Gasses for the masses: a clean energy future

THE pursuit of a clean energy future has led to a transformation in the Australian oil and gas industry, with local and global demand forcing a change in direction and rapid expansion of the sector.
A decrease in Australian oil production and a growing demand for LNG and natural gas has seen the sector shift its focus, with a record number of LNG and CSG projects in planning or construction phases across the country.
WA, being at the forefront of Australia’s petroleum production and home to some of the nation’s largest proposed LNG projects, will play a major part in this transition.
According to Department of Mines and Petroleum statistics, petroleum is currently WA’s second largest resource sector after iron ore, with $23.5 billion or 22 per cent of total resource sales in 2011: a 3 per cent increase compared to the previous year.
LNG was the second most valuable commodity in WA in 2011, with a total sales value of $9.3 billion; the state’s share of Australian LNG production totalled 63 per cent.
WA’s crude oil and condensate production sat at 110 million barrels: 77 per cent of the nation’s production in the same year.
The resource-rich state already boasts successful operations including Woodside’s newly-operational Pluto LNG project, Apache’s Devil Creek gas plant, and developments by numerous other operators including AWE, Origin Energy, Santos, BHP Billiton Petroleum, Roc Oil and ENI Australia.
WA has seven sedimentary basins. With large reserves at three of these – Carnarvon (more than 90 trillion cubic feet of gas), Browse (35tcf) and Bonaparte (27tcf) – and a recent significant discovery in the Perth Basin, the state’s oil and gas future is looking bright.
WA Mines and Petroleum minister Norman Moore is certainly optimistic.
“The world is going to need more energy: countries will want to increase living standards and energy is fundamental to that,” he said.
“Gas will become the preferred fuel for power generation as there is less reliance on coal.
“I see a strong future for gas, and it is similar for oil.”
The growth of oil and gas
According to Deloitte Access Economics’ report Advancing Australia: Harnessing our comparative energy advantage, about $165 billion of capital investment was pledged for LNG projects in Australia in the lead up to June 2012.
“If all these projects proceed as planned, Australia’s LNG exports are likely to increase more than three-fold over the next five years,” the report stated.
“In terms of actual output, LNG is expected to grow by around 250 per cent between 2011 and 2018.”
Globally, demand for LNG is forecast to triple in the next two decades, with the world’s largest LNG consumers in Asia (accounting for 58 per cent of global LNG demand in 2010) expected to require about 338 million tonnes per annum by 2030.
The Deloitte report indicated that the vast increase in global demand, particularly from Asia, would drive LNG export earnings to levels only previously achieved by the iron ore and coal sectors.
The next 20 years will also be a period of change, with traditional LNG markets such as Japan, Korea and Taiwan facing slower economic growth and making way for the rapidly expanding economies of China and India.
“China, for example, is expected to increase imported LNG from around 3mtpa in 2010 to close to 30mtpa in 2030,” the report stated.
“A similar dynamic is developing in India: in 2030, India is also expected to increase LNG imports from 8mtpa to 26mtpa over the same period.”
The growth of these countries and the ensuing demand for LNG means there are major commercial opportunities for WA.
By 2020, WA’s overall LNG capacity is predicted to potentially exceed 80mtpa. Meanwhile, investment in the state continues to rise.
The Department of Mines and Petroleum released an update in March, announcing that the state’s mining sector had reached a record investment of $35.6 million in 2011: a 44 per cent increase on the previous year.
The update also acknowledged that the result was due to strong demand for resource commodities from Asia that promoted expansion in both the minerals and petroleum sectors.
About 140 WA projects are currently in different stages of development, at a cost of about $167 billion, and a further $151 billion has been set aside for planned or possible projects in coming years.
The majority of this investment will go toward major developments offshore northwest WA, including Chevron’s $43 billion Gorgon and $30 billion Wheatstone LNG projects.
The Gorgon project is the largest single resource natural gas development in Australia, and will draw from the Gorgon and Jansz-Io gas fields near Barrow Island. The fields are estimated to hold about 40tcf of LNG.
Chevron has already started construction of the project’s 15mtpa LNG plant and a domestic gas plant with the capacity to provide 300 terajoules of gas per day to the gas market in WA.
Construction of Chevron’s other large-scale development – Wheatstone LNG near Onslow – has also begun.
The foundation project for Wheatstone includes two LNG trains with a capacity of 8.9mtpa and a domestic gas plant.
According to the company’s website, Chevron has already committed more than 80 per cent of its equity LNG from Wheatstone to a number of “premier LNG buyers” in order to better service Australia and the Asia-Pacific region.
Shell’s proposed floating LNG (FLNG) facility in the Browse Basin off WA’s northwest coast is another example of a mammoth project that will bring significant economic benefit to the state.
It will be the world’s first such operation, and is expected to be one of the largest floating structures ever built at 488m long, 74m wide and a little more than 600,000t in weight.
Designed to produce about 3.6mtpa of LNG, it will remain in position over the Prelude gas fields for 25 years. There are a number of other LNG projects at various stages of completion in WA, including developments at Woodside’s
North Rankin field and Greater Western Flank on the North West Shelf, which have a combined capital expenditure of $7.5 billion.
