Historically, the Australian industrial sector’s use of natural gas has achieved major growth, rising from 10 per cent in 1973 - 74 to almost 30per cent in 1999 - 99. A number of key reasons explain this trend, including the substitution of gas for petroleum products in stationary applications – elicited in part by the impact of 1970s oil price shocks on Australia – to the development of the natural gas industry and extension of the natural gas transmission and distribution networks throughout the country.

However, growth in industrial gas use is projected to grow quite considerably from current use of approximately 360petajoules (PJ) to over 550 PJ by 2030. This growth is likely to be underpinned by major growth in the mineral processing and the chemical and petrochemical industries. Modest growth has also been projected for the wood, paper, non-metallic mineral products and iron and steel sectors.

Mineral processing

By far, the largest consumer of natural gas in the Australian industrial sector is the non-ferrous sector, which is made up of a number of mineral processing industries including smelting and refining of copper, silver, lead and zinc products, and the processing of nickel ores and the refining of aluminium.

The sector has undergone considerable growth over the last 25 years, which has underpinned major increases in industrial gas use. For example, production of alumina has increased by over 300 per cent over the last 25 years, making Australia the world’s largest alumina producer with approximately 30per cent of global production. This trend is expected to continue with over $6 billion worth of projects being planned over the next few years.

Among alumina refineries, two expansions are underway with the Worsley Refinery.

Efficiency and Growth project in Western Australia and the Yarwun alumina refinery expansion in Queensland.

The $2.5 billion expansion of the Worsley project is a joint venture between operator BHP Billiton, Japan Alumina and Sojitz Alumina and is expected to increase annual production capacity by 1.1 million tonnes when it is completed in 2011. The plant currently uses gas from the Dampier to Bunbury pipeline and feeds excess electricity into Western Australia’s power grid.

Located in Gladstone, Queensland, Rio Tinto’s Yarwun alumina refinery expansion is currently under construction. Expected to have a capital cost of $2.1 billion, the project will add 2.2 million tonnes a year to its capacity from 2011. The expansion project includes a gas-based 160 megawatt cogeneration plant which will reduce carbon dioxide emissions per tonne of alumina by 35 per cent relative to coal. In a deal signed last July, 470PJ of gas will be sourced from Origin Energy’s Walloon coal seam gas fields, a deal which also saw Origin spend $260million to further develop the Walloon fields.

Three major new developments are currently slated to increase Australia’s alumina refining capacity, and may underpin expansions to gas projects.

Chalco refinery - The biggest of these, will involve construction of a $2.2billion alumina refinery for Chinese Alumina Company (Chalco). The recently announced project will be located at Abbot Point, near Bowen in Queensland. However, the refinery is likely to be powered by coal, with the Queensland Government announcing a $250 million plan to increase the Abbot Point coal terminal capacity.

Queensland refinery - A $1 billion expansion of Queensland Alumina Refinery is currently being studied. Over 16 PJ/a of gas is currently supplied to the plant from the Denison Trough in Central Queensland.

Alcoa’s Wagerup refinery - A $1.5 billion expansion of Alcoa’s Wagerup refinery in Western Australia. The expansion will increase alumina production capacity from 2.6 MMt/a to 4.7 MMt/a. Alcoa is the biggest independent gas user in Western Australia. The company has refineries in Wagerup, Kwinana and Pinjarra and produces 13 per cent of the world’s aluminium demand.

Chemicals and petrochemicals

The chemicals and petrochemicals industry is Australia’s second largest industrial gas consumer, using 99.2 PJ of gas in 2007 - 08, however this is expected to increase by 65 per cent to 164.2 PJ in 2030.

Within the chemical industry, a considerable amount of gas is used to produce nitrates and fertilisers. 2006 saw the start up of Burrup Fertlisers’ 760,000tonnes per annum fertiliser plant – the world’s largest single train ammonia facility. Located in Western Australia’s Pilbara region, the facility is fuelled by gas from the North West Shelf supplied by the Harriet Joint Venture partners. Ammonia from the plant has been used predominately to create fertilisers for Indian agriculture and any expansions are likely to be driven by demand from the Indian market – a market that the Australian Bureau of Agricultural and Resource Economics has forecast will grow significantly.

Meanwhile, Incitec Pivot’s fertiliser plant at Gibson Island in the Port of Brisbane has recently celebrated its first year of operation. The plant has the capacity to manufacture 300,000 tonnes of ammonia, 280,000 tonnes of urea and 200,000 tonnes of ammonium sulphate, annually, primarily for domestic markets. Currently, the plant is being powered by Queensland Gas Company and Origin Energy’s jointly-owned Argyle-Kenya gas field, located in the Surat Basin near Chinchilla in southeast Queensland.

