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February 2018
Extremes of heat or ice? Extremely wet, salty, dusty or cramped con-ditions? Environment turning explosive? STAHL CraneSystems engineers and technicians develop the right solution for tricky situations where unusual requirements emerge. Their long experience and detailed know-how, coupled with a high degree of vertical integration and seamless quality management, enable them to rise to extreme challenges.
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LogiMAT 2018
Hall 7, stand D51
13–15 March 2018
ISSN 1747-1826
CONTENTS
Copyright © Palladian Publications Ltd 2018. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not necessarily the opinions of the publisher, neither do the publishers endorse any of the claims made in the articles or the advertisements. Printed in the UK.
ON THIS MONTH’S COVER
12
LNG Industry is audited by the Audit Bureau of Circulations (ABC). An audit certificate is available on request from our sales department.
FEBRUARY 2018
A 9-stage submersible LNG send-out pump on test at Ebara Cryodynamics’ cryogenic test stand in Sparks, Nevada, USA. This pump is now in operation at a South Korean LNG terminal.
03 Comment
05 LNG news
47 A compressor revolutionSteve Lindsey, Lontra, UK, explains why clean sheet air compressor technology will be the next revolution in the LNG industry.
49 The compressor conundrumJason Castillo and James Simpson, Kobelco Compressors America Inc., USA, evaluate compressor options for small scale LNG projects.
55 Is there a way?Peter Hansen, Dayton Land Company, USA, evaluates the future of North American West Coast LNG exports.
59 Full steam aheadDiana Sorace, FortisBC, Canada, reviews a first in LNG marine bunkering technology and global exports.
63 Seting the bar highMarsh Energy Global Risk Engineering, UAE, discuss LNG benchmarking and strategies for improving risk quality in the industry.
67 A magic bullet?Brian Bradshaw, Sidley Austin LLP, discusses the benefits of the use of common infrastructure in small scale LNG.
70 Simulating the futureMichael Schwartz, Eka Software, USA, describes how simulation technology enables organisations to explore and test multiple scenarios to foresee and act on challenges.
75 Resolving the reliability challengeBørge Nogva, Høglund, Norway, discusses why automation specialists are branching into fuel gas supply systems to increase the reliability of an LNG fleet.
80 15 facts on... Australia
18 A history of pumps in LNGEnver Karakas and Eric Wonhof, Ebara International Corporation, USA, review the evolving history of submerged electrical motor pumps in the LNG industry.
25 Putting vibration data where it belongsSteve Sabin and Randy Chitwood, Brüel & Kjær Vibro, USA, describe a method that allows complete vibration data to be placed in a process historian, and the benefits of this data integration to machinery engineers.
31 SSRU pump configurationsMaksym Kulitsa, Independent FSRU consultant, and David Wood, DWA Energy Limited, UK, explain how improved regasification pump integration reduces boil-off gas during FSRU operations.
37 When safety systems add riskAhmed Adel El Shaer, Mohamed Mostafa and Shreef Elaraby, CCC, Saudi Arabia, emphasise the critical importance of safety in an industry motivated by growth and cost reductions.
42 Safeguarding the future of LNGFriedhelm Best, HIMA, Singapore, outlines the best ways to protect LNG operations in the modern age.
12 To be or not to be... an LNG world leader?Bernadette Cullinane and Nye Hill, Deloitte, Australia, provide an update on the Australian LNG industry.
NEUMAN & ESSER GROUPwww.neuman-esser.comContact me for South Europe, North Africa and the Middle East:Carlo TerragniVice President [email protected] line: +39 02 39099433
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LNG_NEA-Terragni-2018-01_rev1.indd 1 20.12.17 15:44
COMMENT JOSEPH GREEN
EDITOR
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Uncaptioned Images courtesy of www.bigstockphoto.com and www.shutterstock.com
On 14 February, every year, chocolates, flowers, and other
gifts are exchanged between loved ones, all in the name of
St. Valentine.
