Nippon signs up for Gorgon gas

The Australian
Friday 8/1/2010 Page: 16

Nippon Oil, Japan's biggest refiner, has signed an initial agreement to buy liquefied natural gas from Chevron and may spend about V50 billion ($585 million) to build an import terminal. The Tokyo-based refiner says it plans to purchase about 300,000 metric tons of LNG annually, starting in 2015, from the Chevron-led Gorgon project. Fuel from the $43bn project is to be delivered to the planned terminal in Aomori, northern Japan, which will have two 140,000-kilolitre tanks.

The supply accord highlights Nippon Oil's efforts to diversify from its conventional refining business. Demand for diesel and other fuels has fallen as customers, especially industrial users, have switched to cleaner burning gas. Japan, the world's fourth largest energy user, has pledged to slash emissions of greenhouse gases by 25% from 1990 levels by 2020. "If there's enough demand in northern Japan, we can import an additional300,000 tons, or thereabouts," gas business department general manager Masami Hayashi said in Tokyo. "Gas demand in northern Japan is strong and we'll make the terminal a hub to supply the area."

Nippon Oil has yet to consider a source for the additional LNG, Mr Hayashi said. Chevron Asia-Pacific exploration and production president Jim BlackWell said: "We look forward to supplying Nippon Oil with LNG from the Gorgon project for many years." Construction of the Gorgon project has begun, with the first gas slated for 2014. Chevron, the operator of the project with an interest of about 47%, last month signed an off take agreement with Japan's Chubu Electric for 1.44 million tonnes of LNG from the project annually for 25 years.

Other deals have been sealed with Osaka Gas, Tokyo Gas and GS Caltex, while an initial agreement has been signed to sell LNG from the project to Korea Gas Corporation. The initial project development will involve a three processing train, 15 million tonne per annum LNG facility and a domestic gas plant. Gorgon is believed to hold 40 trillion cubic feet of LNG, 25% of Australia's known gas reserves.

Nippon Oil was planning to construct a smaller LNG terminal in Kushiro, Hokkaido, the most northern island of Japan's four main Islands, Mr Hayashi said. Details including the building schedule and investment had not been determined, he said. The Kushiro terminal, which Nippon Oil planned to build with Hokkaido Gas, would receive smaller LNG shipments, Mr Hayashi said.