LNG year in review

QUESTION: In which countries are greenfield LNG projects under construction? Answer: Australia, PNG and… in fact, nowhere else.
LNG year in review LNG year in review LNG year in review LNG year in review LNG year in review

From our viewpoint in Australia, where seven LNG projects are under construction, it's easy to believe the LNG boom is a part of a larger, global phenomenon.

In fact, Australia and PNG are the only countries in the world building greenfield projects.

Elsewhere, project operators are talking about debottlenecking in Qatar, adding trains at Sakhalin in Russia and at Tangguh in Indonesia but there's not a single new LNG project.

The Australian boom just keeps rolling, defying critics who have said the global market does not have room and consolidation or even the shelving of some projects was on the cards.

As recently as the start of the year, Macquarie Bank was saying Australia Pacific LNG would probably not go ahead.

The development of the LNG industry in the past year is breathtaking even for the most bullish proponents.

At the beginning of 2011, Australia had three LNG projects under construction - Pluto, Gorgon and Queensland Curtis LNG, adding 4.3 million tonnes, 15MMt and 8.5MMt respectively to Australia's annual LNG exports.

This year produced final investment decisions on four more projects - Gladstone LNG (7.8MMt per annum), APLNG (4.5MMtpa), Wheatstone (8.9MMtpa) and Prelude (3.6MMtpa).

FID on the 8.4MMtpa Ichthys project is expected in the next quarter and the 12Mtpa Browse LNG must follow within months if the project's partners do not want to risk losing retention licences over their vast gas reserves.

In total, Australia is set to have nine new LNG projects by mid-2012, with total new capacity of 73MMtpa.

PNG LNG adds another 6.9MMtpa to an Australasian total of 10 projects.

All of the projects under construction are underpinned by long-term customer sales agreements, which is the ultimate rebuff to the critics.

The only projects for which development has fallen significantly behind expectations are APLNG - although FID on a second train is now looking more likely after last month's news of an offtake agreement with Kansai Electric - and Pluto 2, which is still catching up with Woodside's over-reaching ambitions.

While there have been cost increases and delays at most projects, given the unprecedented scale of development it is remarkable large sections of the industry have not fallen a long way behind original development timeframes.

Graeme Bethune, chief executive of energy advisory firm, EnergyQuest, said Australia was building more LNG projects than have ever been built in one country at any one time.

"I would call it as: bulls 10, bears zero."

He said EnergyQuest expected the value of LNG exports to grow from around $10 billion per annum now to over $40 billion, rivalling coal and iron ore exports.

"Australia will be the world's leading exporter of LNG," Bethune said.

When the projects are completed, we estimate that Australia will be supplying 10% of China's gas needs, 30% of Japan's needs and 30% of Korea's needs, with major economic and environmental benefits for those countries."

Bethune said Australia had been in the right place at the right time.

"Australia is unusual in being an OECD economy in the Asian region and that has definite advantages," he said.

"We're a free-market economy that encourages foreign investment and we don't have the drawback of a national oil company that is centrally trying to control everything.

"It might sound like a bold statement but the development of the industry has in large part been a triumph of economic policy and management."

Bethune said Australia's geology and rich endowment with gas reserves was also a critical factor.

"The diversity of our gas fields is an unusual advantage for Australia. We have onshore and offshore LNG-sized reserves and that's been a big factor in the rapid growth of the industry."

He said the most serious threats to Australia's LNG boom were not external market forces but internal factors including costs, resources, changing government policies, natural disasters and local politics.

"In the last quarter alone the carbon tax legislation has passed, the PRRT [Petroleum Resource Rent Tax] legislation is on its way and the federal government has introduced further environmental requirements for coal seam gas development, not because of fundamental concerns but to win support for passage of the mining [Minerals] Resource Rent Tax," Bethune said.

"The challenges are unlikely to be ‘deal-breakers' individually but cumulatively are leading to delays, higher costs and lower profitability."

He said the future of Australian LNG projects currently under construction or close to FID was assured by long-term sales contracts but new projects would face increasing competition from overseas competitors.

"Proposals to export LNG from Canada and the US are gaining momentum and Mozambique has suddenly entered the picture following giant offshore gas discoveries in recent weeks by Anadarko and ENI," he said.

"Being in the right place at the right time doesn't last forever."

On Monday, Anadarko announced a massive increase in its estimate of its Mozambique discovery from 6 trillion cubic feet to between 15 and 30Tcf of recoverable gas.

The US independent is already talking about plans to export LNG from 2018, with exports likely to head to China and Japan.

The company is planning at least two trains, with flexibility to expand to six.

ENI is also emerging as a competitor for the next group of Australian LNG projects, following news in October of its own giant gas discovery in the same deepwater region.

ENI, which said the estimated 22.5Tcf discovery was the biggest in the company's history, is also talking about an LNG development with its partners in the find, which include Kogas.

Kogas is a foundation customer and equity partner in Gladstone LNG and more recently signed up to take all of Shell's production from Prelude and about one quarter of the cargoes from Ichthys.

The Korean state gas company's participation in the ENI discovery is a timely reminder about the global nature of the LNG business.

Australia might seem to be the only game in town but it would be a mistake to assume it is Australia's right.

First published in sister publication EnergyNewsPremium.net on Friday.

Update*

An eagle-eyed reader of EnergyNewsPremium.net noted one project that escaped scrutiny.

He noted that while Australia (and Papua New Guinea) was where most of the LNG construction was taking place, there was an admittedly small project that had been missed.

"The Donggi Senoro project in Indonesia is also under construction, having declared FID on January January 23 with target start-up in 2014," the reader said.

Compared to the scale of the Australian and PNG projects, the Mitsubishi Corporation-operated project in Sulawesi will be capable of producing just 2 million tonnes of LNG per annum.

On the same note, the editor would like to include the InterOil-led Gulf LNG project in PNG into the mix as well.

None of this changes the fact that Australia and PNG are set to record a major LNG export boom.

*This is an edited version of a story published in sister publication EnergyNewsPremium.net yesterday.

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