December 4, 2007 / 2:57 PM / 12 years ago

Exxon says rising costs risk derailing LNG boom

ROME, Dec 4 (Reuters) - A sharp surge in costs to develop liquefied natural gas projects risks halting a growth boom in the industry that has been driven by soaring demand, an Exxon Mobil Corp. (XOM.N) executive said on Tuesday.

Exxon, the world’s largest publicly traded oil and gas group, expects global demand for LNG to double by 2010 and quadruple by 2020, said Tom Cordano, president of Exxon’s LNG Market Development unit.

But a surge in project costs — largely in the past few years — could put the brakes on the bonanza for gas producers, he said.

“There is a cloud hanging over this very optimistic picture for the LNG business and it’s the cloud of project cost escalation,” Cordano told an LNG summit in Rome. “This is a very significant concern. It has the potential to really derail the great growth that we see coming along in our business.”

Cordano declined to specify how much LNG project costs had risen for Exxon, but said he did not dispute figures from research group CERA that estimated project costs had risen by 80 percent since 2000.

“We’re hopeful we’ve seen the worst of the price increases,” he said. “But we didn’t expect the dramatic spike in the last few years either.”

Still, advances in technology and the development of high-cost gas pipeline projects in the former Soviet Union and Russia mean that LNG may not always forever remain the more expensive option in delivering gas, he said.

“Historically pipeline gas was the inexpensive way to deliver natural gas and LNG the expensive way,” he said.

“That’s starting to change. These new pipeline supplies that are going to be coming onstream in the coming years are going to be far from inexpensive.” (Reporting by Deepa Babington; editing by James Jukwey)

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