January 18, 2008 12:37 ET

Complementary Partner Strategies Meant Success for LNG Projects in 2007

WASHINGTON, DC--(Marketwire - January 18, 2008) - Fourteen LNG projects were meant to take a Final Investment Decision (FID) 2007, but only two did: Pluto in Australia and Angola LNG. These two projects had one distinct advantage over the others: a strong alignment in the strategy of the project's partners.

Nikos Tsafos, an analyst with PFC Energy, said, "In an increasingly competitive and interconnected gas world with no easy LNG projects, alignment of partner strategies will remain a key project driver." It may seem obvious, in retrospect, that the projects which moved forward were the ones which include companies most in need of them, but few projections think that way. Often, projects are assessed on strictly objective merits such as IRR or netbacks; as the LNG industry showed in 2007, it is as important to look at who is in the project as it is to look where the project is located. In fact, it is even more important. Mr. Tsafos continued, "A company with no alternative for growth other than one specific project is likelier to overcome obstacles in pushing forward -- this was the LNG lesson for 2007."

The two projects which reached FID in 2007, Pluto and Angola LNG, were fortunate in avoiding many of the challenges, such as cost increases, security, social and environmental concerns, feedstock uncertainty, arguments between host governments, and financing issues, although delays had occurred in the past (particularly Angola). More importantly, however, they differed from other projects in the sense of urgency among their partners. As Terrell Benke, Manager at PFC Energy, noted after Woodside took FID on Pluto, there were few growth alternatives for the company; "Unlike the IOCs operating in northwestern Australia, Woodside Petroleum's reserve base is limited and geographically focused and it cannot rely on a portfolio of liquefaction projects to become a real player in the industry -- it needs to unlock these reserves."

Similarly, Angola LNG first moved forward when ExxonMobil, which is preoccupied with a massive build-up in Qatar, left the project in March 2007. The remaining companies, and Eni which joined them, had more focused portfolios in which Angola LNG was necessary, including the need to reduce gas flaring in the face of rising oil production in the country. Chief among them was Chevron, which has seen its projects in Australia, Nigeria and Venezuela plagued by high costs, partner drag, and security and political concerns. Eni faces similar problems in Nigeria, as well as supply issues in Egypt; Angola LNG was essential for Eni's growing Atlantic Basin strategy. TOTAL is similarly challenged in Nigeria, while its LNG ambitions in Iran and Russia will have a long-lead time before coming through. Even BP, despite its diversified portfolio, faced supply issues in Trinidad and Egypt and needed a project to follow Tangguh and North West Shelf Train 5.

PFC Energy, headquartered in Washington, DC, is a leading strategic advisory firm in global energy with main offices in Houston, Kuala Lumpur, Paris, Bahrain, and Lausanne. PFC Energy's clients include all major international oil and gas companies, many national oil companies, oilfield service companies, financial institutions and government agencies and ministries involved in energy policy and energy-driven economic development. PFC Energy's coverage includes competitor analysis, energy sector strategies, commercial opportunities, and geopolitical forces affecting energy policy and energy economics.

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