By Charlie Zhu
HONG KONG, Aug 27 (Reuters) - Australia's Arrow LNG, a jointventure between Royal Dutch Shell and PetroChina, is looking at an option of building on a rival's LNGsite to restart its own stalled gas export plans, a source closeto the situation said.
The option could surprise some in Australia's liquefiednatural gas industry, given spiralling cost pressures faced bymost projects. Estimated costs on Arrow's own stalled projecthave jumped around 40 percent to as much as $36 billion.
Arrow has held talks with Origin Energy to use thesite previously reserved for the expansion of Origin's A$24.7billion ($23.8 billion) plant under construction on easternAustralia's Curtis Island, said the source.
Arrow preferred to build an integrated project, with bothcoal seam gas production and liquefaction facilities under itscontrol, at least for now, said the source.
"Arrow is looking at it as an option. It is in contact withthem (Origin)," said the source, who asked not to be identifiedas he was not authorised to speak to the media about the matter.
Industry watchers had anticipated that any cooperation would involve Arrow selling its gas to Origin for processing atits plant, but the source said there were "no seriousdiscussions" on gas sales underway.
The option of selling gas and avoiding building amulti-billion dollar LNG plant has been considered a favouredstrategy for shareholders as it would maximise returns in theshort term.
The advantage of using Origin's site to build its ownliquefaction plant is that it would help Arrow save money andtime, the source said. Arrow has not yet won environmentalapproval for its liquefaction project, while Origin has.
Origin has approval for four LNG trains or small processingunits, but only two are under construction. Origin might scrapplans for an expansion to four trains, the source said.
Shell and PetroChina have declined comment on anydevelopment plans, although the Chinese company, in its interimresults briefing in Hong Kong last week, signalled it does notintend to give up on the eastern Australia development.
PetroChina said it would "push forwardresource upgrade of overseas unconventional projects, includingAustralia's Arrow, and shale gas and oil sands projects inCanada."
ORIGIN WILLING TO COLLABORATE
Origin Chief Executive Grant King said in a televisedinterview with the Australian Financial Review in May thatOrigin was offering Arrow LNG the opportunity to collaborate onthe expansion of its plant under construction as an alternativeto building its own LNG plant.
"Ultimately, it's a matter for Arrow, and as I understandit, they're still going through their consenting process," Kingtold reporters in an earnings briefing on Thursday.
Arrow is one of four ventures on Australia's east coast,including Origin's Australia Pacific LNG, that plan to pump coalseam gas and convert it into LNG - a super-cooled form ofnatural gas that can be shipped in specialized tankers.
Arrow will delay its final investment decision (FID) on itsown project to mid-2014, the source said, adding that Shell andPetroChina still needed to approve any postponement.
The partners were also looking at whether Australia mightease environmental and labour restrictions on the LNG industryafter a Federal election next month, the source said.
Shell would not give a timeline for final investment, but ithas previously said it was considering pushing back a decisionfrom late 2013 into 2014, according to media reports.
