By Robb M. Stewart

MELBOURNE, Australia-ConocoPhillips has launched a study to determine if there is a business case for a multibillion-dollar expansion of its gas-export operation in Australia's far north.

Backed by companies with undeveloped natural-gas resources in the region, the U.S. energy giant said it will consider whether development costs that had led to budget blowouts and delays at rival liquefied-natural-gas projects around the country in recent years had fallen.

It also will examine different types of processing arrangements that could support buildinga second production line at the Darwin LNG project.

It marks a potential shift for Conoco, which has mulled a second "train" at the Darwin LNG facility for a number of years but as recently as February said its focus was on developing new resources to maintain output from the existing line when gas from the Bayu-Undan field in the Timor Sea begins to dry up in the coming years. It also comes amid concerns over a jump in domestic gas prices in eastern Australia and fears of a looming supply shortage that the government has described as a crisis.

"The industry is now needing to move forward in a low-price, high-cost environment," a spokesman for Conoco said, adding there was an advantage in being able to use existing operations such as Darwin LNG.

There also was now a desire in the industry to collaborate and to develop resources differently, he said.

In operation since 2006, Darwin LNG has a production capacity of 3.7 million metric tons a year but has permits to expand output to 10 million tons. Owned by Conoco and partners including Australia's Santos Ltd. (STO.AU) and Japan's Inpex Corp., it brings in gas via a 312 mile (502 km) pipeline to the plant at Wickham Point in Northern Territory, where it is converted into liquefied natural gas for sale to customers in Japan.

In a statement, the government of Northern Territory said it would contribute 40% of the cost of the feasibility study, or A$250 million (US$189 million), due to be completed this year. The remainder would be funded by Conoco and owners in five gas fields to the west and north, Royal Dutch Shell PLC (RDSA), Malaysia's Petroliam Nasional Bhd., Italy's ENI SpA, and Australia's Santos and Origin Energy Ltd. (ORG.AU).

Northern Territory's Chief Minister Michael Gunner said a second train would be a multibillion dollar investment that would mean thousands of jobs for the region. The first production line created about 2,500 jobs during construction and, in operation, supports more than 250 local jobs and, on average, provides about A$100 million a year in supply and service business, he said.

Conoco is already studying developing its Caldita-Barossa assets in the Timor Sea hundreds of miles northwest of Northern Territory as "backfill" for the Darwin LNG operation, which it has estimated could cost A$10 billion. The findings from the new feasibility study would be shared with the various partners, who will decide individually how they would use the information, the Conoco spokesman said.

Due to the distances from Australia's north to more densely populated markets in the southeast and with no connecting pipeline, development of gas resources in the region has focused largely on the LNG export market rather than domestic customers. Northern Territory's government has proposed connecting the remote north with eastern Queensland and in late 2015 it selected an energy company backed by State Grid Corp. of China and Singapore Power to build an A$800 million pipeline.

In mid-March, Prime Minister Malcolm Turnbull secured a commitment from Origin, Shell and other east-coast gas producers to supply enough gas to meet growing local demand and prevent a domestic shortage. After a second meeting with companies on Wednesday, Mr. Turnbull said the companies behind big LNG operations on Queensland's coast hadn't yet"clearly articulated how Australian households and business will get adequate supply at reasonable prices."

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April 19, 2017 07:37 ET (11:37 GMT)

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