At a glance: Australia's LNG industry

The formal commissioning of numerous LNG projects has kickstarted a year of positive developments for the sector, so despite strong headwinds being felt throughout the international industry, what does 2016 hold in store
for LNG?

Australia is coming to the end of its $200 billion LNG construction phase, which has driven unparalleled levels of investment and economic benefits to both the country and neighbouring trading partners.

Turn back the clock to the nation’s flagship LNG plant – the North West Shelf Venture – and the ensuing 27 years have seen the plant grow from one production train to five, a progression mirrored by the mushrooming of numerous LNG plants around the country.

LNG projects in Australia

Many LNG projects are currently in the midst of coming online, while some existing projects are adding more production trains. Below is a snapshot of the latest developments with Australia’s primary LNG projects.

North West Shelf LNG Project

The history of the North West Shelf project is a long and rich one, having started with the 1970s discovery of vast qualifies of natural gas and condensate off the northwest coast of Australia. The project continues to grow, with the six participants providing sustained investment in the development of the project’s upstream facilities.

Last December, the shelf’s Greater Western Flank Phase 2 Project was approved. It is the fourth major gas development for the NWS LNG Project in the past seven years and will extract 1.6 Tcf of raw gas.

Phase 2 represents the next phase in gas supply to the existing project’s Goodwyn Alpha platform, and will involve the development of the Keast, Dockrell, Sculptor-Rankin, Lady Nora and Pemberton fields via a subsea tie-back.

Deliveries are expected to begin in 2016 and continue through 2018.

Darwin LNG Project

The Darwin LNG project is another veteran of the LNG scene, having been commissioned in January 2006.

However, the plant is geared for new gas developments in the Timor Sea, with planning approvals in place for an expansion of up to 10 MMt/a of LNG. In 2015, Wood Group Kenny won a new, multi-year contract with ConocoPhillips for brownfield engineering services at the Darwin LNG Plant.

Pluto LNG Project

The Pluto LNG Project processes gas from the Pluto and Xena gas fields, located in the offshore Carnarvon Basin.

In April 2015, Woodside successfully restarted production at its Pluto LNG Project, after a submersible drilling rig drifted near Pluto’s subsea infrastructure and caused a temporary shut-in.

QCLNG Project

The QCLNG plant has delivered 71 cargoes since first LNG production in December 2014. The company expects the project to reach plateau production by mid-2016.

But the latest phase of the QCLNG plant is the $1.7 billion Charlie Development – which will focus on the continuous development of QGC’s tenements in the Surat Basin. Charlie Development will sustain natural gas supply to both domestic customers and QCLNG’s two-train plant, which began exporting LNG in January 2015.

The two-year development will take place between November 2015 and the third quarter of 2017. Up to 1,600 contractor jobs are expected to be created at the peak of construction in mid-2016, while major contractors have made commitments to employ local contractors.

GLNG Project

GLNG commenced LNG export in October 2015, with the ramp-up of train 1 progressing well after having produced well above nameplate capacity. Six LNG cargoes have since been shipped to the plant’s customers.

Commissioning work on GLNG’s second train has commenced, with a number of its subsystems now operational. First LNG from train 2 is on track for the second quarter of 2016.

In January 2016, Santos finalised an agreement with AGL Energy for the purchase of 254 PJ of gas for the project. The gas will be delivered to Wallumbilla over a period of 11 years, commencing in January 2017.

Further, in December 2015, Senex Energy and the GLNG plant completed a transaction for the development of the Western Surat Gas Project in Queensland. Under the transaction, Senex will supply up to 50 TJ/d of sales gas from its Western Surat Gas Project to the project under a binding 20-year gas sales agreement.

APLNG Project

APLNG exported its first cargo of LNG in January 2016, completing over four years of planning and construction. The project is expected to enter full production later this year with the construction of its second train.

Gas is supplied to the facility from APLNG’s gas fields in the Surat and Bowen basins.

Gorgon LNG Project

While industrial issues and cost blowouts have hampered the project since construction commenced in 2009, Gorgon LNG recently shipped its first LNG export after cooldown operations commenced for the project’s LNG export system.

Chevron Australia has entered into an agreement with a subsidiary of one of China’s largest natural gas distribution companies, ENN Energy Holdings, to supply 0.5 MMt/a for 10 years from the Gorgon project. ENN is expected to receive its first delivery of LNG in 2018 or the first half of 2019.

The project is the largest single-resource development in Australia’s history.

Shell Prelude FLNG Project

The world’s first large floating LNG platform and the largest offshore facility to be ever constructed, Prelude will begin operations in 2017. The vessel is scheduled to arrive in the Browse Basin in late 2016.

A string of contracts were awarded for work on the project early in 2016 and late 2015:
John Crane – after-market seals and seal management services
Wood Group Kenny – specialist consultancy services for flexible riser integrity management prior to and during operation of the project
Wiltrading Stace – inspection, maintenance, testing and certification of all firefighting and lifesaving appliances onboard the facility
POSH Terasea – towage and positioning services
Monadelphous – maintenance, brownfield modifications and turnaround services to the facility.

Following start-up, the FLNG vessel is expected to remain over the Prelude field for 25 years.

Wheatstone LNG Project

One of Australia’s largest resource projects, Wheatstone’s first LNG cargo will be delayed by six months until mid-2017. Chevron cited a delay on the initial module fabrication in Malaysia, adding that the company has been successful in mitigating any further delays.

Meanwhile the Julimar Project, which will supply gas to the onshore plant, remains on schedule and on budget.

Chevron also signed a non-binding agreement with China Huadian Green Energy to supply up to 1 MMT/a of LNG over 10 years starting in 2020.

