to the nation including the UK's BG Group Plc, one of the world's largest LNG traders.

On Wednesday BG announced a A$12.9 billion cash bid for Australia's Origin Energy Ltd. which has large coal seam gas reserves in the north-eastern state of Queensland.

Earlier this year BG invested A$660 million in coal seam producer Queensland Gas Ltd and announced plans for an LNG joint venture near Gladstone on the state's coast.

BG's bid for Origin is seen as part of a strategy to cash in on growing demand for LNG in the Asia Pacific region.

Chaney told Woodside shareholders that developing LNG projects as well as oil projects within the company's portfolio present challlenges.

"To put it simply, developing major resource projects is becoming an increasingly expensive proposition.

"Scarcity of labour and the increasing cost of materials are now the greatest challenges to your company's growth and profitability," he said.

Chaney said in spite of the current cost and labour challenges, Woodside has managed to increase production in the past three years, albeit at a rate lower than originally hoped.

He said for 2008 the company is targeting production of between 80 million to 86 million barrels, up from 71 million barrels in 2007.

The target is the same as a production forecast made in February when Woodside reported a 28 percent fall in 2007 net profit to A$1.0 billion as asset sale losses, a strong Australian dollar and increased exploration costs outweighed the benefits of higher commodity prices.

Chaney said Woodside, like the broader energy industry, is a significant beneficiary of rising oil prices but it is preparing in case prices drop.

"Our project economics are based on a more conservative outlook and, importantly, we are determined to ensure that our costs are well controlled so that, if and when prices fall, we remain profitable," he said.

(US$1 = A$1.07)

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Related Project
Pluto LNG Project
Facility Type: LNG Owner: Woodside Petroleum Ltd.; Tokyo Gas; Kansai Electric
Scope: New Construction Location: Burrup, Western Australia Australia