Australian LNG hotting up
Seaborne LNG-export capacity will jump nearly 20% in 2018 as new projects ramp up
Five down, two to go. That's the current state-of-play for Australia's suite of new LNG projects.
As expected, Australian LNG exports are growing quickly. Shipments passed 50m tonnes in 2016-17, up by nearly 40% from the previous year, as three new projects hit their straps. The two most recent Queensland coal-seam-gas projects performed strongly. The Santos-operated Gladstone LNG (GLNG) doubled exports to 5m tonnes, while its neighbour, Australia Pacific LNG (APLNG) operated by Origin Energy and ConocoPhillips, produced nearly 7m. Both will continue to ramp up output in 2018 to their contract levels and beyond. APLNG underwent an operational test for project financiers in mid-2017 and achieved production of 10% above its nameplate capacity of 9m tonnes a year.
The largest contributor to 2016-17's export growth was Chevron's Gorgon project on Barrow Island, offshore Western Australia. Gorgon's path to production was potted. Construction delays and a massive cost blowout put it well behind schedule and over budget. It even experienced problems in initial start-up in mid-2016. But it still produced 6.5m tonnes in 2016-17 and by the September 2017 was producing at an annualised rate of 14m t/y, with further upside potential to its nameplate capacity of just over 15m t/y in 2018.
Gorgon hasn't been spared from the global gas-price downturn. Petronet recently renegotiated its 1.44m-t/y Gorgon contract to extract better terms from project partner ExxonMobil. The US supermajor will now bear the cost of shipping LNG from Australia to India and will charge 13.9% of the prevailing Brent oil price, instead of 14.5% of the Japanese Crude Cocktail. Petronet will also increase its annual volume by 1m t/y, priced at 12.5% of Brent. EnergyQuest estimates that assuming an oil price of $50 a barrel, the weighted average price to Petronet will fall from $7.90 to $6.66 per million British thermal units.
The ramp-up of Chevron's 8.9m-t/y Wheatstone, which started production in October 2017, will also fuel 2018 export growth. Wheatstone is about a year behind schedule and the final price tag of $34bn is about 17% over the original $29bn estimate, but by Australian LNG project standards Wheatstone's construction went well.
The start-up of Wheatstone makes eight Australian LNG projects in production.
The next two new projects will take Australian LNG to new frontiers, using massive vessels to tap offshore gasfields in the Browse Basin, off the coast of Western Australia.
First up is the 8.9m-t/y Ichthys project operated by Japan's Inpex. It involves an offshore processing facility, a floating, production, storage and offloading (FPSO) vessel, an 889km, 42-inch pipeline to Darwin and an onshore liquefaction plant. The processing facility arrived on location in May 2017 and the Ichthys Venturer FPSO sailed into Australian waters in August. The facility is expected to start turning out superchilled gas by the end of March 2018. Ichthys is Japan's biggest foreign investment.
After Ichthys, Shell's long-awaited Prelude floating LNG project is due in late 2018. Prelude is the biggest floating structure ever built. It arrived in Australian waters in July. At the time of the final investment decision in May 2011, Shell said the project would cost somewhere between $10.8bn and $12.6bn. More recent estimates have put the final cost at around $14bn. Construction challenges pushed back the target date for first cargoes from 2017 to 2018. Prelude will be capable of processing about 3.6m t/y of LNG, along with condensate and LPG.
EnergyQuest expects exports of nearly 70m tonnes in 2018, up nearly 20% from 2017. That forecast takes into account moves by the federal government to divert some Queensland production into the east coast domestic market to combat supply shortages. We forecast a peak in exports of 79m tonnes in 2019. However, in the absence of new developments, exports begin to decline from 2020. This reflects a forecast decline in North-West Shelf field production around 2020. This will be exacerbated by the decline of the Bayu-Undan field feeding Darwin LNG soon thereafter. Both Woodside, operator of the NWS, and ConocoPhillips, operator of Darwin LNG, are working hard on backfill options for both of these plants.
For now at least, Australia's LNG export industry is reaping the gains of a decade of heavy investment.
Graeme Bethune is Chief Executive of EnergyQuest, an Australian based consultancy
This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here