At the time of writing, the project was more than 65 per cent complete, while all subsea infrastructure and over 100 km of flow lines have been installed. Hook-up and commissioning of the offshore platform continues on plan.

Ichthys LNG Project

The Ichthys field was the largest discovery of hydrocarbon liquids in Australia in 40 years, making the Ichthys LNG Project a significant local energy project. It is scheduled for start-up in the third quarter of 2017, after it completed the offshore pipelay for its gas export pipeline late last year.

The project reached another major milestone in February 2016 when 140 km of rigid subsea infield flowlines were successfully installed after a 16-month offshore campaign. In addition to the infield flowlines, the project’s offshore campaign completed the installation of 49 foundation piles, 5 production manifolds and a 6,500 t riser support structure. Additionally, the project completed construction of its reinforced concrete roofs for both of its onshore LNG storage tanks.

Just a month prior, the project safely erected all its 26 modules and made significant progress on its inlet facilities.

Proposed projects

Bonaparte FLNG Project

Santos and Engie are contemplating a barge-based design, which could make FLNG competitive again for the Bonaparte venture, even after the two proponents abandoned the original FLNG plan almost two years ago.

Browse FLNG Project

Woodside plans to develop the Brecknock, Calliance and Torosa gas fields, with a final investment decision expected in 2016. The recent award of the FEED contract to Wood Group Kenny was a significant development for the project.

Under the contract, Wood Group will progress the configuration design of the flexible risers and umbilicals for the asset’s offshore gas condensate fields.

Sunrise LNG Project

Fresh uncertainty has emerged surrounding the development of the Greater Sunrise gas and condensate field, after a new maritime law was passed in the Timor-Leste Parliament. However, Woodside says it remains committed to developing the Greater Sunrise fields.

Challenges for the sector

Notwithstanding the low oil prices, global shipping consultancy Drewry advised that LNG shipping earnings will remain under pressure due to accelerating fleet growth and changing trade patterns.

The report states that as new sources of LNG supply kick in from projects coming online in Australia, demand for spot cargoes from the Middle East are expected to weaken – adversely shaping overall demand for LNG shipping.

Meanwhile, LNG vessel fleet growth is forecast to double this year to 12 per cent, compared with 6 per cent in 2015.

“Vessel oversupply is the key problem for LNG shipping in 2016,” Drewry lead LNG shipping analyst Shresth Sharma says.

Mr Sharma says he sees no let-up in vessel overcapacity, which will continue to put pressure on earnings throughout 2016.

Promising trading conditions ahead

The situation on the home front has been, at times, challenging for the LNG industry, but the 2016 BP Energy Outlook paints a buoyant picture for the future of the global market.

According to the report, LNG will play an increasingly important role – LNG trade is expected to grow twice as fast as consumption, with LNG’s share of world demand rising from 10 per cent in 2014 to 15 per cent in 2035.

Additionally, the report says over 40 per cent of the increase in global LNG supplies is expected to occur over the next five years, as a series of in-flight projects are completed. This is equivalent to a new LNG train coming on-stream every eight weeks for the next five years.

By 2035, LNG is expected to surpass pipeline imports as the dominant form of traded gas. The growing importance of LNG trade is likely to cause regional gas prices to become increasingly integrated.

“The growth in LNG coincides with a significant shift in the regional pattern of trade. The US is likely to become a net exporter of gas later this decade, while the dependence of Europe and China on imported gas is projected to increase further,” BP says in its report.

Further, for the first time in five years, EnergyQuest revealed that the value of Australia’s oil and gas exports has completely offset the cost of importing crude oil, petrol and other petroleum products.

EnergyQuest Chief Executive Dr Graeme Bethune says the good outcome reflects the growth in Australian LNG exports.

“Australia’s established LNG projects – Woodside’s North West Shelf and Pluto and ConocoPhillips’ Darwin LNG – have been performing exceptionally well. Now the three new Queensland projects have joined that total LNG production flow,” Dr Bethune says.

“Altogether, Australian LNG production reached a record 9.1 MMt in the December quarter 2015, up by 48 per cent from a year earlier. Increased LNG production has offset the fall in LNG prices resulting from the slump in oil prices,” he adds.

Dr Bethune estimates that increased LNG production improved Australia’s overall trade balance by approximately
$500 million in December alone.

Employment opportunities

APPEA’s recently released LNG in Australia: Prosperity, Innovation and Legacy reveals that at the peak of construction phase, LNG accounted for a third of Australia’s business investment – creating more than 100,000 jobs across the Australian economy.

However, with construction having already been completed on many major LNG projects, there are many new opportunities for Australian skills to be at the forefront.

In the same report, APPEA highlights the local opportunities that will be available during the operations phase of LNG plants:

  • aviation, drilling and marine support services based in regional centres
  • supply, accommodation, catering and maintenance services establishment and operation of marine supply bases.

“There will be a great need for operations and maintenance personnel at both the engineering and trades levels to plan and undertake shut down work, both onsite and in design and supply offices as each of the new facilities come online,” leading engineering specialist Francis Norman says.

In its 2014 Local Content Report, Western Australia’s Department of Commerce found that WA LNG projects were awarding more of their contracts to companies from WA and other parts of Australia. For instance, the Chevron-operated Gorgon LNG and Wheatstone projects contracted 78 per cent
and 68 per cent respectively to WA companies.

What lies ahead?

According to APPEA’s recently released LNG in Australia: Prosperity, Innovation and Legacy, all LNG projects in Australia are underpinned by decades-long supply contracts and have long lifespans – ensuring decades of tax and royalty revenue for Australia as well as income for numerous suppliers in the industry.

Even more promisingly, LNG export revenue will increase and economic benefits will become more pronounced when the low oil prices eventually rebound.

The future looks bright.

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