Much of the history of Valentine’s Day, and the story of its
patron saint, is steeped in mystery. The Catholic church recognises at least
three saints named Valentine or Valentinus, all of whom were martyred.
Some stories suggest that Valentine may have been killed for attempting
to help Christians escape Roman prisons. Others insist that Valentine was
a priest who performed marriages against the will of Emperor Claudius II,
who decided single men made better soldiers. My preference is for the
story of an imprisoned Valentine, falling in love with a girl, and sending
the first ‘valentine’ greeting. Before his death, it is alleged that he wrote
her a letter signed ‘from your Valentine,’ an expression still in use today.
What we do know for sure is that February has long been celebrated
as a month of romance, and that St. Valentine’s Day, as we know it today,
contains traces of both Christian and Roman tradition.
In slightly less romantic fashion to the martyred saints who
gave up their life for love or kindness, I am deliberating over which
Valentine’s Day supermarket meal deal to select this year. The Waitrose
offering is the priciest of the lot but does offer a box of chocolates so
that may well swing it this year.
It is still unclear whether Trump and Putin will be exchanging cards
this Valentine’s Day.
For months, the US government has been promising to bring about
a new era of energy dominance1, largely based on booming oil and
natural gas production. It was therefore surprising to learn that the US
will continue importing LNG this winter. It was an even greater surprise
to learn that the US is importing its first Russian LNG produced by
Yamal LNG, a plant subject to US financial sanctions.
The LNG cargo, carried by the French tanker Gaselys, finally arrived
in Boston in late January, after various delays and a particularly unusual
course.
First Gaselys stopped at the tip of Spain, then passed through the
Canary Islands. On 19 January, after traveling halfway across the Atlantic,
Gaselys made a U-turn towards Spain in what was put down to problems
with the weather, before again resuming its course towards Boston.
The route generated intense speculation among energy analysts.
The US$27 billion Yamal gas plant opened in December,
and some of its first output will be used to heat homes and
generate electricity in the Boston area. Novatek is the majority
owner of the plant, whose shareholders include an ally of Putin,
Gennady Timchenko. The US Treasury initially imposed sanctions that
prohibited US companies from providing new financing to Novatek
and another Russian energy company in 2014.
This bizarre and controversial delivery reflects the realities of
the globalising natural gas market and stems from the growth of
LNG trade, opposed to traditional natural gas exports that rely on
long-term contracts.
With this globalised natural gas market, LNG supplies can
increasingly be shipped from one part of the world to another to
handle fluctuations in demand. In this instance, the cold temperatures
that hit the East coast of the US increased natural gas demand to
record levels, and the Russian gas was on hand to help. It is a real
possibility that Russian gas could once again land on US shores in the
future. Maybe Trump and Putin are celebrating Valentine’s Day after all.
In this month’s issue we are showcasing features on pumps,
turbomachinery, compressors, pipelines, and more. This month’s
regional report is provided by Deloitte and focuses on Australia.
Bernadette Cullinane and Nye Hill provide an update on the industry
and detail how Australia is facing up to increased competition from
overseas.
I hope you enjoy this issue of LNG Industry and if you picked
up a copy at either the Australasian Oil & Gas Conference or the
US LNG Summit, be sure to visit www.lngindustry.com to subscribe
and receive the latest updates from the industry.
1. https://www.reuters.com/article/us-grigas-davos-gas-
commentary/commentary-a-tale-of-a-tanker-russian-gas-sanctions-and-energy-politics-idUSKBN1FC2WK
WWW.ZWICK-ARMATUREN.DE
TRI-CON SERIES FOR
CRYOGENICAPPLICATIONS
February 2018 5
LNGNEWSChinaLNG carrier CESI Wenzhou delivered for SINOPEC LNG transport project
Mitsui O.S.K. Lines, Ltd. has announced that the LNG carrier CESI Wenzhou, which was ordered by the joint
venture of China COSCO Shipping Corporation Limited (CCSC) and China Petroleum & Chemical Corporation (SINOPEC), was delivered to the Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. (Hudong) on 31 January 2018.
