The next couple of months will be critical for a pair of significant liquefied natural gas (LNG) projects at opposite ends of the earth.

By July, front-end engineering and design (FEED) work is to begin on the 9.2 Tcf Greater Sunrise gas and condensate project in the Timor Sea off northern Australia. First production is targeted for 2007.
Field partners, however, recently had a very public falling-out over the direction the project should take. One, Phillips Petroleum, appears to be isolated in its belief that LNG should be used for Australian domestic markets.
"We favor a domestic development option, as it has the potential to provide greater benefits for all parties involved with less risks to the co-venturers," Phillips Australia President Stephen Brand has said.
Phillips, which has a 30% stake in the field, said it had started preliminary talks with potential gas customers in the Northern Territory and eastern and southeastern Australia about selling production equal to the reserves in the Greater Sunrise area, which comprises the Sunrise, Sunset and Troubadour fields.
Significantly, one of the other partners, Shell, wants to break a new technological barrier to develop the field as the world's first floating LNG (FLNG) project.
The future of Greater Sunrise appears to depend on whether the other field partners - Australia's Woodside Petroleum and Osaka Gas of Japan - can persuade Phillips that an FLNG solution is the best economic option for the reserves.
Meanwhile, in northern Norway, a debate is simmering about the future of the Snøhvit (Snow White) gas field and LNG development. The project is mired in a dispute with the European Union over special tax breaks created for the scheme. Project operator Statoil has set deadlines for resolution of the tax issue so that it can confirm LNG sales contracts and tanker deals.
El Paso Energy is starting to pressure the Snøhvit LNG project partners too, urging a resolution of the tax issue soon. Otherwise, El Paso, which wants Snøhvit LNG for markets in the United States, has threatened to abandon the Norwegian project and look elsewhere for gas.
El Paso, which has a 17-year deal with Statoil to take 1.7 million tonnes of Snøhvit LNG, plans to take its share of production to Florida. It intends to ship the LNG from northern Norway to a terminal at South Riding Point on Grand Bahama Island. From there, the LNG would be regasified and put into a US $170 million, 130-mile (209-km) pipeline to West Palm Beach, Fla., at a rate of 800 MMcf/d of gas.
Clearly the path toward development for these two schemes does not run smoothly.
Charles Goode, chairman of Australia's Woodside Petroleum, which operates Greater Sunrise, spoke about the prospects for the project in an address to shareholders. "Recently, Woodside and Shell were joined by Osaka Gas in agreeing that floating LNG is the only commercially viable development option for these remote gas reserves. Osaka Gas has formally indicated its support for the sale of Sunrise gas to the proposed Shell majority-owned LNG facility. Osaka Gas has also confirmed its intention, subject to agreement on terms, to purchase 500,000 tonnes of LNG per annum from the facility for supply to Japan. This is in addition to the 4.5 million tonnes per annum of LNG that Shell intends to purchase and supply to North American markets by delivering Sunrise LNG through its proposed regasification terminal on the Baja peninsula in Mexico."
Here then, was evidence that Greater Sunrise is viable only with a floating production facility. Shell has extensively tested the design for an FLNG system at the Marin research institute in the Netherlands and is well down the road toward that development solution.
Woodside Managing Director John Akehurst has been unequivocal in his view that Sunrise could go ahead without Phillips. After the Woodside shareholders meeting, he told reporters, "There is always the option that the three participants who are currently supporting the project can move forward with it in the absence of the fourth."
FEED work for an FLNG plant costing $97 million (A $180 million) is due to begin in July for Greater Sunrise, which would give partners a sanctionable project.
Design work could go ahead without Phillips, said Akehurst, but the others would prefer to avoid that. "What we would like to do is achieve commercial alignment prior to embarking on further major investment," Akehurst said.
Phillips has not endorsed FLNG, which Shell said would cost $2 billion less than an onshore plant. Instead, Phillips wants Sunrise gas exported from the Timor Sea via a pipeline more than 250 miles (400 km) long to an Australian onshore terminal at Darwin, from where gas could be sold domestically.
