Darwin – Less than a year after Australia rejected Royal Dutch/Shell Group's bid for Woodside Petroleum Ltd., the government may cite the same national interest argument to sink Shell's proposed $4.9 billion floating natural gas platform.
Northern Territory officials want federal support for a rival Phillips Petroleum Co. plan to bring gas onshore from the Timor Sea. They say it will pump more cash into the economy because $8.7 billion of plants would be built in Darwin, the territory's capital, not offshore.
"We don't want a floating gas proposal that sees the benefits disappear in a tanker into the horizon," said Paul Henderson, the territory's energy minister, who plans to hold talks on the issue in Canberra next week with Federal Industry Minister Ian Macfarlane.
The problem: Rejecting Shell again on the same ill-defined national grounds may leave the government open to charges it isn't interested in foreign investment. That, in turn, may dent confidence and send the Australian dollar lower.
"Any government intervention is going to send the wrong message on foreign investment," said Stuart Baker, an analyst at Macquarie Equities Ltd. in Melbourne. Even so, "there is no doubt Phillips holds the greatest economic benefits for Australia."
Friends again
There is precedent for concern. The Australian dollar slumped two percent, its biggest descent in eight months, on the day last April that Treasurer Peter Costello blocked Shell's hostile $3.2 billion bid for Woodside. Woodside shares today closed down 5 cents, or 0.4 percent, at A$13.18.
Complicating matters this time, Shell, Woodside and even Phillips are all partners in the Greater Sunrise gas project, along with Osaka Gas Co. Shell surprised its partners in August by announcing its proposal for a floating platform to process Sunrise gas.
Shell said its proposal will be 40 percent cheaper than the Phillips plan, which includes building a 500-kilometer pipeline to Darwin from its majority controlled $1.6 billion Bayun-Undan field. The proposal would also link the Phillips field to Sunrise, ensuring it has enough gas to fulfill a $20 billion contract with El Paso Corp. of the US
Some investors say the Phillips plan is likely to win out. "The potential for Phillips is huge," said Tim Ghriskey, a money manager at Ghriskey Capital Partners LLC in Greenwich, Connecticut. "We are confident Philips will get the go-ahead for Bayu-Undan and it appears in everyone's best interest that the development of Greater Sunrise includes Phillips's onshore plans."
Deja vu
Yet Woodside is in an awkward position. The same government that saved Australia's second-biggest oil company from a takeover by Shell 10 months ago is now being asked to use the same argument to scupper a proposal that may be in the best interest of shareholders.
"It [the Shell plan] offers the most economical outcome," said James Kernaghan, a Woodside senior adviser. The Shell plan isn't without risks. "There is clearly potential for cost benefits," said Jay Wilson, an analyst at J.P. Morgan Chase & Co. in New York. "But it has never been done before. It's a bit more risky."
Delays in deciding how to develop Sunrise and sign a tax agreement with neighboring East Timor, meantime, already led Methanex Corp., the world's biggest methanol producer, to abandon Darwin. It switched the site of its planned A$1 billion plant to Western Australia state.
Spelling it out
El Paso's initial supply agreement with Phillips for Timor Sea gas, signed after US gas prices surged fivefold in 2000, has already lapsed. Prices have since fallen.
"I'm skeptical about the financial viability of LNG sales to North America at the gas price we now see there," said Paul Ashby, an analyst at ABN Amro in Sydney. "The loss of the Methanex load will make it very difficult to justify bringing Sunrise gas into the domestic market through a Darwin-based development."
Local government officials have already made their preference clear. In December, representatives of Australia's six states and two territories signed a communique that urged the central government to apply the national interest test to big gas projects.
Federal minister Macfarlane acknowledged in an interview that Australia's best interests must be held dear. "Among the complex matrix of national interest and commercial realities, the government is looking for the best possible result for Australia," Macfarlane said.