October 2007

Profitable year so far, but cost and demand challenges confront suppliers

Many base load gas liquefaction projects currently in planning are being hit by high upstream cost inflation, which has increased at unprecedented rates in the past two decades. Projects in Australia (e.g. Gorgon), Nigeria (e.g. OK LNG), Angola and Algeria (e.g. Gassi Touil) are all considering reconfigurations to deal with escalating budgets. They do not want to repeat the massive cost overrun experiences of Shell and partners at Sakhalin in Russia and Statoil and partners at Snohvit in Norway. Shell has also announced substantial cost escalation to its Qatargas 4 project, increasing its budget to $8 billion and its Pearl GTL project also in Qatar, increasing its budget above $14 billion. Equatorial Guinea LNG, onstream in May 2007, delivering its first cargo some six months ahead of schedule, is a rare exception. The completion of this $1.5 billion project is a great boost to Marathon, the operator and 60% equity holder...

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