While gas use is expected to increase in the mid-term, there are currently no chemical projects under construction in Australia, says Plastics and Chemicals Industries Association Chief Executive Margaret Donnan.

“The Plastics and Chemicals industries at present, have a couple of projects that have been mooted for the future, but as none of these proposed projects have reached front end engineering and design, we are not in a position to comment on these future projects,” Ms Donnan said, adding that the association has little indication of how much gas the projects would consume once in operation.

Natural gas is not only used in the petrochemicals industry to fuel the production of petrochemicals but is also used also as a feedstock for the production of methanol, liquid petroleum and syngas.

The Coogee methanol plant is Australia’s only methanol plant and supplies approximately 80 per cent of the country’s methanol requirements. Located in Laverton, Victoria, the plant sources about 5 terajoules per day (TJ/d) of feedstock gas from the Bass Strait, which is transported to the plant though a spur pipeline from the main Melbourne to Geelong trunkline. While it has undergone one round of debottlenecking to increase capacity to 140 per cent of its original capacity – 164 tonnes of methanol per day – Coogee Energy is currently considering further increasing the plant’s capacity to 180 per cent.

Methanol export opportunities

While Australia’s methanol consumption is not expected to grow considerably, the export market is a focus for MEO Australia. In March this year, the company said it has accelerated plans for the Tassie Shoal Methanol Project, which is located offshore the Northern Territory. The development plans were accelerated after finding that the gas resource that will fuel the plant – the Blackwood structure – was sufficient to supply a methanol plant. The company also said that it has initiated the development of the Basis of Design documentation in preparation for the commencement of front end engineering and design studies for the Tassie Shoal project in late 2008. The plant is one of the largest methanol plants under development.

Exporting methanol has been a consideration in a number of major gas developments in Australia’s recent history. In the mid-90s, BHP abandoned plans to produce methanol using gas from the North West Shelf, instead exporting the gas as LNG. In 2004 plans to develop a methanol plant on the Burrup Peninsula were also stalled. In this case, negotiations over the gas price reached a stalemate, which saw the gas developers - Apache Energy and Santos - demand a higher price for gas supplies.

However a general upward trend in gas prices and strong performance of the Australian dollar, are two factors that continue to pit industrial gas developments against exporting the gas as LNG. Methanol has a lower energy content than LNG, which makes LNG the more cost competitive choice in the context of high gas prices – although some analysts claim that the two are complementary rather than competitive alternatives.

Gas-to-liquids

The rising price of gas has also impacted Australia’s ‘clean diesel’ or gas to liquids (GTL) industry, which has suffered a number of set backs with developers opting for gas export as LNG. In 2007 Chevron began a feasibility study to consider a GTL plant to monetise gas from its Wheatstone gas field. However in March this year the company said it would instead develop LNG from the field, located offshore Western Australia.

Similarly, in 2007, Arrow Energy and Alcan completed a feasibility study that supported the potential of a GTL plant in Queensland supplied by Arrow’s Bowen Basin CSG fields. However, this is unlikely to go ahead since Arrow recently signed an agreement with LNG Ltd to develop the company’s CSG assets for its 1 MMt/a Fisherman Landing LNG Project in Gladstone.

While the bigger gas developments are moving towards exporting gas as LNG, some smaller producers, such as Linc Energy and Central Petroleum, are fulfilling demand for GTL using their CSG resources in Chinchilla, Queensland and in the Pedirka Basin, Northern Territory respectively.

In May, Linc Energy began the process to develop its commercial scale underground coal gasification (UCG) and GTL plant by lodging a mining lease. The mining leases will provide Linc with commercial access to the coal within the leases for conversion to syngas by UCG technology. The development potentially offers approximately 600 MMbbl of liquids production from the Chinchilla site. Meanwhile, Central Petroleum is aiming to fuel a 140,000 bbl/d GTL plant from its Pedirka Basin CSG resources in the Northern Territory.

Reinvention and growth

It has become common parlance to say that Australia’s industries have supported the country’s growth though export. The diversity and resilience of the country’s gas sector has been a crucial component of this growth, serving global alumina and gas demand while remaining flexible enough to meet regional methanol needs and domestic petroleum liquids needs. However, what is striking about this growth is the multitude of gas sources used – from offshore fields to those conventional onshore fields – as well as the emerging technologies being developed, including CSG to LNG and UCG. This constant reinvention bodes well for the gas sector and Australian industries as a whole. Moreover, it bodes well for the country’s ability to meet both forecasted growth and that which is not able to be predicted.

References

Industrial Sector Natural Gas Use, A Study of Natural Gas Use in Industrial Sector in APEC Economies, Asia Pacific Energy Research Centre, Japan, 2002.