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* State wants floating LNG supply base onshore in WestAustralia
* State wants some gas reserved for use onshore
* Floating LNG plan key to cut costs on $45 bln project (Adds state premier's comments, Woodside view)
MELBOURNE, April 7 (Reuters) - The Western Australiangovernment said it will only renew two leases in the Browse LNGdevelopment if the partners set up a supply base onshore in thestate and set aside some gas for industrial use in the state.
The Browse LNG partners, led by Woodside Petroleum,disappointed the state government last year by scrapping plansto build a liquefied natural gas plant onshore, where the statewanted it, and opting instead to pursue a floating LNG projectto cut costs.
The project, previously estimated at $45 billion, would addto $200 billion in gas projects under construction in Australia.
"We accept the realism that this will be developed asfloating LNG," Barnett said on Monday at an industry conference.
Woodside and its partners Royal Dutch/Shell, BP Plc, PetroChina, Mitsui & Co andMitsubishi Corp, aim to make a final investmentdecision on a floating project in 2015, but several hurdlesremain.
"At this stage there is no alignment between the jointventure nor is there alignment between the state and federalgovernments," Barnett said, but he was optimistic that theissues could be resolved.
About half the gas in Browse is in the two leases owned bythe state, while the rest of the gas is in seven leases owned bythe Australian government, Barnett said.
However Woodside has said that only 5 percent of the gas forthe project is in the state leases, suggesting that the partnersmay be willing to relinquish those leases if they don't want tomeet the state's conditions set out on Monday.
"I'm sure those issues will be worked out one way oranother," Barnett said at the conference. (Reporting by Sonali Paul; Editing by Richard Pullin)
