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Japan's JERA acquires 12.5% stake in Australia's Barossa gas field

Highlights

JERA increases its stake in Barossa from existing 6.1%

JERA will receive about 0.425 mil mt/year of LNG from project

Total consideration due to Santos around $300 mil

Japan's largest power generation company JERA has acquired a 12.5% stake in the Barossa/Caldita gas field in Australia through an equity purchase agreement with a subsidiary of Santos Ltd, the Japanese company said in a statement Dec. 8.

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JERA said the transaction, done through its subsidiary JERA Australia, is expected to be finalized after the necessary approvals, and will allow it to participate in the project that is developing backfill gas supply for Darwin LNG in Australia, as existing feedgas is set to expire in coming years.

"JERA will receive about 0.425 million mt/year of LNG from the project which is equivalent to its equity stake in the Barossa gas field," the company said.

"Because the Barossa gas field is medium-sized, and existing facilities such as the Darwin LNG project's liquefaction plant, an LNG storage tank, and jetty can be utilized, the project enables JERA to secure highly competitive LNG with extremely low development risk," JERA said.

Speaking to reporters, Gaku Takagi, JERA's executive officer and senior operating officer of business development department, said its equity lifting volume from the new project will have no destination restrictions but will be down from its current purchase of around 2 million mt/year of LNG from the Darwin project.

"It is considerably very difficult to foresee whether the [reduced] volume will be enough in the future at this moment," Takagi said of difficulty surrounding its LNG demand forecast because of expected boost of renewable energy among other factors.

JERA, however, is already in talks with other project partners such as Santos, which has an equity right to lift 1.7 million mt/year of LNG from its 50% stake in the new project, about a possibility of signing a supply contract should JERA faces greater LNG requirements, Takagi told an online press briefing.

After all related transactions, Barossa project stakeholders will be Santos (50% and operator), SK E&S (37.5%) and JERA (12.5%). Darwin LNG partners are Santos (43.4% and operator), SK E&S (25%), INPEX (11.4%), Eni (11%), JERA (6.1%) and Tokyo Gas (3.1%).

Market environment

Despite Japan's mature LNG market and long-term LNG contracts that are generally able to keep it well supplied with natural gas, some large importers like JERA have been signing up for new volumes to optimize their portfolios in the current market environment.

For instance, in November, JERA acquired a 25.7% stake in the Freeport LNG Development, under which it expects to get equity access to 820,000 mt/year of supply capacity from the US Freeport LNG project. Expanding equity stakes give investors access to gas supply without the hassle of long-term contracts.

Darwin LNG is supplied by the Bayu-Undan gas field, located in waters off Timor-Leste, and has been exporting LNG for around 15 years since production began in 2006. But with production at Bayu-Undan expected to end within a few years, the Barossa gas field is being tapped as an alternative upstream gas source.

Darwin LNG

Image courtesy of Darwin LNG

The Barossa gas field, located off Australia's Northern Territory, links to Darwin LNG by pipeline and is expected to start around 2025, JERA said, adding that securing a stable supply of competitive LNG, is becoming increasingly important.

"In addition, JERA will also work with its partners to study the development of zero-emission projects and to evaluate CCS projects. Through these initiatives, JERA will evaluate opportunities for the reduction of CO2 emissions from the [Barossa] project with the partners," it said.

"The effective date of the sale of the Barossa interest is March 31, 2020, and completion is expected in the first half of 2022. Upon completion, JERA will reimburse Santos for its share of capital expenditure on the project from the effective date to completion, with the total consideration due to Santos at completion expected to be approximately US$300 million," Santos said in a separate statement.

The Australian company said JERA is an existing partner in Darwin LNG with a 6.1% interest, and with Barossa taking a final investment decision in March 2021, the project is on schedule and would budget for first LNG in the first half of 2025.

"Santos is also progressing the carbon capture and storage opportunity at Bayu-Undan in the Timor Sea, which could provide a CCS hub for projects in the region, including Barossa," Santos CEO Kevin Gallagher said.