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Total blames high prices for loss of reserves at GLNG

The French major says high-costs are to blame for a gas shortage at Gladstone liquefied natural gas (GLNG) project

French major Total has blamed Australia’s high-cost operating environment for a gas shortage that is hampering the coal-bed methane (CBM) fuelled Gladstone liquefied natural gas (GLNG) export project.

The $18.5 billion GLNG scheme is 90% complete and due to start-up by mid-2015 in the eastern state of Queensland. But Jean-Marie Guillermou, head of Total’s operations in the Asia-Pacific region, said that unexpectedly high costs for the upstream development of the CBM fields had cut the volume of gas reserves for the project because they could not be economically developed. “We have been loosing reserves because of the too-high price,” he told the Australian Financial Review

Adelaide-based Santos, which is leading the project, has been publicly upbeat about the performance of CBM, which underpins the 7.8 million tonne per year (t/y) export plant, but analysts at Wall Street research firm Bernstein have long been sceptical about the underlying resource and flow rates.  

Guillermou said the cost inflation has forced a change in contracting strategy, while the joint venture has increased its efforts to access gas from other suppliers. GLNG is also negotiating with Arrow Energy - a 50-50 venture between Shell and PetroChina – to feed the export plant.

Using several smaller contractors to develop the CBM fields, instead of using Fluor as the main turnkey contractor, would also help cut costs, he added.“The initial contracting strategy is dead. I am sure we still have room for manoeuvre to try to reduce the cost of upstream development in Australia, especially onshore,” he told the newspaper. 

Santos told investors last month that the venture is in the process of moving to in-house engineering, procurement and construction management to deliver improved efficiencies. 

Two other CBM-fuelled LNG export projects are also being built in Gladstone. BG Group’s $20.4bn Queensland Curtis LNG (QCLNG) 8.5 million t/y scheme is on track to deliver first LNG by the end of this year. Meanwhile, the Origin-led 9m t/y Australia Pacific LNG (APLNG) plant is 84% complete and due to start up its first train in mid-2015. The second train will start producing some six to nine months later, with full production expected by mid-2016, reported Origin. 

Data from Australian-based consultancy EnergyQuest shows APLNG has the largest reserves with proved, possible and probable (3P) plus best estimated contingent resources (2C) of 20,270 petajoules. Origin says that APLNG needs around 13,640 PJ (excluding ramp and tail gas) to cover 10,000 PJ for two LNG trains. 

QCLNG is estimated to have 16,066 PJ of 3P plus 2C. It is estimated to need 10,350 PJ for two trains plus domestic contracts after taking account of third party gas from APLNG, AGL and Origin. 

GLNG is a smaller project. Santos has reported 6,780 PJ of proved and possible reserves (2P) plus 2C. (It has stopped reporting 3P but Possible was previously 1,417 PJ). It is estimated to need 8,500 PJ for two trains plus domestic contracts after taking account of third-party gas from Santos, Origin and WestSide. 

Arrow LNG is estimated to have 3P plus 2C of 18,100 PJ.

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