Posted on 08/12/2014 5:19:09 AM PDT by thackney
Douglas-Westwood, a UK-headquartered provider of energy business strategy, research and commercial due-diligence services, commented on "Australian LNG - A Lost Cause?" in its latest edition of DW Monday.
DW MONDAY: "AUSTRALIAN LNG - A LOST CAUSE?"
Recent news headlines on the liquefied natural gas (LNG) sector in Australia seem to be centered around its unsustainable rising costs. Woodside Petroleum had to ditch plans last year for its Browse LNG plant, which had gone way over budget at an estimated cost of $80 billion. In the interest of continuing the development, Woodside and its partners have now turned to floating LNG (FLNG) vessels as a practicable alternative. More recently, Santos and GDF Suez have also scrapped plans to build gas plants off the Northern Territory Coast of Australia. Projects that have gone ahead have seen significantly increased costs. At approximately 80 percent completion, the Gorgon LNG project is now estimated to cost $54 billion – a sharp contrast to the original budget of $37 billion (46 percent over-budget).
In the meantime, despite Australia’s LNG cost challenges, the United States is moving forward with the possibility of bringing onstream an LNG plant that would cost between $2.2 billion and $3.7 billion. Magnolia LNG in Louisiana is expected to come onstream in 2018, potentially the nation’s first LNG export plant with the capability of processing 8 million metric tons per annum. This shows the feasibility of constructing similar infrastructure at that price, but outside Australia!
Australia’s Woodside is, at the same time, looking to make a move overseas in search of better economics. The country stands to lose $97 billion of potential LNG projects to East Africa and North America unless radical cost reduction is applied. Furthermore, Russia and China’s $400 billion gas deal could possibly undermine several of Australia’s gas projects.
Australia has actively been finding ways of implementing reforms in an attempt to reduce operating costs. Even with the recent Russia-China deal, pipeline gas from Russia will only be supporting 6 percent of China’s gas demand by 2030. China cannot avoid seeking diversity in its energy sources. New technologies and innovations, such as the much-anticipated FLNG vessels, will present themselves as potential solutions. With these cost-reducing opportunities/ challenges, it proves to be interesting how the scenario will play out for Australia, new LNG producer entrants elsewhere and the potential for new gas pipeline suppliers to China.
My father was an internationally recognized expert in hydrocarbon processing. At one point he was contacted by a group of investors requesting him to head up the design of ship board refineries to service Africa. The idea was that these floating refineries would rotate through several African ports, refine the oil they had accumulated, then move on to the next port. He ultimately declined to participate in the venture and his reasoning was that it is impossible to build a refinery without its myriad tanks to store product between intermediate stages. I wonder if floating LNG plants have a similar constraint.
No, there is not much intermediate steps. But there is a huge amount of energy required to chill down to -260°F.
The natural gas become pure methane in the process and other components like ethane that may exist in small quantities do liquefy out at “hotter” temperatures, but it is not an intermediate step that then goes out for more processing.
The floating LNG plant is seen now as a way to reduce total cost from first bringing the raw natural gas onshore then shipping LNG out by ships.
Other LNG export projects are having some trouble as well. The economics can be tough, in spite of the high demand from Asia and Europe. LNG is an expensive process.
Yedlin: Apache’s Kitimat exit needs to be heeded {From LNG export terminal}
http://www.calgaryherald.com/business/energy-resources/Yedlin+Apache+Kitimat+exit+needs+heeded/10103850/story.html?__lsa=2b68-7b5d
Is Apache Corp.’s decision to pull out of a liquefied natural gas project at Kitimat, B.C., a leading indicator on the fate of the costly mega projects, not to mention a blow to a government that sees a thriving LNG sector as a longterm economic driver in that province?
One can’t help but think so. Apache, with a market value of about $35 billion US isn’t exactly a small player on the global energy stage. And the irony is that it was one of the first to the LNG game in B.C., buying 51 per cent of the project from Galveston LNG for $150 million in January 2010.
But Kitimat isn’t the only LNG project Apache has decided to jettison. It’s also stepping away from the Wheatstone project, another Chevron-led project that includes the Kuwait Foreign Petroleum Exploration Co. as another partner.
To be sure, Apache was under pressure from one of its shareholders, Jana Partners, to abandon the long-haul, expensive project. And while that raises questions about the disconnect between market expectations and the long-term cycle of the oil and gas business, Apache’s exit from the Kitimat project should not be taken lightly.
Rather it should be seen as a sign that Canada won’t be the player in the LNG world that B.C. Premier Christy Clark expects. Kitimat was the most advanced of the three front-runners in terms of having received regulatory approvals, the other two being Pacific Northwest LNG and LNG Canada. Now, with the exit of Apache and in the absence of another buyer to take its share, a final decision on the project is inevitably delayed.
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