Prospective Australian LNG exporters are scrambling for an early place in line for an anticipated upswing in Asia-Pacific LNG demand early next decade. But success is not guaranteed. A number of planned backfill and brownfield expansion concepts depend on industry collaboration to keep costs down.
“The timing is right, but the timing is tight and we cannot do it on our own. We need regulators, government and the supply chain to work with us,” says Niall Myles, senior vice-president for the North West Shelf and Barrup at Australian independent Woodside.
The window of opportunity may be opened partially by rising trade tensions between China and the United States, which could slow the development of a tsunami of low-priced US LNG export projects by limiting their attractiveness to supply-hungry Chinese buyers. A predicted surge in gas demand across the Asian region, as countries switch from coal to gas use on the back of clean-air policies and tap imports to offset declining indigenous gas production is another driver.
Global LNG demand will grow by 75pc from 210mn t in 2017 to 368mn t by 2035, requiring around 65mn t/yr of new supply by 2025, according to consultancy Wood Mackenzie. With up to 150mn t/yr of projects potentially looking for a green light over the next two years, the race is on to secure first-mover advantage.
“Australia is in a pretty good position to tackle the LNG supply shortfall which will widen in the 2022-23 timeframe,” says Wood Mackenzie’s Australasia upstream research analyst David Low.
Australia has plentiful gas resources and is geographically well placed to help satisfy Asia’s demand needs. But success depends on the industry working together and cutting development costs to compete with export projects being mulled in Qatar, Mozambique and Russia, amongst others.
In a country where local staff expect optimal working conditions and projects are located in remote areas, this is no easy target. All of Australia’s seven newly-minted LNG export projects missed original capital costs forecasts as developers competed with each other for labour and service providers during a once-in-a-generation LNG boom. As a result, liquefaction facilities such as Gorgon and Ichthys are placed among the highest on the cost curve globally, with years to go before capex is paid off.
Project promoters are now taking a different approach. Collaboration is the buzzword in the Australian resources sector as speed and cost of delivery become paramount to compete for the next wave of LNG demand.
Australia has a number of options around LNG backfill and brownfield expansions. Operators are vying to sanction front-end engineering and design (FEED) studies to support timely developments. Almost all of them are predicated on industry collaboration in the form of infrastructure-sharing, and compromise around development concepts and the timing of start-ups.
Woodside and US independent ConocoPhillips-respective operators of the 29-year-old North West Shelf (NWS) project in Western Australia and the 12-year-old Darwin LNG facility, in the Northern Territory, the country’s two oldest liquefaction facilities, with capex costs long paid off-aim to extend the economic lives of these units. Other plans include doubling liquefaction capacity at Chevron’s recently-commissioned Wheatstone LNG plant and adding new feed gas supply to maximise production at Woodside’s Pluto LNG.
Wood Mackenzie says projects looking to backfill have the most to gain, given the comparatively small capex required. ConocoPhillips proposes to sustain Darwin LNG’s 3.7mn-t/y export capacity for longer with additional supply from the Barossa and smaller Caldita fields in the Bonaparte Basin to replace depleting volumes from Bayu-Undan in the Timor Sea.
Conoco and its partners aim to launch a FEED study on the Barossa-Caldita project before the end of the year, with final investment decision (FID) targeted for 2019-20. Even if this ambitious timeframe slips, Darwin LNG should remain a competitively-priced LNG supplier into Asia at a time when the market is expected to tighten.
Two backfill concepts are jockeying for priority at NWS, owned equally by joint-venture partners Woodside, Australia’s BHP, BP, Chevron, Shell and Japan’s Mimi (Mitsui & Mitsubishi).
Chevron aims to route its 3.5tn ft³ Clio-Acme discovery back to the Pluto facility, potentially sharing a pipeline with Woodside’s Scarborough field, and then on via a proposed onshore link to the NWS processing plant at Karratha. Projected Clio-Acme capacity would fill most of the expected short-to-medium-term ullage at NWS.
The second concept-supported by Woodside as part of its wider Barrup Peninsula LNG hub concept-would see gas piped from the firm’s Torosa, Brecknock and Calliance reserves in the Browse Basin, which are estimated to hold gross 2C resources of 15.4tn ft³ of dry gas and 453mn bl of condensate. But the Browse development and tolling concept is complex and could take until 2026-27 to be realised, making it more likely that Clio-Acme is brought on stream to backfill the 16.3mn t/yr NWS facility first, says Wood Mackenzie.
Brownfield expansion projects sit alongside backfill concepts. These include doubling capacity at Woodside’s Pluto facility by adding a second 4.7mn-t/y train, FID on which is targeted for 2019-20. Given new LNG trains in Australia typically take four years to be completed, this could see first gas from Pluto T2 hitting the market around 2024-25.
The Scarborough field would be the primary supply source for Pluto’s expansion, via a 430km pipeline running close to undeveloped fields in the Carnarvon Basin. The project would create future opportunities for third parties to tie-in discoveries too small to warrant stand-alone development, and link to Woodside’s Barrup Hub concept, which envisages the use of LNG as a low-sulphur marine fuel and potential small-scale LNG demand from remote onshore communities and mine sites.
Chevron’s Wheatstone LNG, which is operating above nameplate capacity, could also look at expansion. But whatever concepts move forward quickest, a recent memorandum of understanding (MoU) between Woodside, Chevron, the other NWS partners and the Browse JV partners “is a sign companies are willing to collaborate,” says Wood Mackenzie’s Low.
And there are indications that regulators and state governments are waking up to the need to create a more hospitable environment for LNG firms if Australia wants to keep reaping the long-term economic advantages of resource exports.
In March 2018, the Australian competition and consumer commission gave the green light to Chevron, Japan’s Inpex, Shell and Woodside to coordinate maintenance activities in Western Australia and the Northern Territory. During the LNG boom years, companies worked in silos and bore development cost alone, contributing to the cost blow-outs. This co-operation represents a significant shift in thinking.