The CESI Wenzhou is the fifth vessel to serve the LNG transport project for SINOPEC announced in April 2013, and will sail under a long term charter contract to transport LNG that SINOPEC will purchase from the Australia Pacific LNG Project.
A total of six LNG carriers have been built at Hudong for the transport project and this follows the ExxonMobil LNG project, announced in March 2010, for which four newbuilding LNG carriers were delivered from Hudong by April, 2016. Cooperating with CCSC, MOL has assigned engineers to Hudong since 2013 to ensure the safe construction of high-quality LNG carriers, and organised a multi-national shipbuilding supervision team, mainly Japanese and Chinese, with nearly 50 members at its peak.
Starting with the delivery of the first vessel in October 2016, the project has proceeded smoothly so far. The shipbuilding supervision team and business division are united in ensuring the success of this project, while drawing upon the relationship it has developed with its Chinese partners.
FranceInce & Co France advises EDF on the chartering of a LNG carrier with NYK
EDF LNG Shipping, a subsidiary of EDF group, signed a long term charter contract with the Japanese
shipowner NYK on 26 January 2018. The vessel, with a capacity of 174 000 billion m3, will be built by the shipyard Hyundai Heavy Industries with delivery expected by spring 2020.
Ince & Co supported EDF LNG Shipping in the negotiation and drafting of the time charter contract providing for an initial charter period of seven years which can be further extended to 20 years.
This major operation has been made possible through the set-up of a dedicated team composed of legal experts from EDF group and lawyers from Ince & Co, dually qualified in England and France. The close cooperation of this team made the operation a success.
Alexandre Besnard and Aymeric de Tapol, both of them partners at Ince & Co France and in charge of the English law practice of the firm, commented:
“Our team is glad to have supported EDF group on this project which demonstrates the dynamism of the French energy company in the emerging LNG market and the unique expertise of our firm on chartering and shipbuilding projects.”
For this operation, Ince & Co’s French team was composed of partners Alexandre Besnard and Aymeric de Tapol, and associates Stephen Love and Audran de Carné.
NYK was advised by Watson Farley & Williams.
USAAndeavor acquires Kenai LNG facility in Alaska from ConocoPhillips
independent US refiner Andeavor announced on 2 February that it had acquired a LNG plant in Kenai,
Alaska, from ConocoPhillips.ConocoPhillips said that the sale of the facility had closed
and the operation had been transferred to Andeavor on 31 January.
Sale of the plant completed the company’s exit from the
Cook Inlet region and will allow ConocoPhillips Alaska to direct its full attention to operations in North Slope region where it is investing in new projects.
The facility, which entered service in 1969, last exported LNG in 2015. It has the capacity to liquefy 0.2 billion ft3 per day of gas.
Andeavor also operates a 62 700 bpd refinery in Kenai.
6 February 2018
News Highlights
Visit our website for more news: www.lngindustry.com
X March price eases but bitter cold arrests decline
X Next generation LNG terminals set to get smaller to offer greater flexibility
X Egypt to fast-track Zohr gas output
LNGNEWSThe NetherlandsVan Oord launches first LNG powered vessel
The Werkendam, Van Oord’s new crane vessel, has been successfully launched in the Waalhaven
in Rotterdam, the Netherlands. It is the first LNG powered vessel in the Van Oord fleet.
The vessels will contribute to the further modernisation of Van Oord’s fleet and therefore mark the start of a new generation of dredging vessels.
Jaap de Jong, Staff Director of the Ship Management Department at Van Oord, explains: “Energy efficiency is one of the top items on our sustainability agenda. To reduce our carbon footprint, we are researching the use of alternative fuels, such as LNG and biofuel. With this investment, we will be gaining experience of LNG powered vessels and the related benefits.”
