* Dropping Queensland export project could save $5 billion-analysts
* New Shell CEO could choose to tap into nearby BG plantinstead
* U.S. shale gas expansion threatens LNG projects worldwide
By Andrew Callus
LONDON, Nov 12 (Reuters) - The Arrow gas export project inAustralia is a likely casualty of a tighter spending regime atRoyal Dutch/Shell as the company's new boss considersfeeding output earmarked for it into a rival plant instead.
Industry sources say the move could be among the firstactions of Ben van Beurden. He inherits a recent promise toinvest with care when he takes over as chief executive on Jan.1, and is due to outline his strategy on March 13.
"We will need to make some hard choices over the next fewquarters between the best new investment opportunities from thisemerging portfolio.... This is as much about what we choose notto do as what we choose to do," chief financial officer SimonHenry said at Shell's Oct. 31 presentation of quarterly results.
The world's top international oil companies are underpressure to keep a lid on spending, whose growth has outpacedproduction and profits in recent years.
Shell is spending more than $40 billion a year and is seenas among the least willing to rein in its investment plans.Analysts say it could save about $5 billion by cancelling ArrowLNG based on a rough $10 billion building cost estimate for theplant, which would be shared equally with partner PetroChina.
"Anything due for FID (a final investment decision) in thenext couple of years is in the front line, and Arrow iscertainly one to kick into the long grass," said a source withknowledge of Shell's decision-making set-up.
Another source, who has worked with Shell but did not knowwhether any decision has already been taken, said a likelyalternative might be to feed gas from Arrow's Surat and Bowenbasin fields in Queensland into BG Group's QCLNG gasexport plant, some 15 kilometres from Arrow's own planned site.
QCLNG expects its first Liquefied Natural Gas (LNG) tankerto sail in the second half of next year.
Diversion of Arrow's gas could be achieved as a tollingagreement, under which Shell contracts BG or another nearbyplant to liquefy its gas, one source said. But analysts notethat BG already has enough gas for its two-train QCLNG plant so,as part of any deal, Shell might consider taking a stake in athird train BG has among its future potential investments.
Shell and BG both declined to comment. BG earlier this weekfinalised a deal that secures it some QCLNG financing from itsChinese partner CNOOC.
NEW GENERATION
Arrow Energy is one of a new generation of LNG schemes inAustralia's north east that are fed from Queensland coal seamgas (CSG) and piped to liquefaction plants at the coast.
Three liquefaction plants, QCLNG, GLNG, and APLNG, arealready under construction adjacent to each other on CurtisIsland to receive the CSG, and industry experts, critical of alack of co-operation, have questioned the economics of a fourth.
Local conditions are not the only consideration. LNG projectmanagers worldwide are hesitating as U.S. shale gas threatenstheir market. No liquefaction projects outside the United Stateshave won FID for almost two years.
GLNG is being developed by Australian group Santos and Malaysian state group Petronas, while APLNG is a jointventure of ConocoPhillips and Australia's Origin Energy. Shell's Arrow would be a fourth plant on the islandand a fifth, Liquefied Natural Gas Ltd's Gladstone LNG,is also under consideration.
The concentration of LNG engineering efforts both in thisregion and in the country's northwest has ramped up industrycost inflation - even though this year's mining slump has cooled the pressure somewhat.
Questions have also been raised about whether there will beenough gas to supply all the projects over the long term.
A year ago, Shell was already citing cost overruns elsewherein Australian LNG, and saying there was "no rush" to take FID onArrow. In February, CEO Peter Voser said Abadi, a floating LNGproject in Indonesia where Japan's Inpex is theoperator, "may well be Shell's next LNG project".
Arrow was not mentioned at all in Shell's October thirdquarter results presentation to investors and analysts.
"Arrow has been developing its upstream gas reserves with aview either to construct its own LNG facility or to sell the gasinto one of the three existing projects. If it chose the latteroption, it wouldn't come as a big surprise," said analyst NeillMorton of Investec. "...Any resulting capex savings would likelybe taken positively."
Despite all the doubts, LNG in Australia, coupled with itsGas to Liquids (GTL) developments, remain a big and lucrativepart of Shell's business.
LNG and GTL earned Shell $9 billion in 2012, 40 percent ofits bottom line. Australian LNG coming on stream in the years upto 2017 will increase its LNG capacity there by 30 percent and afurther 20 million tonnes a year "under study" - including Arrow- could add a further 70 percent after 2017.
