Santos, BG to link Australia LNG pipelines in bid to cut costs

PERTH, July 4 Thu Jul 4, 2013 1:18am EDT

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PERTH, July 4 (Reuters) - Australia's Santos Ltd and BG Group PLC agreed on Thursday to link their major gas pipelines, allowing them to buy, sell, and swap gas supplies - a move that will help slash costs at a time when they have been hit by budget overruns.

The long-awaited first step toward collaboration between three coal seam gas to LNG projects under construction on Australia's seaboard should result in savings of hundreds of millions of dollars, according to Santos.

The connection between the two projects' pipelines will also allow upstream gas field operations to continue when their liquefied natural gas plants are shut for routine maintenance.

"We're spending less than $50 million on this, but we think it will generate savings over the long term of many times that," Rod Duke, Santos vice president of Gladstone LNG Downstream, told Reuters.

"We expect that this will be just one of many mutually beneficial arrangements across the industry in the future," Duke said.

Santos, BG, and Origin Energy are leading the construction of three separate coal seam gas to LNG projects on Queensland's Curtis Island at a total cost of more than A$60 billion ($54 billion) but have been criticized for failing to collaborate and save costs.

Santos' Gladstone LNG project has seen its costs jump around 15 percent from $16 billion to $18.5 billion, while BG's Queensland Curtis Island LNG has seen a 36 percent blowout to $20.4 billion from $15 billion, mostly due to a strong Australian dollar.

There may also be collaboration with Arrow LNG, a fourth coal seam gas to LNG project that is a joint venture between Royal Dutch Shell and PetroChina , although the project appears to have stalled.

This year, Origin Energy offered Arrow the opportunity to work together on the expansion of its A$24.7 billion plant under construction on Curtis Island.

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