According to a study published by GBI Research, Australia’s offshore drilling expenditure in 2011 was US$1.9 billion – US$1.3 billion of which was dedicated to deepwater hydrocarbon production. GBI Research predicts the deepwater portion will grow to US$2.5 billion by 2016 as natural gas exploration has intensified, steadily increasing from 72 wells in 2009 to an anticipated 153 in 2016. This reflects about US$180 billion of planned investment in several LNG projects in Australia. While not all are offshore, the projects as a whole are set to make gas the country’s fastest-growing export over the next five years and move it ahead of Qatar as the biggest global producer of LNG.
At least, that was the forecast of many analysts just 18 months ago, but things have changed. In March 2012 BG offered a stake of up to 20% in its Queensland Curtis Island project and many expected a quick sale, with strong interest from Asian buyers keen on acquiring holdings in LNG projects to guarantee or hedge supply. At that time Japanese utilities were particularly active seeking alternatives to nuclear power following the Fukushima disaster, and imported gas was the favored alternative. Only at the very end of October 2012 did BG sign a Heads of Agreement with CNOOC for the sale of certain interests in Queensland Curtis LNG (QCLNG) for US$1.93 billion and the sale of LNG from BG Group’s global LNG portfolio. The lack of interest has been described as ‘ominous’ both for the company and the Australian gas industry.
The reality is that cost overruns, labor shortages, increased competition from North America and potentially East Africa, and some regulatory issues, mean that delays to the final investment decisions on at least four multi-billion dollar offshore projects have been acknowledged by Martin Ferguson, Australia’s natural resources minister. These four developments, with a current value of around US$104 billion, are the Browse and Sunrise projects operated by Woodside, the Scarborough gas field involving ExxonMobil and BHP Billiton and Hess’s Equus project. Not mentioned by the minister was Arrow Energy’s US$20 billion LNG export project on Queensland’s Curtis Island, where a decision is due late 2013, or the Gladstone LNG Fishermans Landing, a joint venture between LNG Limited and a subsidiary of CNPC.
Currently, there are three operating LNG processing plants in Australia: the North West Shelf (NWS) LNG project in Western Australia, the Darwin LNG plant and most recently the Pluto project. There are several other conventional LNG ventures at various stages of development, with the massive Gorgon Project under construction and due to commence in 2014–2015. More recently, final investment decisions have been taken for the Wheatstone project, due to be operational in 2016, and Ichthys, which will follow in 2017. Shell’s Prelude project, which will use Floating LNG technology, is to be operational by 2016–2017. As yet, there are no operational CSG-LNG export projects in the world. The Queensland Curtis LNG, Gladstone LNG and Australia-Pacific LNG projects (where both Origin Energy and ConocoPhillips are looking to sell a combined 15% stake) are all currently under construction in Gladstone, Queensland, and will become operational from 2014.
The Australian government has been strongly promoting the usage of LNG as a primary source of fuel for heavy goods transport along its highways, spurring on further investments by creating a consistent demand. Many analysts now believe that a switch to East Africa, where discovered volumes look to present a challenge to Australian LNG projects, would hold back Australia’s market share in China and India, where energy consumption is forecast to rise more than 60% by 2030. Key domestic players remain upbeat, however. The Santos CEO, David Knox, is adamant that his company can compete “provided we keep our productivity up, our cost base under reasonable control and we can unlock the resources”. Woodside CEO, Peter Coleman, commented that given the maturity of oil and gas regulations and the lack of infrastructure in East Africa “some of those projects probably won’t come on as quickly as people think they will.”