Tax may hamper LNG project

BRISBANE: Santos, Australia's third-largest oil and gas producer, yesterday became the first company to win Queensland government approval to develop a liquefied natural gas project in the state.

Queensland co-ordinator-general Colin Jensen cleared the Gladstone LNG venture, with "strict conditions", after reviewing the development's expected environmental impact, the state government said.

Santos, an Adelaide-based company, said last week it wanted to gain a better understanding of Australia's plan to impose a 40 per cent tax on resource profits before proceeding with the project this year.

BG Group, Origin Energy and Royal Dutch Shell plan rival ventures to extract gas from coal seams and turn it into LNG, tapping the Asian energy demand.

"This is the first liquefied natural gas project to get conditional approval, so it is important that we get this right," Queensland Premier Anna Bligh said.

The project also needs approval from the federal government in Canberra.

The company has said it now aims to make a final investment decision later this year, instead of its previous mid-year target.

Malaysia's Petroliam Nasional, known as Petronas, is a partner in the development.

Origin Energy said the proposed resource tax measure may add significant cost and cause delays at its LNG venture with ConocoPhillips.

Santos is very close to announcing a customer for the project, chief executive David Knox said in Brisbane last week.

Uncertainty surrounding the proposed tax "has not been helpful in moving this forward", he said.

Santos and Kuala Lumpur-based Petronas remained concerned about the potential impact of the Government's tax measure, a Santos spokesman said yesterday.

Korea Gas, the world's biggest buyer of liquefied natural gas, is taking a "wait-and-see" stance in negotiations for a stake in the Santos project in light of the proposed levy.

"The biggest obstacle in the negotiation is the tax problem," chief executive Choo Kang Soo said in Seoul yesterday. "The proposed tax would definitely reduce profitability."

The Gladstone LNG venture is due to begin shipping fuel supplies in 2014 and to produce three to four million tonnes of LNG a year initially, with the potential to increase capacity to 10 million tonnes a year, according to the state government.

The Queensland approval covers the development of coal-seam gas resources in the state's Bowen and Surat Basins, the construction of a pipeline from the fields to the coast and the building of as many as three processing units, Santos said.

The project will generate 5000 construction jobs and 1000 permanent jobs after gas exports begin, Santos estimated. The Queensland government estimates the project's initial cost at A$7.7 billion ($9.6 billion).

- BLOOMBERG