The potential Arrow LNG site on Curtis Island, Gladstone.
The potential Arrow LNG site on Curtis Island, Gladstone. Mike Richards

Worrying signs over the viability of Arrow's LNG project

ARROW Energy's major shareholders are Royal Dutch Shell and PetroChina. There are some disturbing signals coming from them that may see plans for the construction of a fourth LNG plant on Curtis Island go the way of the dodo.

Just remember these words from an Arrow Energy spokesman reported in a national daily: "Arrow has previously stated that it is results and value-focused and not schedule driven."

After state approval, a Federal Government decision has been put off until December.

Then this: there was the announcement early this month by Royal Dutch Shell that it intends to sell off $US15 billion in global assets over the next two years.

The announcement came from CFO Simon Henry who said: "We need to step up divestments pretty significantly," which is putty-speak for we need to improve our profitability by managing our working assets and reining in development spending.

Shell is heavily weighted in LNG project investment in Australia, and the least advanced is Curtis Island for processing gas from the Western Downs.

The other cruncher was reported in the Australian Mining publication last Thursday.

Arrow has made a written submission to the Agriculture, Resources and Environment Committee that a bill introduced to the Queensland Parliament in June, if passed, would "deny development of a new and viable export project…(and) result in the inevitable loss of employment for a large portion of over 1300 staff" (not to mention those looking for employment if Curtis Island gets off the ground).

The bill seeks to prohibit all coal seam gas exploration mining activities east of the Condamine River from Chinchilla to the NSW border and from a longitudinal line running directly through the Chinchilla Post Office east to the coast.

If Arrow gets through the challenges posed by this bill before the Queensland Parliament and the approval process in train at Federal Government level, I think we're going to see a very different approach to the construction of any LNG plant on Curtis Island.

As The Observer reported some time ago, Arrow is in the process of investigating mergers with other projects under construction there and if those come off, we will be reminded that Arrow is "results and value-focused, not schedule driven".

Shell's view is that soaring Australian construction costs (read labour costs) impact on the value of such projects and the Arrow spokesman quoted before has said this: "Staff have been advised that we are still looking for more value in the project, including collaboration, in order to offer shareholders (Shell and PetroChina) a more competitive proposition."

Shell chief Peter Voser has made it plain that Shell's oil and gas projects are at risk of being flicked, cherry-picked or delayed as "we are particularly rich in upstream (oil and gas production) options" and they are certainly not all in Australia.

If Arrow manages to negotiate the legislative hurdles, then it will require workers to offer better bang for the buck in terms of productivity than they currently do in the mining and resources sector.

That means work harder for less dough.

Bob Lamont is director of Corporate Accountants at Gladstone's Night Owl centre.