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CBM-to-LNG makes its mark in Australia

Australia's coalbed methane-to-liquefied natural gas (CBM-to-LNG) projects have generally drawn a bad rap from the wider industry. But they are proving more successful than the nation’s conventional LNG schemes, energy research consultancy Wood Mackenzie said

CBM-to-LNG has mainly received a lot of flak because the concept has not truly been tested before, Adele Long, a Perth-based upstream specialist at Wood Mackenzie told Petroleum Economist.

There is, comparatively, a higher level of confidence in Australia’s conventional projects, Gorgon, Wheatstone and Ichthys. But so far, the delivery of conventional Australian LNG has been disappointing. All are between at least seven and 18 months behind their original schedule with further delays a real possibility, Wood Mackenzie said in its latest report.

By contrast, CBM-to-LNG start-ups remain largely on or close to original guidance. And it may be that the unconventional export schemes’ construction phase may actually prove to be more successful than the traditional LNG plants being built.

A new chapter

The first cargo from the world’s first CBM-to-LNG train was exported from BG’s Queensland Curtis LNG (QCLNG) plant in January 2015. It marked the first wave of new Australian LNG, with some 55 million tonnes of capacity still being built from another 13 trains.

Two other competing CBM-to-LNG projects, the Santos-led Gladstone LNG (GLNG) and Origin’s Australia Pacific LNG (APLNG), will be eager to replicate BG’s successful ramp-up. 

Santos, which operates GLNG on behalf of Malaysian national oil company (NOC) Petronas, French major Total and South Korea’s Kogas, aims to ship its first cargo in September. While Origin, which runs APLNG on behalf of partners US supermajor ConocoPhillips and Chinese NOC Sinopec, is targeting its first export in October. 

But it is the second trains at the CBM-to-LNG projects which will be most challenging, warned Long. CBM-to-LNG will be tested this year and next, and of particular concern is how each operator will ramp-up significant volumes of gas in a very short time.

The best acreage with the most productive wells will supply the first train of each project, and risk remains around the deliverability and consistency of the second and third tier supply that will feed the second trains, Long added.

Close to 1,000 wells will be drilled each year to maintain momentum in the upstream, and the operators ability to manage such high activity levels, as well as operating an LNG plant, has not yet truly been tested. This will partly be managed with a slower ramp-up period, with GLNG’s second train taking three years to hit full capacity. 

BG, which has managed the ramp up of its first train at the QCLNG project well so far, will be the first to start-up a second train this September. 

But with only one out of six trains producing now, the successful delivery of the remaining trains will dictate whether the CBM-to-LNG ramp up is a success.

Meanwhile, Chevron is targeting an end-2015 start for first train at its Gorgon LNG plant - which has been hamstrung by logistical and productivity issues - against previous guidance of mid-2015. With activity so far focused on the first train, Wood Mackenzie expects more delays for the second and third trains, with the Gorgon scheme only reaching full production in late 2018.

A second wave of LNG from Australia will start in 2017. With Inpex’s Ichthys, Chervon’s Wheatstone and Shell’s floating LNG project Prelude adding a further 21 million tonnes to the nation’s exports. 

Wood Mackenzie predicts first LNG from Wheatstone in mid-2017, against Chevron’s end-2016 direction. Japan’s Inpex is targeting first LNG from Ichthys by end-2016, but the energy research company takes a more conservative view, estimating a mid-2017 start, given potential delays for crucial parts being built in South Korean shipyards.

Shell is still eyeing a 2017 start for its Prelude floating LNG (FLNG) project and Wood Mackenzie expects first LNG in September that year, but warns even a lag of a few months would impinge on the cyclone season, requiring start-up to be postponed until 2018. Cost increases are also likely at all three projects.

Taking the throne

Assuming all projects ramp-up successfully, Australia will overtake Qatar as the world’s largest LNG producer by around 2018-19, producing 82 million tonnes per year of LNG.

Just a year ago, the outlook for any new Australian LNG trains looked bleak, given the budget blowouts and delays that had plagued developers. But in the wake of falling oil prices and the subsequent deflationary pressures, the industry is reevaluating projects, such as Woodside’s Browse FLNG, which were almost written off.

But the most credible option looks to be a backfill and possible expansion of Darwin LNG, said Long. There are multiple sources of gas in the offshore Bonaparte and Browse basins that could feed into the plant. But the key issue will be aligning the various different stakeholders operating the different discoveries.

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