Sydney (Platts)--29Nov2012/431 am EST/931 GMT

Australia's current palate of 87 committed major resources projects, worth a total of A$268.4 billion ($280.5 billion), is dominated by LNG developments, according to a report released this week by the Bureau of Resources and Energy Economics.

Oil, gas and LNG projects account for 18 of the total and are worth more than 70% at A$194.9 billion. BREE excluded Shell's Prelude floating facility from its list of committed LNG projects, which comprised Gorgon and Wheatstone in Western Australia, Ichthys in the north, and Gladstone, Queensland Curtis and Australia Pacific LNG on the east coast.

"To put this in perspective, and to show the scale of the pipeline in Australia, the total committed expenditure on Australia's oil and gas projects is comparable to the total cost of the Apollo Moon Program in 2012 prices," BREE Executive Director and Chief Economist Quentin Grafton said in a statement.

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In the six months to October, the major approval in the petroleum sector was the second production train at Australia Pacific LNG's project on Curtis Island in Gladstone. APLNG gave the go-ahead for the 4.5 million mt/year train two in July this year, and the project is expected to cost around A$9 billion.

Projects in the feasibility stage, including the big A$36 billion Browse and A$24 billion Arrow LNG projects, are estimated to be worth around A$104.5 billion.

There are also many LNG, gas and oil projects further back in the pipeline. BREE counted 13 such projects worth a total of between A$26.8 billion and more than A$32 billion at the publicly announced stage. Of these, floating LNG projects such as the Bonaparte and Cash Maple developments, along with expansions to Woodside Petroleum's Pluto facility in Western Australia are among the highest value projects, at a cost of more than A$5 billion each.

"There have been numerous reports of cost increases for LNG projects at both the feasibility and committed stages in the past six months," BREE said in the report.

"Controlling cost pressures and also market conditions will be crucial determinants to further expansion of the Australian LNG sector. Australia's LNG industry is not alone in experiencing these pressures, but as a high cost country Australia is particularly vulnerable to further cost increases in terms of its impact on future investment," the bureau added.

"There are six LNG facilities already under construction worth A$166 billion with the potential for over A$100 billion to be invested on new developments and expansions to add additional trains at existing facilities. This next wave of investment is far from guaranteed and future investments will be reliant on the ability of project managers to control construction costs. As a result of cost pressures, prospective LNG projects may require project proponents to consider lower cost development alternatives if they are to progress to a FID [final investment decision] and construction."

Since the start of this year, the budget for BG Group's 8.5 million mt/year Queensland Curtis LNG project in Gladstone has blown out from $15 billion to $20.4 billion, and Santos was forced to bring forward $2.5 billion in development spending at its 7.8 million mt/year Gladstone LNG project, taking the joint venture's initial outlay from $16 billion to $18.5 billion. Chevron is also reviewing costs at Gorgon, with an announcement expected before the end of this year.

"Factors driving these cost increases, such as skilled labor shortages, a high Australian dollar and transport to remote locations, as well as changes in scope, are common to all current and prospective projects," BREE said. "Thus, it is not unreasonable to expect that LNG projects currently at the feasibility stage may be subject to additional costs in the future. Five of the six LNG projects currently under construction, and also the recently completed Pluto LNG project in Western Australia, have had substantial cost increases since they were at the equivalent of the publicly announced stage."

Oil and gas exploration has historically represented a significant portion of total minerals exploration expenditure in Australia, BREE added. The sector's share of investment peaked at 63%, or A$4.2 billion, in 2008-2009, but has since declined to around 45% in 2011-2012, when it fell 6% year on year in real terms to A$3.3 billion.

--Christine Forster, christine_forster@platts.com --Edited by Elston Soares, elston_soares@platts.com

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