Aus­tralia will boost LNG pro­duc­tion and kick­start new de­vel­op­ments in 2018, driven by seem­ingly un­stop­pable de­mand from Asian economies.

The Australian Energy Review - - FRONT PAGE - CAMERON DRUMMOND

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.

Im­age: Shell Aus­tralia.

Im­age: Shell Aus­tralia.

Im­age: Sub­sea En­ergy Aus­tralia.

Sub­sea En­ergy Aus­tralia chair­man Mar­ius Martens.

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