The delivery of the vessel and its christening are scheduled for April 2018. It will generally be deployed to Netherlands-based projects executed by subsidiary Paans Van Oord.
RussiaEilbeck Cranes supplies explosion proof jib cranes to Yamal LNG
Yamal LNG reached a major milestone with the December announcement of the first cargo of
LNG ready to leave Sabetta.The nameplate capacity of the first train now
in production is 5.5 million tpy with a further two trains expected to be in production over 2018/2019.
Eilbeck Cranes has supplied a total of eight explosion proof jib cranes each designed to cope with the extreme conditions faced on such a plant operating inside the Arctic Circle.
With all cranes now fully installed, commissioned and load tested they are now operational to carry out their designated lifting tasks as required. The Australian made heavy-duty cranes underwent an exhaustive design process to ensure that not only the cranes’ structure but all components were able to operate in the extreme weather conditions.
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8 February 2018
LNGNEWS
20 February 2018Small-Scale LNG SummitMilan, Italywww.lngevent.com
27 - 28 February 2018LNG US SummitHouston, USAlng-usa.com
04 - 05 June 20184th International LNG CongressBerlin, Germanylngcongress.com
04 - 08 June 2018PosidoniaAthens, Greeceposidonia-events.com
SwedenVolvo Trucks sees potential for 10% of Swedish sales in LNG trucks
Lars Martensson, director of environment and innovation at Volvo Trucks, announced at a gas conference in Vienna
on 31 January that he is upbeat about the potential of using LNG for long-range trucks.
“We have made an estimate for the Swedish market – it is a good indication of the potential that we see – for Sweden we have stated that . . . within the next (two to three) years we believe that about 10 percent of our sales will be LNG trucks”.
“When I say 10 percent for the Swedish market, then we say for Sweden we speak about several hundred trucks . . . If we would take that as an indication of Europe, then we speak of many thousand trucks in Europe using LNG.”
“In some countries where LNG trucks exist already today and where there’s a good infrastructure like in Spain, (Britain), the Netherlands, of course there the potential is higher than other countries . . . like Germany where we’re starting from another level, so there we have bigger challenges in order to reach 10%.”
“We have customers who are interested in replacing all their existing diesel vehicles with LNG and those customers in some cases are operating several hundred trucks. So, it is definitely big volumes we are speaking about.”
“The price is set country by country . . . It will be more expensive but with 30 – 40% lower cost for energy compared with diesel the pay-back will be good for customers and by pay-back we speak about maybe two to three years.”
AustraliaOrigin Energy releases Q4 2017 results
Origin’s production for the first half of the 2018 financial year was 172.6 petajoules equivalent (PJe), or 12% higher
than the prior comparable period, driven by a 15% increase in production from Australia Pacific LNG with a full six months’ contribution from Train 2.
Sales revenue for the half year to 31 December 2017 increased by AUS$391 million to AUS$1365 million, an improvement of 40% compared to the same period in 2016. This increase is a result of both increased LNG sales and higher average prices realised across all products.
Q4 2017 production of 83.5 PJe was 5.6 PJe lower than the previous quarter, reflecting lower customer demand and planned maintenance at the Lattice Energy operations in Otway.
Total Australia Pacific LNG production for the quarter was stable at 63.4 PJe. Revenue for the December quarter was AUS$686 million, an increase of AUS$8 million compared to the previous quarter, with lower volumes from Otway more than offset by increased LNG sales by Australia Pacific LNG.
Origin CEO, Frank Calabria, said: “Australia Pacific LNG continued to perform well, delivering reliable upstream and downstream production in Q4 2017. This is demonstrated by a total of 35 LNG cargoes loaded and shipped from Curtis Island, with the milestone of our 200th LNG cargo successfully loaded on 1 January 2018.”
During Q1 2018 Australia Pacific LNG expects to complete a planned maintenance programme with one train outage for approximately 16 days.
