The Australian Oil & Gas Review
COOKING WITH GAS
Australia will boost LNG production and kickstart new developments in 2018, driven by seemingly unstoppable demand from Asian economies.
THE International Energy Agency’s (IEA) World Energy Outlook 2017 has forecast liquefied natural gas (LNG) would account for almost 90 per cent of the projected growth in long-distance gas trade to 2040, with major contributions from US and Australian exports.
“80 per cent of the projected growth in gas demand takes place in developing economies, led by China, India and other countries in Asia, where much of the gas needs to be imported (and so transportation costs are significant) and infrastructure is often not yet in place,” the report stated.
“This reflects the fact that gas looks a good fit for policy priorities in this region, generating heat, power and mobility with fewer carbon-dioxide (CO2) and pollutant emissions than other fossil fuels, helping to address widespread concerns over air quality.”
In terms of new projects; Mr Martens said there were a number of major subsea developments, either as tie-backs to shore or to offshore facilities, underway in Australian waters.
Supply to meet demand – and a third train?
Independent energy consultancy Energyquest estimated that LNG export revenue for 2017 would be about $25.5 billion, up 42.5 per cent from 2016.
In Australia, Q3 2017 LNG production increased a staggering 20.5 per cent quarter-on-quarter to a record 14.6 million tonnes (mt) off the back of a ramp up in exports from the Port of Gladstone.
November statistics from Gladstone Ports Corporation (GPC) showed a record total of 1.14mt of LNG was sent to China from the port; up 26 per cent year-on-year and 2 per cent higher from October.
Gladstone’s APLNG, QCLNG and GLNG terminals’ combined 25.3mt per annum capacity would ship out 18.22mt of LNG from January through November, according to GPC data.
Energyquest chief executive Dr Graeme Bethune noted that despite the reality of tight supply on the east coast, production was starting to catch up with demand.
“Gas flowed south from QLD in Q3 2017 for the first time since all six LNG trains were commissioned,” Dr Bethune said.
“Growth in east coast gas production outpaced the growth in LNG exports in Q2 and Q3 2017 by around 15 petajoules (PJ) in each quarter.
“Use of gas for power generation increased by 39 per cent, increasing in all NEM States except Queensland, [and] with plenty of wind and more gas-fired generation South Australia was a net exporter of electricity to Victoria.”
Dr Bethune also noted that the sale of a majority of Arrow Energy’s Surat Basin gas reserves to QCLNG was positive for east coast gas supply.
Last month, Arrow Energy (a 50:50 JV between Shell and Petrochina) struck a 27-year deal with the Shell-operated QCLNG JV to supply more than 5 trillion cubic feet (tcf) of gas a year – four times the projected shortfall in east coast gas supply.
The $32 billion gas supply agreement (GSA) could also open up the possibility of a third LNG train being built at QCLNG’S Curtis Island terminal, according to RBC Capital Markets analyst Ben Wilson.
“We had expected that Arrow’s Surat gas would be developed at some point given the significant volume of appraisal work that has been completed supported by recently strengthening Asian Basin LNG and Australian domestic gas prices,” he said.
“The scale of the deal is somewhat surprising to us.
“Covering about 5tcf of gas over 27 years is a big deal by any estimation and in part speaks to the confidence that QCLNG/RD Shell has in the global LNG market outlook.
“It also allows QCLNG to be more selective in determining which of its fields within the JV are developed and when with potential deferral of QCLNG development capex.
“The deal and Arrow’s commitment to develop Surat gas also gives rise the potential further down the track of a third QCLNG train.”
“The Arrow JV partners showed restraint earlier this decade by not building another two trains on Curtis Island, but that doesn't change the need for scale that only LNG demand can provide,” Shell chairperson Zoe Yujnovich said at the time of the deal.
The project will create around 1000 new jobs – 800 during peak construction and around 200 ongoing operational roles.
Oil the rage
The long-running decline in oil production passed an historic milestone in Q3 2017 when output slipped below condensate production.
However, Dr Bethune said exploration activity was picking up strongly, which was a clear leading indicator of the industry’s health.
“Investors sentiment has swung behind the petroleum sector, reflected in a surge in capital raisings and IPOS,” he said.
Shell was the largest petroleum producer on both an annual and quarterly basis in Q3 2017, accounting for one in every six barrels of oil equivalent (boe) of national production (up from only one in every 18 boe in Q3 2015).
Subsea market boost
This was backed by Subsea Energy Australia chairman Marius Martens who believed the Australian subsea oil and gas industry was about to see a significant increase in activity to support both new and recently constructed projects.
In terms of new projects; Mr Martens said there were a number of major subsea developments, either as tie-backs to shore or to offshore facilities, underway in Australian waters.
“These include the Browse, Barossa, and Ichthys Phase 2 projects to the north of Australia,” Mr Martens said.
He said there was also hope that the long-stalled Sunrise project in the Timor Sea may be finally on the horizon after recent political developments between the Timor-leste and Australian Governments.
“Significant opportunities are also available within the inspection, maintenance and repair, known as IMR, of the now operational Gorgon and near-operational Wheatstone, Prelude and Ichthys projects off the west coast of the country,” Mr Martens said.
Mr Martens said the latter projects were likely to see a jump in operations and maintenance support activities, an area that is forecast to be a major business growth area for oilfield service and supply companies in Australia.