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setback for gas pipeline

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    OSH shareprice is holding reasonably well despite the following news.

    Setback For Gas Pipeline

    Paul Syvret, business editor

    THE long-mooted $6 billion Papua New Guinea to Queensland gas pipeline suffered a strategic set-back yesterday with the announcement of development go-ahead for a major liquified natural gas (LNG) project in the Northern Territory.

    Work on the $2.3 billion Bayu-Undan LNG project, managed by international energy giant ConocoPhillips and including Australian oil and gas major Santos, will begin immediately.
    The project will involve a 500km pipeline from the Bayu-Undan field in the Timor Sea to Darwin, and construction of a 3 million tonne a year LNG plant in Darwin.

    While the project is export-focused it is still expected to present a major hurdle for the backers of the PNG gas pipeline – a consortium that also includes Santos.

    State Development Minister Tom Barton declined to comment yesterday, but the oil and gas industry has long believed that in terms of northern Australian energy developments the "first cab off the rank" rule would apply. In other words development of a major gas field (and associated pipleine to the Australian mainland) from either the Timor Sea or PNG would set a rival project back by some years.

    The Bayu-Undan project is predicated on a major supply contract to Japanese customers comprising three million tonnes of LNG a year, for 17 years, and starting in 2006.

    The Bayu-Undan gas field is thought to contain a massive 400 million barrels of condensate and liquefied petroleum gas and 3.4 trillion cubic feet of natural gas.

    "This landmark approval by the Timor Sea Designated Authority marks a significant event for the further development of reserves in the Timor Sea area," ConocoPhillips 91-12 president Stephen Brand said.

    "This project will have positive impacts for all the stakeholders in the region and specifically for Timor-Leste (East Timor), Australia and the Northern Territory."

    Australia is expected to benefit from the gas development with an estimated $1.5 billion slice of revenue over the next two decades, increased economic activity and new jobs.

    Santos, the only Australian company involved in the project, described Bayu-Undan as "the first of the new breed of company builders" for Santos.

    LNG is the second stage of the Bayu-Undan prject with the first - the Gas Recycles (liquids) Project - due to come on stream next year.

    For Santos, the combined liquids and LNG projects will add the equivalent of 6 million barrels of oil a year at peak production - equivalent to 10 per cent of Santos' total production in 2002. Santos currently has 11.8 per cent of the project. This will be diluted by the sale of 1.2 per cent to LNG end customers, The Tokyo Electric Power Company and Tokyo Gas Co.

    The Northern Territory government has estimated 1,000 jobs will be created during the three-year plant construction phase, with 100 workers needed for the plant's operation.

    Darwin is also expected to become a service and supply hub for the plant and pipeline.

    Meanwhile, East Timor's share of revenues from the operation is expected to help lift the new nation out of dire poverty. The struggling nation is expected to reap an estimated $US3 billion ($A4.52 billion) in revenue from the project over the next 20 years.

    The Bayu-Undan field is in the Joint Petroleum Development Area, where East Timor and Australia share production revenue 90-10 per cent.

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