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Australia's LNG comes of age

Western Australia has the potential resources and infrastructure to supply the world with LNG for decades

It's hard to grasp the sheer size and remoteness of Western Australia and the ancient geological processes that have shaped its vast onshore and offshore cache of natural gas.

Three-toed dinosaur footprints on the rocky foreshore at James Price, some 50km (31 miles) north of Broome in the Kimberley hint at the age of the land. Aboriginal history recalls the existence of sites now long under water which date from a time when sea levels were far lower than they are today and the coastline edged the continental shelf.

The decomposition and pressurisation of organic material over millennia have led to a rich deposit of oil and gas fields under the relatively shallow seawaters of Western Australia and the Northern Territory—only 100 metres deep in certain areas. Much has been discovered and some of it exploited by several mega liquefied natural gas projects, including the North West Shelf (NWS), Australia's largest resource development project, which started exports in 1989.

In early 2016, Chevron began exports from the offshore Carnarvon Basin via the Gorgon LNG facility on Barrow Island, some 50km north-west of the Pilbara coast. Wheatstone LNG and Pluto LNG are also now up and running, supplying customers in Japan, South Korea, Taiwan and China with gas from ancient formations offshore Western Australia. Later this year, Inpex and Total's Ichthys LNG facility in Darwin and Shell's floating LNG project Prelude will go live.

Good position

For a while after oil prices plummeted in mid-2014, the timing of these new, costly LNG export projects looked shaky but, with LNG demand growth predicted to surge early next decade, it looks likely that these operators will be well positioned to ride the next wave of LNG demand growth.

Consultancy Wood Mackenzie estimates that global LNG demand will grow by 75% from 210m tonnes in 2017 to 368m tonnes by 2035, requiring around 65m tonnes a year of new supply by 2025. With up to 150m t/y of new capacity sanctioned over the next two years, the race is on to secure first mover advantage.

The bulk of new LNG demand growth is expected to be in Asia as coal-to-gas switching environmental policies take effect. Western Australia is geographically well placed to take advantage of this—particularly if the China-US trade war persists—providing it can keep costs down through collaboration and develop resources in a timely manner.

"In the race for new supply, Western Australia—which has over 50m t/y of export capacity and nearly 80 trillion cubic feet of undeveloped resource—can remain competitive through collaboration," says Gavin Thompson, Head of Asia Pacific Research at Wood Mackenzie.

For Perth-headquartered Woodside, this presents a unique opportunity to bring two major projects to fruition. The first involves the Torosa, Brecknock and Calliance gas fields in the Browse Basin which are estimated to hold gross contingent resources (2C) of 15.4 trillion cf of dry gas and 453m barrels of condensate.

Earlier this year, Woodside agreed a third-party tolling arrangement with its JV partners in the North West Shelf (NWS) project to process Browse gas through NWS infrastructure.

The agreement is a major step forward for Woodside, which operates the NWS for its five partners: BHP Billiton, BP, Chevron, Shell and Japan's Mitsui & Mitsubishi (MIMI). Commissioned in 1989, the five-train NWS project is Australia's oldest LNG facility and, with initial capex costs long paid off, one of the most competitive around.

Woodside believes the tieback option makes the best economic sense for Browse and the NWS participants since it will enable them to earn tolling fees while ensuring gas can be processed at "comfortably below" $2 per million British thermal units.

LNG hub plan

"I can't understate how important this is to unlocking the future value of the North West Shelf and giving it a life beyond the production of its existing equity gas. It's the key that unlocks that big oak door that we've been knocking on for a long time," says Coleman.

Woodside's second development option involves creating a hub for LNG processing and supply at the Burrup Peninsula at Karratha. Through subsea tiebacks, this would see Woodside extract gas from the offshore Scarborough fields to expand Pluto LNG's capacity.

An interconnector would also be built to connect up Pluto and the NWS's Karratha plant, creating a hub for LNG exports and supply by trucks to remote mine sites in Western Australia's interior. Woodside is also looking to grow the use of LNG as a marine fuel through its Green Corridor project.

Subject to JV agreement, processing Scarborough through Pluto LNG would significantly extend the life of the Woodside-operated facility, meaning WA's deep vein of natural gas will continue supplying the world with LNG for decades.

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