14 - 16 March 2018Australasian Oil & Gas Exhibition & ConferencePerth, Australiaaogexpo.com.au
25 - 26 April 20183rd International LNG SummitHamburg, Germanywww.lngsummit.org
Chart brazed aluminum plate fin heat exchangers (BAHX) are highly efficient, custom
engineered, compact units that have been at the heart of LNG liquefaction processes since
the 1970’s and are facilitating the export of North American shale gas today.
E-mail: [email protected]
www.chart-ec.com
At the Core of LNG
10 February 2018
LNGNEWSPhilippinesADB to advise on Philippines’ first LNG hub project
The Asian Development Bank (ADB) has signed an agreement with the Philippine National Oil Company (PNOC) to act as
transaction advisor for the Philippines’ first LNG hub project in Batangas.
The transaction advisory services agreement was signed by Takeo Koike, Officer-in-Charge of ADB’s Office of Public-Private Partnership (OPPP), and Reuben Lista, President and Chief Executive Officer of PNOC at a ceremony in Manila.
“The Philippines’ first LNG hub will help in ensuring long-term energy security to the Philippines and source a cleaner energy resource,” said Siddhartha Shah, Principal PPP Specialist. “It will also increase energy access and create new demand in the power, transportation, and industrial sectors in Luzon and in neighbouring islands.”
Given the imminent depletion of domestic gas reserves at the Malampaya gas field in Palawan, which provides a substantial amount of power supply in the country, PNOC is developing a robust and sustainable gas supply strategy through the establishment of an LNG hub in Batangas.
Under the agreement, ADB’s OPPP will advise and assist PNOC in all aspects of the project, including the award and execution of the final project agreements. The project, which could cost up to US$2 billion, will consist of a regasification terminal, storage, power plant, and other related infrastructure. It is in line with the Government of the Philippines’ Energy Plan and supports ADB’s increasing focus on environmentally sustainable infrastructure and private sector participation.
GlobalNext generation LNG terminals set to get smaller to offer greater flexibility
while the LNG market is growing year on year, LNG export and import terminals are shrinking. Indeed, the
LNG sector’s next-generation infrastructure is being designed for customers looking to purchase smaller quantities and sign shorter, more flexible contracts.
LNG export terminals have traditionally been large-scale, custom-built facilities costing tens of billions of dollars. As a result, to justify the investment, they typically required equally large, long term supply deals (often lasting a decade or more).
In contrast, future projects are featuring new modular-style designs built to snap together like Legos. This allows for small
to mid-scale liquefaction or regasification plants that can be expanded if and when demand grows.
These facilities, with far smaller liquefaction units – known as trains – are “more consistent with market conditions,” said John Baguley, chief operating officer of Australia-based LNG Ltd, which has proposed mid-scale LNG plants in the US and Canada.
In 2008, the average contract was for 18 years and more than 2 million tpy. By 2016, it had dropped to less than eight years and less than 1 million tpy.
This impact on LNG terminal design is further evidence to suggest this will be a long term shift for the industry.
AustraliaDominion announces that Cove Point LNG plant has begun production
Dominion Energy Cove Point (DECP) has begun producing LNG with its newly constructed liquefaction facility
undergoing commissioning in Lusby, MD. All major equipment has been operated and is being commissioned as expected following a comprehensive round of testing and quality assurance activities.
Shell NA LNG is providing the natural gas needed for liquefaction during the commissioning process and will off-take by ship the LNG that is produced.
When commissioning is complete, DECP will produce LNG for ST Cove Point, which is the joint venture of Sumitomo Corporation and Tokyo Gas, and for GGULL, the US affiliate of GAIL (India) LTD under 20-year take-or-pay contracts. DECP’s liquefaction facility has a nameplate capacity of 5.25 million tpy of LNG.
The facility is expected to enter commercial service in early March.
Construction of the liquefaction facility began in October 2014, following more than three years of federal, state and local permit reviews and approvals. With a cost of US$4 billion, it is the largest construction project ever thus far for Maryland and for Dominion Energy. Construction has involved more than 10 000 craft workers and a payroll of more than US$565 million.
