CSG, Markets, Technology

A field of dreams: Gladstone LNG

Queensland holds a huge resource of coal seam gas (CSG), supplying 70 per cent of the gas market in the state. And the resource keeps growing – from the 2006-07 year, production of CSG grew from 86 petajoules (PJ) to 125 PJ in 2007-08.

In addition, international interest in Queensland gas reserves has been phenomenal over the past year, with major overseas companies acquiring interests in east coast CSG to LNG projects.

Woodside Petroleum Managing Director Don Voelte has said “As nations respond to concerns about climate change, LNG has become the fuel of choice for countries without sufficient domestic gas resources, and those who are seeking to transition from less cleaner fuels. Using common energy distribution and conversion technologies, the life cycle emissions from natural gas are about 50 to 60 per cent of conventional fossil fuels.”?

But how many of the proposed CSG to LNG projects will get off the ground? And how much LNG will end up being produced in Gladstone? Many factors need to be taken into consideration.

The projects

Currently, there are seven proposed LNG projects to be located in Gladstone, each at different stages of development.

Queensland Curtis LNG Project

In February 2008, Queensland Gas Company (QGC) signed an agreement to establish an alliance with BG Group to co-operate in the exploration and development of QGC’s CSG reserves for the Queensland Curtis LNG Project. The $12-14 billion project is set to have an initial 3-4 million tonne per annum (MMt/a) LNG train, with an ultimate capacity of 12 MMt/a as reserves become available. The project will include a
380 kilometre pipeline from QGC’s Surat Basin tenements to a port site on Curtis Island and construction of an LNG plant.

Front-end engineering and design (FEED) has commenced, with procurement and construction planned to follow a final investment decision (FID) on the project, scheduled for early 2010.

Gladstone LNG (GLNG) Project

Santos and Petronas have agreed to jointly develop the $5-7 billion Gladstone LNG Project (GLNG). The project comprises a 3-4 MMt/a LNG processing train and associated infrastructure, including the construction of a 450 km pipeline linking a compressor station to the liquefaction plant. FID is expected by the end of this year, and first LNG cargoes are expected early in 2014.

Gladstone “˜Fisherman’s Landing’ LNG Project

LNG Ltd has proposed the Gladstone “˜Fisherman’s Landing’ LNG Project, which will have an initial design capacity of 1.5 MMt/a of LNG with the provision for expansion of up to 3 MMt/a, subject to the availability of additional gas. The plant will source gas from Arrow Energy’s Moranbah Gas Processing Plant via Arrow and AGL Energy’s proposed Central Queensland Gas Pipeline.

Arrow CSG to LNG Project

Arrow is also planning a CSG to LNG Project with Shell. The company has said that by 2012, it will have enough proved and probable reserves to supply a potential 3 MMt/a LNG train, and then add sufficient reserves for new 3 MMt/a trains every four years thereafter.

Australian Pacific LNG Project

Joint venture partners Origin Energy and ConocoPhillips are developing the Australian Pacific LNG Project, which will utilise Origin’s Queensland CSG reserves and resources. The project will have up to four trains with a total capacity of 14-16 MMt/a of LNG. The project is set to commence FEED this year. Following this, FID is expected for the project’s first LNG train in late 2010, with the possibility of simultaneous FID on the second train.

Other Gladstone LNG possibilities

Energy World Corporation (EWC) has plans to establish 1-5 MMt/a LNG plants in Queensland at Abbot Point and Hay Point to exploit gas reserves located in ATP 549 and the Gilmore Gas Field in petroleum licence 65 in the Eromanga Basin. The target date for LNG productions from the facilities is 2012 or earlier if the required licences and permits can be obtained on a priority basis.

Meanwhile, Canadian-based LNG Impel has said that it is continuing discussions with interested producers and gas suppliers for its proposed
$3-5 billion Southern Cross LNG Project. The project is set to move toward commencing environmental permits once certain volumes of gas have been finalised. LNG Impel is yet to release the number of trains to be developed or capacity of the LNG plant.

How much LNG?

With the above projects on the drawing board, the future of Queensland’s gas industry is promising. However, the proposals are many and large, and speculation has occurred not only over how many projects will develop, but how many LNG trains will end up developing in the state.

Queensland Department of Infrastructure and Planning Executive Director of LNG Mal Hellmuth says “What we’re seeing in Gladstone is the possibility of around 14 LNG trains of varying sizes.