Apache’s Julimar development project is set to unlock a further 2.1tcf of sales gas from the Julimar and Brunello fields, which the company expects will generate net sales of about 140 million cubic feet per day of LNG.
First gas from Julimar is expected in 2016.
Barriers to development
With a record number of LNG projects under way across WA and Australia, there are concerns a skills shortage akin to that of the mining sector may be inevitable.
According to an Australian Petroleum Production and Exploration Association (APPEA) report in 2011, Australia has never had more than two LNG “megaprojects” under construction at the same time during the past 20 years.
“There are now six onshore LNG plants under construction (Pluto, Gorgon, Gladstone LNG, Queensland Curtis LNG, Australia Pacific LNG and Wheatstone) with a total of 11 LNG trains,” the report stated.
“These are all competing for skills and resources, and should another one or two projects or expansions proceed, up to 14 LNG trains could be under construction simultaneously across Australia.
“This has never been attempted anywhere in the world, including in Qatar: the world’s largest LNG producer.” Mr Moore said the skills shortage had already begun to hit WA and was definitely an issue for both the oil and gas and mining sectors.
“There is a skills shortage right across the resource sector: there’s no doubt there is demand for labour in WA,” he said. “With layoffs in mining we have had some breathing space, and there is a possibility that those workers will move to oil and gas.”Inadequate explorationnThe APPEA report also highlighted inadequate exploration as a major hindrance to the growth of the Australian oil and gas sector.
“The long-term health of Australia’s oil and gas industry is also being threatened by continuing low levels of exploration,” the report stated.
“The number of exploration wells drilled in 2010 for conventional oil and gas was the lowest in at least 27 years.
“Over the five years from 2006 to 2010, less than 300 million barrels of liquids were discovered whereas Australia’s consumption of refined petroleum products totalled more than 1.5 billion barrels.”
APPEA has expressed fears that, at current exploration rates, the country’s liquid production target may not be met.
The APPEA report estimated that the cumulative difference between actual and targeted production was worth about $20 billion from 2007 to 2017, unless exploration ramped up and new discoveries were made.
In an address at the Australian National Conference on Resources and Energy in September, Geoscience Australia chief executive Chris Pigram acknowledged the issue.
“Australia’s continuing economic and social benefits resulting from its mineral and energy resource wealth is mostly the result of discoveries made decades ago, and it is important to recognise that major discoveries have a long lead time to bring into production: commonly over a decade,” he said.
“Although the resources being mined currently are available to continue to support the country’s economy, new discoveries need to be made to replenish resources and ensure continuing supply and production into the future.”
While this may be an overall trend, 2011 exploration expenditure figures for WA show the state is leading the way in terms of investigating new frontiers. About $2.3 billion was spent on exploration projects in WA last year: 71 per
cent of investment made Australia-wide.
WA was also the beneficiary of a recent study by Geoscience Australia senior geologist Dr Andrew Jones that indicated there were vast untapped oil and gas reserves in the state’s northern Perth Basin: a discovery that Dr Jones said he hoped would help to reduce exploration risk for petroleum companies.
“Analyses of key offshore wells, including relative age-dating of the sedimentary strata, have given new insights into source rocks that may have generated oil and gas in this area,” he said.
“These source rocks are more regionally extensive offshore than previously thought, where they have good to excellent potential for generating oil.”
With the majority of southern WA receiving its domestic gas supply from the North West Shelf via the Dampier to Bunbury pipeline, Mr Moore said he hoped the discovery would encourage exploration in the South West region.
“[The Perth Basin] is quite prospective and exploration in WA’s South West is important and very welcome,” he said.
Mr Moore said three of the basin’s newest title holders – Murphy Australia Oil, Samsung Oil and Gas Australia, and Kufpec Australia – had already proposed a 2013 works program valued at more than $70 million that included extensive 2D and 3D seismic surveying, the drilling of three exploration wells, and geotechnical studies.
Environmental concerns
During the last 30 to 40 years, the majority of WA gas exploration has been directed offshore while the state’s highly prospective onshore reserves have received little attention. Now, with demand for natural gas rising, the focus has turned to unconventional gas reserves across the onshore Canning, Carnarvon and Perth basins.
However, with growing community concern regarding hydraulic fracturing (or ‘fracking’), the conduct of oil and gas companies is being constantly scrutinised by environmental groups and landowners, mainly in Queensland, where CSG is common.
While there is no CSG in WA, the extraction of much deeper deposits of unconventional gas, such as tight and shale gas (below 2000m), and the use of chemicals to release that gas, have come under fire.
In response to public anxiety, the Department of Mines and Petroleum recently introduced a bill requiring WA oil and gas companies to publicly disclose details of the chemicals they introduced into a well or formation.
The new requirement makes WA the Australian state with the highest level of mandatory chemical disclosure.
APPEA’s chief operating officer western region Stedman Ellis said the regulation would create barriers to new market entrants in the sector by generating layers of assessment, approval and duplication.
However, Mr Moore said this was not the case.
“There have been some concerns by some companies but we have taken the view that people are entitled to know,” he said.
“It is good PR for the companies and a chance to show they have nothing to hide.”

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