Sydney (Platts)--7Dec2012/331 am EST/831 GMT

UK gas giant BG Group is still looking to develop a third production train at its Queensland Curtis LNG project in eastern Australia, although the timing of the expansion is uncertain, according to a senior company executive.

Martin Houston, BG's executive director and executive vice president and managing director, Americas and global LNG, told a media briefing in Sydney this week that the company has resources totaling 23 Tcf in the eastern Australian state of Queensland. BG's proven and probable coalseam gas reserves in the region are 9.9 Tcf.

"Certainly we have the resources there and we're systematically developing them to supply our existing two trains and hopefully in the future a third train," Houston said.

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BG is currently constructing a two-train LNG project on Curtis Island in the Queensland port city of Gladstone. The plant will produce a total of 8.5 million mt/year of LNG.

"We are on track for a 2014 startup for first LNG," Houston said. "Good progress [is being made] on the upstream. We're drilling about 50 wells a month at the moment [and] we've got about 1,400 land access agreements in place."

BG raised its budget for the Queensland Curtis LNG project in May to $20.4 billion, from $15 billion when it was approved in 2010. The increase was mainly due to rising costs in the Australian market, where seven LNG projects are currently under construction, including two others on Curtis Island, and the stronger local currency.

"We are about 45% complete on value of work done [on Queensland Curtis LNG] and we've got agreements in place for about 90% of the contracts," Houston said. "We adjusted our costs -- a lot of that was to do with the strength of the Australian dollar -- but we are now very confident about the cost base we have here, and delivering this [project] both on time and on the new budget."

DEALS WITH CNOOC

BG struck a $1.93 billion deal In late October to sell China National Offshore Oil Corporation another 40% stake in the Queensland Curtis LNG project, taking its total share to 50%. Under the agreement, the Chinese state-owned giant also raised its ownership of BG's Surat Basin gas resources from 5% to 25%.

The deal included an undertaking by CNOOC to lift an additional 5 million mt/year of LNG from BG's global portfolio starting from 2015. CNOOC agreed to buy 3.6 million mt/year of LNG from BG in March 2010.

"In the deal that we've just concluded with CNOOC, one of the things we provided to CNOOC was an option to take 25% in the third train," Houston said. "The Chinese have this almost insatiable demand for gas in the future, [and] my sense is that this is an opportunity that CNOOC will want to prosecute quite quickly and that being the case so would we," he added.

"The third train is usually the best train to develop because it doesn't require additional tanks, it doesn't require additional jetties, so it's cost advantaged versus the earlier trains," Houston said.

BG estimates that the project's common facilities on Curtis Island and the 540 km natural gas pipeline network linking the gas fields to the liquefaction facilities represent about 30% of the estimated 2011-2014 project spend.

The company would still need to complete a study of the economics of the third train before taking a final investment decision. In addition, although cost efficiency would favor a sequential development following on from train two, the need to mature BG's resource base across all its supply options, including coalseam gas in the Surat and Bowen basins, tight gas in the Bowen Basin, and shale gas in the Cooper Basin, might require a delay.

The third train in Queensland would also have to stack up against the company's other growth opportunities in Canada, the US and, further down the track, Tanzania. BG is aiming to grow its LNG portfolio to 30 million mt/year by 2020.

"We have a series of options and we will deploy capital and expertise and resources to the projects which deliver us the best returns for the growth of our business," Houston said. "We are fortunate that we have more options than we are able to prosecute long term. So it's a case of prioritization for us."

--Christine Forster, christine_forster@platts.com --Edited by Wendy Wells, wendy_wells@platts.com

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