“At present, if we look at what many industry groups are saying, perhaps between 10 and 15 MMt/a would be ideal. If that would happen, that equates to about 3-5 trains. That would be a starting point for Queensland.”?

Arrow Chief Executive Officer Shaun Scott believes it is a logistical issue.

“The issue really is just one of logistics, whether it’s feasible to build it all at the same time or not.

“I suspect that what’s going to happen is that it’s not going to be sensible for all these independent projects to continue on, and there will be some process of collaboration at various levels. And I think there’s a fairly significant savings pool that’s available to everyone and certainly a risk reward equation that’s much better.”?

Some company consolidation has already occurred surrounding those involved in the state’s CSG sector. Sunshine Gas’ Project SUN LNG, a joint venture with Sojitz Corporation, has folded following Sunshine’s takeover by QGC. QGC was then taken over by its joint venture partner BG. The reserves for the project are now going toward the BG/QGC Curtis LNG Project.

Regardless of the amount of collaboration that occurs between companies, Mr Scott believes the same amount of LNG will be processed. “The same capacity will be developed, it will just be staged differently; probably over a longer period of time.”?

EnergyQuest Chief Executive Officer Graeme Bethune and Eastern Star Gas Chief Commercial Officer Roland Sleeman agree, saying that when considering how many LNG trains could be developed at Gladstone, a timeframe must be taken into consideration.

In his presentation at the FutureGAS 2009 Conference & Exhibition, Dr Bethune noted that, in recent years, one LNG train has been developed in Australia every two years.

Economic and regulatory environment

Dr Bethune told Gas Today that the current economic climate needed to be taken into account when looking at the future of Australia’s gas export market. “I think we’ve already seen a reducing energy demand in Asia, so that will make it harder to sell our gas offshore, the total LNG market isn’t likely to grow as quickly as it would have otherwise.”?

He says that, from this point of view, Australia has to be as competitive as it can and as efficient as possible because the more streamlined the regulatory process for these types of projects, the better.

“Australia is a high cost kind of place to build so the more we can facilitate the development in an environmentally responsible way and keep costs down and all those kinds of things, the better. Because it’s not just Australia; we’re competing with Papua New Guinea, Indonesia, Malaysia, Brunei,”? says Dr Bethune.

In the past Mr Voelte has agreed stating that, if the expansion of the LNG industry goes ahead as planned, supply would outstrip demand in eight years. However, he cites escalating construction costs, a lack of skilled personnel and rising political uncertainty as deferring much of this production to later timeframes.

Santos Chief Executive Officer David Knox declared on a recent ABC broadcasting of Inside Business that there is enough customer interest in LNG for the many proposed Gladstone LNG projects to go ahead, despite the recent downturn in oil prices.

“Negotiating the current environment is much tougher than it was a year ago, but the buyers know the fundamentals, they know they need the LNG, so negotiations are proceeding,”? said Mr Knox.

Government initiatives

Certainly, the Queensland Government is fostering an environment conducive to bringing these projects to fruition. It has created a Common-user Infrastructure Working Group, which involves any company that is going to build on Curtis Island, providing the opportunity to share knowledge and look at more economic ways of developing potential projects.

The Government has also acquired land for the extension of the Gladstone State Development Area (GSDA).

“We’ve put in place infrastructure planning; we have some corridors through the GSDA to accommodate pipelines,”? says Mr Hellmuth. “We’ve done work on the best options from using road to sea transport to access the plants; and we’ve gone to the broader corridors, such as the corridor from Gladstone to the Surat, to look at how those corridors could be best set up to service the industry.”?

The Queensland Government has also said that it will build a “˜gas super highway’ from the Callide Range through to Gladstone, which would mean that the Government would acquire the land necessary for pipelines for the LNG industry in the future, simplifying the activity that companies would have to undertake.

Pricing, delivery, LNG

There are many factors that may influence the amount of LNG trains developed in Gladstone, including economic and regulatory factors, and the timeframe that projects are expected to be developed in.

Dr Bethune says that LNG is a definite “˜blue sky’ opportunity for the gas industry, with Australia set to export as much gas as is used domestically. “The industry could be many times larger in 20 years than it is now with the right kind of environment,”? he says.

Mr Hellmuth says “When I look at what is in store for the gas industry, it seems that gas is going to be an ideal transition fuel [as opposed to] coal-fired electricity generation. Much lower emissions and, certainly in Queensland from what we’ve seen so far, an abundant supply.

“If we get the pricing right, and the delivery of the gas right and LNG right, we will build a very solid future from it,”? he says.

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