UPDATE: Inpex Gets Environmental Nod For Australia LNG Project

Australia on Tuesday conditionally approved construction of Inpex Corp.'s (1605.TO) multibillion dollar Ichthys gas export joint venture, moving it closer to providing Japan with alternative fuels in the wake of its nuclear power crisis.

Inpex and minority joint venture partner Total SA (TOT) this month agreed to sell gas from the Ichthys field, located off Australia's northwestern coast, to companies in Japan and Taiwan, and said they are close to finalizing agreements with another five Japanese utilities.

Apart from crippling Japan's Fukushima Daiichi nuclear facility and shutting down several more there, the country's devastating March 11 earthquake and tsunami has tainted nuclear power's worldwide appeal. Germany last month said it would close all of its reactors and other countries have suspended plans for new reactor construction pending safety reviews.

Liquefied natural gas, or LNG, which is natural gas supercooled to liquid form and exported around the world on tankers, is less emissions-intensive than other fossil fuels, including coal. It is also cheaper to produce and more reliable than renewable energy such as solar power.

Interest is particularly strong among Asian nations such as Japan and South Korea, whose domestic fossil fuel supplies are low, and China and India, where rapidly developing economies are creating a growing need for clean fuel.

Australia's vast gas reserves, stable political environment and proximity to Asia have attracted billions of dollars of investment from international energy companies including Chevron Corp. (XOM) and Royal Dutch Shell PLC (RDSB.LN). Close to a dozen terminals are slated for Australia's coastline, potentially placing it above Qatar as the world's biggest LNG exporter by the end of the decade.

Inpex and Total have been targeting a late-2011 sign-off for construction of an export terminal in Darwin capable of producing 8.4 million metric tons of LNG each year, with the first cargo slated to be shipped from late 2016.

In 2008, Inpex estimated that Ichthys would cost US$20 billion to build, but this is likely to be revised higher when the company sanctions its construction later this year.

Like its rivals, Ichthys faces development risks.

Recent go-aheads for several rival developments are pushing up demand for labor, sparking warnings from analysts of potential delays and cost overruns.

The risk was demonstrated by Woodside Petroleum Ltd. (WPL.AU) this month when it announced a six-month delay and A$900 million cost blowout at its flagship Pluto LNG project in Western Australia state.

Citigroup estimates Ichthys will cost US$32.5 billion to build, making it the most expensive LNG project in Australia per ton of LNG output, mainly because of its isolated location and the 885 kilometer pipeline that will need to be constructed from the gas field to Darwin.

Despite this, the broker said the project's economics are saved by its high liquids content. Ichthys is expected to produce 100,000 barrels of condensate per day at peak production and 1.6 million tons of liquid petroleum gas each year.

Its progress may be negative for other Australian LNG projects including Woodside's proposed Browse development, which, like Ichthys, is also located in the remote Browse Basin, Citigroup analyst Mark Greenwood said.

It will highlight Browse's high cost and suck up resources. "Ichthys is an enormous project that will add further cost and schedule pressure to Australian LNG projects being constructed in parallel," he said.

Inpex must outline a strategy for mitigating or offsetting the impact of carbon dioxide emissions from the project among other environmental conditions.

Dredging and soil disposal, for example, must be conducted to protect marine life, including dolphins, dugongs and turtles.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [e-mail]