We’ve Joined Forces.Elliott Group and Ebara Cryodynamics
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The world turns to Elliott.
From reliable refrigeration compressors to submersible cryogenic pumps and expanders, Elliott Group and Ebara Cryodynamics have supported the LNG industry for decades with proven experience and matchless expertise. Integrating the two businesses will provide a key advantage for our liquefied gas customers. Who will you turn to?
We turned to each other to provideenhanced capabilities and a superior customer experience in liquified gas applications.
To be or not to be…
12
P rojected to be the biggest exporter of LNG by 2019, Australia is facing some serious competition from overseas, and energy security challenges on the
home front. Australian gas production is increasing, but as
LNG exports continue to rise, the Australian Energy Market Operator (AEMO) is predicting a domestic gas shortfall on the east coast.1 To counter this, LNG producers have agreed to divert more gas for domestic consumption to address the gas scarcity.
Bernadette Cullinane and Nye Hill, Deloitte, Australia, provide an update on the Australian LNG industry.
an LNG world leader?
However, questions remain regarding how Australia will balance domestic energy security and world-leading LNG production.
The state of Australian gas productionTotal natural gas production in Australia grew 19.3% year-on-year to reach 105.2 billion m3 in 2017.2
Over the next two years, growth in gas production will be driven by major LNG export projects in Western Australia and the Northern Territories (collectively, the western market) transitioning from construction into operations. However, there is a risk to supply in the western market
13
14 February 2018
after 2021 if investment in development of gas reserves is not sustained3. If exploration remains low, new gas projects may not be developed and existing domestic gas production facilities may cease production due to a lack of gas feedstock.
At the current production rates of domestic gas and LNG, proved and probable reserves can last until 20354, but a large proportion of these reserves are held by LNG exporting companies and joint ventures. These suppliers may only make gas available beyond their domestic market obligation quantities if the price is commercially viable.
For the eastern market, annual domestic gas production is projected to decline from 600 petajoules (PJ) in 2017 to 478 PJ in 2021. Most of this production decline is projected to occur in offshore Victoria, where production is forecast to reduce by 38% over this period. Unless gas production increases, domestic gas shortfalls between 10 PJ per year and 54 PJ per year are forecast.5
Australian LNG export volumes will be underpinned by the recent completion of trains at Asia Pacific LNG in Queensland and Western Australia’s Gorgon project, as well as the completion of the three remaining LNG projects under construction — Wheatstone, Ichthys and Prelude. The three projects will add around 21 million t to Australia’s LNG export capacity, bringing total capacity to around 87 million t.
However, Chevron has signalled the end of major new LNG projects in Australia and is unlikely to sanction an expansion of Gorgon and Wheatstone export capacity as the company focuses on boosting returns from its multi-billion dollar investments.6 The mega-projects of the past decade are giving way to smaller, more targeted investments with quicker economic returns.
Impending energy security concerns According to AEMO, eastern Australia might well be facing natural gas shortages as early as 20187, posing a risk to electricity supply, security, and reliability, particularly as more renewable load is added to the system and ageing coal plants retire. In the transition towards cleaner energy sources, gas plays a critical balancing role that supports intermittent renewable generation. Gas supply shortages and the impact this will have on gas prices are likely to impede the ability of gas to perform this essential role.
There are three main factors affecting the east coast’s gas supply:
z Producers in Queensland are fulfilling their long term overseas export commitments by buying gas from the gas-strapped southern states in the face of lower than expected CSG supply.
z Intensifying the problems on the supply side, the New South Wales and Victorian governments have restricted onshore exploration and production. The states have imposed blanket bans on fracking gas from shale rock, based on environmental concerns.
z Unlike Western Australia, which has long had a policy requiring 15% of gas produced to be quarantined for domestic use, the eastern states have no such rules demanding locally produced gas be held back for domestic use.
