Queensland’s recent heavy rains and floods could delay the expansion of BG Group’s $18 billion Queensland Curtis LNG plant at Gladstone because the British gas giant has been unable to shore up gas reserves as quickly as it had hoped.
Speaking to investors in London on Tuesday night, chief executive Frank Chapman said BG was still targeting a mid-2012 sanction of a third LNG production train at Gladstone.
“The name of the game at the moment is the maturation of that reserves and resources base within that period,” Mr Chapman said.
“That has suffered some impact because of the flooding and the impact that’s had on access to drilling sites, but we’re still focused on moving some of that prospective resource into a more, higher confidence level to underpin a third train.”
Despite the rains, BG was still on track for first LNG exports from Gladstone in 2014, he said.
BG was the first of three big CSG-to-LNG proponents planning exports out of Gladstone from 2014.
Mr Chapman joined the chorus of voices touting stronger LNG demand because of the Japanese earthquake and subsequent Fukushima nuclear disaster.
He said the flow-on effect was likely to be long-term. “After (the) Three Mile Island (1979 nuclear accident) in the US, we saw lead times for nuclear projects going out to something like 12 or 13 years, and associated with that will be increased costs associated with more stringent regulatory safety requirements,” he said.
“All of this, I think will result in medium to long-term higher gas demand for power, and as a consequence, extra demand for LNG, and this is going to cause a further tightening of a market situation which we already regarded as quite tight.”
Nathan Bell April 18, 2011 - 2:50PM
There’s an old joke among oil drillers: “We didn’t hit oil, but at least we didn’t hit gas”.
Just 10 years ago, gas was an irritating, near-worthless by-product of oil production. Now an oilman’s job depends on it.
Major oil producers like Chevron and ExxonMobil are chasing gas because they can’t get their hands on any more oil.
What’s more, it’s now much less expensive to transport, to the point here gas is now a real substitute for oil. The switch to LNG is on.
But what really accelerated the pace of change was the advent of Liquefied Natural Gas, or LNG.
Prior to this development, gas had to be transported through huge, and hugely expensive, pipelines. Only those projects close to customers or existing pipelines made economic sense. LNG did away with all that.
Through a process known as liquefaction, gas is chilled into LNG, occupying a volume just 1/600th of its gaseous state. This small fact changed the face of the industry.
Where once large and expensive pipeline networks were required to transport gas point-to-point, now ships deliver it anywhere in the world.
Nevertheless, it’s still a complex process. Once LNG reaches its destination, it has to be turned back into its gaseous state – a process somewhat unimaginatively known as regasification – and transported conventionally via pipelines to end users.
At both ends of the LNG chain, nature and technology collide. And the costs of that battle aren’t cheap.
The supply glut
LNG prices are traditionally linked to the oil price. In days when oil fetched $US20 a barrel this quirk was seen to benefit buyers of gas. Today, with oil prices at over $US100 a barrel, it’s a boon to gas producers.
Producers have responded by scrambling to increase output. There’s now every sign of a global glut of LNG.
Qatar is home to the world’s largest gas fields, where enough oil and condensate by-product lowers the effective cost of gas production to almost zero. Cost-free cargoes of Qatari LNG thus ply the world’s oceans, holding prices down.
In Australia, new capacity worth nearly 60 million tonnes per annum (mtpa), has already been committed. With coal seam gas reserves yet to come on stream, that figure is likely to grow.
The shale gas revolution in the US will also have an impact, turning what might have been an importer of LNG into a possible exporter.
And shale and coal seam gas discoveries that have transformed the North American gas market may also occur in new markets like China, India and Brazil. If that occurs, some of the world’s largest potential markets may not need to import LNG at all.
A glut of LNG over the next few years appears likely. Indeed, we’ve been warning of this possibility.
But over the longer term, demand for LNG should easily catch up and perhaps even exceed new capacity.
Growing demand for LNG
The world’s biggest and hungriest energy consumers have barely embarked on their conversion to gas.
In 2005 China had no re-gasification terminals at all. Today, there are six in various forms of development. Each will be able to process millions of tonnes of LNG each year. Currently, Chinese LNG imports are less than 6mtpa. In 15 years’ time, they’re forecast to increase 10-fold. India, Brazil, South Africa, Vietnam and others are constructing new terminals to import LNG.
Overall, demand is expected to grow 15mtpa for the foreseeable future. That’s the equivalent of a new North West Shelf every year.
With Qatar indicating it has reached its supply limit – volumes are not expected to exceed 77mpta for some years – Australian producers are well placed to fill that supply shortfall.
The switch to gas is already on. Developing countries are increasingly seeing LNG, not oil, coal or renewables, as the primary solution to their growing energy demands. Investors take note: this is a sector that will offer rich pickings for investors.