Shell to fire Arrow into the “long grass”

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From Reuters comes news that Australia’s LNG boom is likely over:

Industry sources say the move could be among the first actions of Ben van Beurden. He inherits a recent promise to invest 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 few quarters between the best new investment opportunities from this emerging portfolio…. This is as much about what we choose not to do as what we choose to do,” chief financial officer Simon Henry said at Shell’s Oct. 31 presentation of quarterly results.

…Shell is spending more than $40 billion a year and is seen as among the least willing to rein in its investment plans. Analysts say it could save about $5 billion by cancelling Arrow LNG based on a rough $10 billion building cost estimate for the plant, which would be shared equally with partner PetroChina.

“Anything due for FID (a final investment decision) in the next couple of years is in the front line, and Arrow is certainly one to kick into the long grass,” said a source with knowledge of Shell’s decision-making set-up.

Another source, who has worked with Shell but did not know whether any decision has already been taken, said a likely alternative might be to feed gas from Arrow’s Surat and Bowen basin fields in Queensland into BG Group’s QCLNG gas export plant, some 15 kilometres from Arrow’s own planned site.

…Diversion of Arrow’s gas could be achieved as a tolling agreement, under which Shell contracts BG or another nearby plant to liquefy its gas, one source said. But analysts note that BG already has enough gas for its two-train QCLNG plant so, as part of any deal, Shell might consider taking a stake in a third train BG has among its future potential investments.