In eastern and south-eastern Australia, there is potential for an annual energy shortfall in the domestic gas market of 54 PJ in 2018 and 48 PJ in 2019. Widespread power shortages are predicted to hit New South Wales and South Australia first, then Victoria in 2021, and Queensland between 2030 and 2036.8
To avoid being hit by looming shortages of gas in 2018 and 2019, the Federal government and LNG exporters have inked a deal to secure additional supply over the next two years.
Under the new Australian Domestic Gas Security Mechanism, which is due to enter into force on 1 July 2018, the Australian government will be able to restrict exports when it identifies a lack of secure domestic gas supply. In case such a scenario arises, an exporter who is not a net contributor to the domestic market will be required to outline how they will fill the shortfall of domestic gas. At which point it will be the responsibility of the exporter to find a solution – such as swapping cargoes out of portfolios or on the spot market.
There are plans to strengthen linkages or improve connectivity via pipeline development between the east coast energy network and the Northern Territory’s gas fields. The North Territory state government is progressing plans for the construction of a AUS$800 million gas pipeline connecting the northern and eastern gas markets9, known as the North East Gas Interconnector or the Northern Gas Pipeline, with first gas due next year. Other gas pipelines are being proposed, for example one which connects the Queensland gas fields with the customer markets in Victoria and South Australia10 and a multi-billion dollar transcontinental pipeline from West Australia’s gas fields in the north-west to the east.11
New Queensland gas sources are due to come online before the end of the year and LNG producers have now provided a guarantee to the government the domestic gas market will remain supplied for at least the next two years – fending off a threat to limit their ability to sell cargoes into the spot LNG market. While this has now shifted some of the focus from the LNG producers, the government is yet to formally declare whether it will trigger the Gas Security Mechanism for 2018.
To boost gas supply into the market, the Australian government has released 21 new areas for oil and gas exploration under the 2017 Offshore Petroleum Exploration Acreage. The areas are situated across eight basins off the Northern Territory, Tasmania, Victoria, Western Australia, and in the Territory of Ashmore and Cartier Islands.
There are 20 areas available for work programme bidding, where petroleum companies need to submit comprehensive exploration plans, across a mixture of mature and lightly explored basins. However, this strategy has not been successful in the last few years. Of the 28 offshore blocks offered in 2016, only eight were awarded, down from 12 in 2015 and 19 in 2014.
Intensifying competition from overseasWhile Australia is grappling with complex energy policy issues at home, the international gas market is developing rapidly.
16 February 2018
The impending threat of losing its dominant market share has forced Qatar to lift its moratorium on development in the North Field, the world’s largest conventional gas field. Qatar plans to increase its output from 77 million tpy to 100 million tpy by 2024 – equivalent to a third of current global supplies.12 This 30% boost in LNG output might open up a price war for customers in Asia pitting the Gulf state against competitors, Australia and the US.
Qatar’s location makes it well positioned geographically to be competitive and earn attractive returns supplying both Asia and Europe. It also benefits from low production costs and infrastructure already in place, all of which create implications for future Australian LNG developments. Flooding the market with more LNG will help defend its place as the world’s top exporter, a position challenged by Australia.
Qatar is a serious competitive threat given the nature of its projects – low capital intensity, flexible and low cost brownfield expansions which Australian greenfield LNG will really struggle to compete against. Hence the current focus on lower cost LNG project designs and lower capital expenditure solutions like backfilling existing facilities.
In North America, within a year of the Panama Canal expansion, the US has already made inroads into Asia – Australia’s biggest market. US exports of LNG to Asia jumped 12 times on the year in the first seven months of 2017. As part of the US-China 100-Day Action Plan, US and China have agreed to allow Chinese buyers to secure long term contracts and purchase LNG supplies from US directly rather than through third parties. A move which could move prove to be a game changer in the LNG market, as China is expected to be the fastest growing LNG demand centre.
