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LNG feedgas projects face carbon risk

Australian upstream projects to extend LNG plant lifespans will need to consider carbon emissions impacts

Australian independent Woodside hailed positive market sentiment towards a planned expansion of its Pluto LNG facility as it sealed a supply deal with German utility Uniper in September. But the upstream developments earmarked to supply Pluto Train 2 and to extend the life of existing LNG liquefaction facilities may face cost and carbon emissions challenges beyond the search for renewing and new buyers.

Woodside signed a heads of agreement (HoA) with Uniper that foresees a 13-year LNG sale and purchase agreement (SPA) for 0.5mn t/yr from 2021, rising to 1mn t/yr in 2025. The volume increase is contingent on the green light for a second Pluto train and FID on the Scarborough offshore field which would supply it.

Scarborough is unusual in a group of projects that will account for account for nearly half of Australian upstream spend over the next five years, according to consultancy Wood Mackenzie, in that it will supply a new train, albeit a brownfield development at an existing plant. The other projects will instead extend the lives of existing LNG export capacity—  Woodside’s Browse and Chevron’s Clio-Acme supplying the former’s NWS LNG, US independent ConocoPhillips’ Barossa its Darwin LNG and Shell’s Crux its Prelude floating LNG facility.

CO2 and cost threats

As Australian LNG production soared over the last decade to where it is predicted to reach 80mn t next year, the industry suffered construction delays and multi-billion dollar cost blowouts—such as at Chevron’s Gorgon LNG project in Western Australia (WA), where costs ballooned from $37bn to over $60bn.

The new upstream developments will largely deliver into existing infrastructure, significantly simplifying project scope and reducing the risk of a repeat. But the scale and complexity of these developments will remain challenging. Woodside hopes to take FID on Scarborough in 2020 and the $20.5bn Browse project in 2021, with ConocoPhillips aiming to sanction its Barossa development in 2020.

“The second wave will have to look very different from a cost and delivery perspective, as none of the companies involved want to go through that again,” says Wood Mackenzie research director Angus Rodger. “While brownfield projects like these should in theory be easier than the first wave, these are challenging developments, and are in no way ‘slam dunks’.”

“Developing high CO2 assets goes against where the industry is moving” Rodger, Wood Mackenzie

The Scarborough and Browse projects are both very remote with considerable subsurface risk, says Rodger, while, in addition, Browse and Barossa also have a considerable CO2 content within the gas reservoirs. Woodside CEO Peter Coleman is, though, bullish about Browse, given that it has a high liquids content that will provide an additional high-value product alongside its gas.

“Developing high CO2 assets—particularly without a sequestration or complete offset solution—goes against where the industry is moving towards in terms of carbon footprint,” says Rodger. “Venting large amounts of CO2 is obviously not a great look and will come at a cost one way or another. That not only impacts project economics, but also the marketing of that investment to shareholders and other stakeholders.”

A Woodside submission to the government last November estimated that developing Browse using two floating production, storage and offloading vessels would result in a wide range of 4-7mn t/yr CO2e. At a national level, a government-led quarterly greenhouse gas update in August said LNG output had caused a 4.7mn t CO2e increase over the past year.   

80mn t/yr; Australia’s projected LNG capacity in 2020

While LNG’s potential negative impact on meeting its 2030 goals under the Paris Agreement may be worrying Canberra, producers have found an ally in the WA state government. In late August the state rejected attempts by the local Environmental Protection Authority to demand that all new emissions-intensive projects in the state, which would include LNG facilities and the fields supplying them, should be carbon-neutral.

“Now the WA govt has set out its policy on emissions to avoid negative impacts on future projects, the main challenges facing this second wave are probably getting contracts in the face of strong international competition,” says Graeme Bethune, CEO of advisory firm Energy Quest.

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