And political pressure is building for that solution. Claire Martin, chief minister for Australia's Northern Territories, said, "The resources of the Timor Sea belong to the Australian and East Timorese people. It is in the national interest that these resources be brought onshore for development and use."
Local wealth is at the core of that argument, and the same factors apply to Snøhvit, where an FLNG concept also is planned, offering the prospect of hundreds of construction jobs. In this instance, however, the LNG facilities are to be installed on a barge, floated to Hammerfest, in remote northern Norway, and placed dockside.
So like Greater Sunrise, Snøhvit is facing political and economic problems.
Unless and until the Snøhvit tax issue is resolved, about $11.3 billion worth of gas sales contracts that have been agreed by field partners are at risk. Other financial risks include land deals worth $79.5 million at the site of the proposed LNG plant at Melkøya, just outside Hammerfest, and $511 million worth of LNG carrier ship contracts. Overall, Snøhvit represents a $5.3 billion capital investment. The field was discovered in 1981 and is estimated to contain 10.59 Tcf of gas - slightly larger than Greater Sunrise.
Project operator Statoil has negotiated a special tax package with the Norwegian government whereby the offshore portion of the Snøhvit development will be subject to a 78% petroleum tax, but the onshore gas terminal and LNG plant will be taxed at 28%. Statoil argues that although this fiscal system produces lower tax contributions in the early years of the project and higher write-off allowances, overall tax contributions during the life of the development will be higher than if a single petroleum tax rate was applied to the project's onshore and offshore elements.
Europe's Free Trade Association is assessing the special Lex Snøvhit tax concessions via its European Surveillance Authorities (ESA) to see if they contravene existing EU anti-competitive rules.
Statoil wanted the tax issue resolved this past May in order to confirm the LNG sales deals and contracts for the construction of LNG tankers. At press time, neither request had been met.
Further complicating matters, El Paso filed a letter in April to Norway's Ministry of Oil and Energy seeking to persuade the government that the special Snøhvit tax package should not be a barrier to the project, despite the ESA investigation on behalf of the European Union into the tax regime. El Paso asked the Norwegian Ministry to make "reasonable efforts to satisfy the European Surveillance Authorities that the petroleum taxation act amendments are not impermissible state aid and that such action be taken as quickly as possible to avoid further delays."
The same letter also expressed El Paso's "great concern" about the time taken to approve the project.
Statoil has been piling on the pressure too, stressing that a deadline had to be met to settle the framework (tax) conditions to allow the project to proceed, as well as for the confirmation of the LNG sales contracts to El Paso and Iberdrola of Spain. In March it warned: "Failure to clarify the framework terms means that these partners cannot give final confirmation to the buyers and shipping companies within the deadline. Statoil is working for a postponement of the deadlines for the confirmation of the sales and shipping contracts."
More recently, Statoil set another deadline of April 15 for clarification of the tax issue to allow it to confirm the project. Further correspondence has followed between Oslo's Ministry of Trade and Finance and ESA. Statoil set a May deadline for settlement of the fiscal issues, and a great deal of money depends on the outcome.
Snøhvit involves construction of an offshore subsea development and an onshore gas reception terminal and LNG plant. The LNG plant is to be built on a huge steel barge 492 ft (150 m) long, 164 ft (50 m) wide and 30 ft (9 m) high, which will carry process topsides of between 25,000 and 30,000 tonnes. It will be equipped to produce 203 Bcf of LNG a year.
Once the plant is built, Statoil plans to float the barge into a prepared dry dock at Melkøya, just outside Hammerfest, and sink it into position. There it will become an integral part of the gas liquefaction and storage terminal. Additionally, four LNG tankers are due to be built for the project in the first phase. Offshore, development of Snøhvit involves eight subsea production wells and a carbon dioxide injection well. Drilling and completion of these wells is scheduled to take place in 2004 and 2005, with a production start by 2006. A further eight wells are planned in a second Snøhvit phase to tap the Askeladden reservoir during 2011 and 2012. A third phase will tap Albatross during 2018 and 2019 with a further five wells. Production from these wells will be carried to shore via a 66-mile (106-km), 27-in. export pipeline, for which an installation contract is due to be awarded by next year.