Elsewhere, Russia is already advancing into the global LNG market with the launch of its new Yamal LNG venture, the first phase of which came online at the end of 2017. With potentially half of the Yamal LNG project’s 16.5 million tpy of capacity likely to go to Asia, the fight would get tougher for Australian LNG. Russia also has another LNG project, the Arctic LNG 2, waiting for FID.13
There are even bigger concerns for Australian LNG producers. Trying to cement its market share and cash in on the growing Chinese demand, Russia’s Gazprom has decided to fast-track its schedule to pump gas to China through its new Power of Siberia pipeline to late 2019, earlier than many expected. The onset of Russian gas adds another degree of supply competition for Australian LNG making it harder to win customers.
Australia will not have it easy even in Europe either, which is being considered as the ‘clearing grounds’ for LNG. To counter the impending competition of US and potential Australian LNG imports in the European market, Russian state-run energy companies are already lowering prices and changing sales methods. Russia is also charging ahead with a plan to build Nord Stream 2, a Gazprom project to transport gas into Europe through a 750-mile pipeline beneath the Baltic Sea.
Australian LNG investment outlookAustralian petroleum exploration investment reached a decade low of AUS$1.4 billion in 2016, almost a third of
the investment seen in 2014. The decline continued into 2017 with the total expenditure on petroleum exploration in the first half of 2017 standing at AUS$350 million, 4% lower than a similar period last year. However, total petroleum exploration expenditure during the June quarter was up 4.7% at AUS$355.6 million on a seasonally adjusted basis, with a 24.3% quarter-on-quarter increase in activity in Queensland responsible for much of the growth.14
The Queensland petroleum data in particular suggests the industry has responded to the gas market concerns on the east coast by increasing its exploration activity.15 The Australian Domestic Gas Security Mechanism has a major role to play. Fearing regulation would allow the government to limit LNG exports if they fail to supply enough to the domestic markets, producers are presumably exploring more. The apparent lift in Queensland gas exploration follows a string of recent announcements from east coast gas companies looking to improve deliveries into the domestic market.
With a potential shortfall of up 465 PJ by 203016, the east coast of Australia faces a gas shortage over the next 15 years, keep gas prices as competitive as possible, east Australia needs to develop more supply or reduce gas demand. To ensure energy security, affordable prices for consumers, and maintain system reliability, Australia needs its gas industry to function effectively; more needs to be done to encourage gas supply development. The country will need an additional investment of AUS$50 billion in new natural gas development by 2030 to meet its demands.17
References1. AEMO, September 2017, Update to Gas Statement of
Opportunities2. Resources and Energy Quarterly, September 20173. AEMO, December 2016, WA Gas Statement of Opportunities4. AEMO, December 2016, Development required to maintain
sufficient gas reserves in WA5. AEMO, March 2017, Gas Statement of Opportunities, March
2017 6. Bloomberg, 20 March 2017, Chevron Calls End of LNG Mega
Project After $88 Billion Spree7. AEMO, September 2017, Update to Gas Statement of
Opportunities8. ABC News, 9 March 2017, Gas supply shortage will threaten
nation’s power supplies, AEMO forecasts9. NT News, 12 July 2017, Work on $800 million Northern
Territory gas pipeline to east coast to start today10. SBS, 20 June 2017, APA considers new Queensland gas
pipeline11. Australian Financial Review, 19 April 2017, Canberra dusts
off WA to east coast gas pipeline 12. Reuters, 4 July 2017, Qatar plans to boost gas output
capacity amid Gulf rift13. Bloomberg, 26 October 2017, From Russia With Love: A
Super-Chilled Prize for China14. Australian Bureau of Statistics, 8412.0 - Mineral and
Petroleum Exploration, Australia, Jun 201715. The Australian, 5 September 2017, East coast gas crisis
spurs rise in exploration drilling16. McKinsey, March 2017, Meeting east Australia’s gas supply
challenge17. APPEA, 11 August 2017, Gas supply debate must not lose
sight of economic benefits
THAT WAS A SAMPLE OF
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