Royal Dutch Shell Plc (RDSA), the world's biggest liquefied natural gas supplier, may delay until 2014 a decision on its Arrow LNG venture that's forecast to cost $20 billion amid rising expenses for energy projects in Australia.

"We are in preparation of a potential final investment decision of that project somewhere in the 2013/14 time frame," Chief Executive Officer Peter Voser said in Beijing today.

Costs for LNG plants are surging in Australia as it moves to challenge Qatar as the world's biggest exporter of the fuel amid rising demand in Asia. Arrow Energy Ltd., owned by Shell and PetroChina Co. (857), said in March that it planned to decide in late 2013 whether to develop the LNG export project on Queensland state's Curtis Island.

"Cost inflation is showing in many different segments and that forces us to find other ways of constructing our projects, or taking final investment decisions at the right time or postponing," Voser said.

Energy companies in Australia are going ahead with seven LNG projects at a cost of about $180 billion even as rising construction expenses and competition threaten future developments. In addition to Shell, BG Group Plc (BG/), Santos Ltd. (STO) and ConocoPhillips (COP) are also developing LNG ventures on the coast of the northeastern Australian state.

Shell is examining plans to combine its Arrow gas resources with third parties, Andy Brown, director of international production, said Nov. 15. "With three projects under construction at Curtis Island, it makes sense to think about the best value solution for Shell, and get the timing of an LNG project right," he said.

Estimated Cost

Deutsche Bank AG has estimated that Arrow would cost more than $20 billion.

"We're certainly open to" collaborating with Arrow, Peter Cleary, vice president of strategy and corporate development at Santos, said today in an interview in Sydney. "It's in everyone's best interests to look at the efficient use of the footprint we've already got."

Gorgon LNG, another Australian project in which Shell has a 25 percent stake, is "progressing in accordance with our estimates," Voser said. Operator Chevron Corp. (CVX) is reviewing the cost of the A$43 billion ($45 billion) venture, which is 50 percent complete, according to Voser.

In 2009, Shell had assumed a higher budget "and a later start up schedule than the first gas in 2014 that was expected by the operator," Brown said last week. "Today, our cost estimates are higher again" and "we remain conservative on the start-up date."

Fourth Unit

Gorgon, approved by Chevron in 2009, may cost about A$50 billion, Deutsche Bank estimated in a Sept. 14 report.

The partners are reviewing a plan to build a fourth production unit at Gorgon after finding more than 40 trillion cubic feet of gas, Brown said. "That's a decision which could come in 2013 and we are taking on the learning from the base project first," he said.

Shell is devoting a "significant" portion of the more than $20 billion earmarked for investment in natural gas projects through 2015 to supply LNG to China, Voser said. Furthermore, it's in "exploratory discussions" on raising LNG deliveries into the country, he said, without giving details.

The Hague-based company may also increase its planned annual spending of about $1 billion on unconventional gas projects in the country, depending on exploration and test-well results and if Shell gets more acreage to drill, he said.

Very Promising

Gas resources in China are "very promising" and it's important to quantify those resources, Voser said. The country may hold 1,275 trillion cubic feet of "technically recoverable" shale gas, or 12 times the size of its conventional natural gas deposits, according to a U.S. Energy Information Administration report published in April. That's almost 50 percent more than the 862 trillion cubic feet held by the U.S., the EIA said.

Shell has partnered with China National Petroleum Corp., parent of PetroChina, on shale gas exploration at the Fushun- Yongchuan block in Sichuan province in western China. The schedule for commercial production will be determined in part by the outcome of a 15-well drilling program that will start at the end of the year or in early 2013, according to information e- mailed by Shell China's press office today.

"The pace of developments in China is going to continue in the same way," Voser said. "There will always be short to medium-term economic variations. We take a long-term view and we see a very strong development in the Chinese economy."