16-04-08 More than $ 100 bn of Australian, Timor Sea and Papua New Guinea liquefied natural gas projects are planned over the next decade, but a severe labour shortage and surging costs mean many projects won't go to schedule, keeping global supply tight. There are plans for 17 new projects, and if all go ahead LNG output from the region will surge sevenfold within 10 years to 117 mm tpy -- the energy equivalent of 2.85 mm bpd of oil or one third of Saudi Arabia's 2007 oil output.
But there's scant chance of this due to surging material costs and a boom-driven labour scarcity in Western Australia state -- a problem BHP Billiton (BHP) Petroleum Chief Executive Michael Yeager said was the worst globally aside from possibly in Alberta's oil sand fields. Instead, the region's output might fall well short of half its potential.

The rush to produce more LNG -- natural gas cooled to liquid state so it can be moved in tankers -- comes as global demand for the fuel is set to surge threefold to over than 500 mm tpy by 2030, according to ExxonMobil forecasts. As well as growth in global energy use, demand is being boosted by the attraction of fuels that emit less greenhouse gases than coal and oil.
"Australia should play a key role in meeting supply, but at the moment the industry is failing to meet the call," said Mark Greenwood, a Sydney-based energy analyst with JP Morgan. "There's more projects than there are people to build them and that's the main reason why we don't see them all getting up," he said, adding some company boards are also balking at the huge capital costs now needed. "Given those constraints, it looks like LNG prices are going to remain firm for a very long time," he said.

Asian LNG spot prices are around $ 15 per mm Btu, a far cry from the $ 3/mm Btu locked in earlier this decade by Chinese customers of Australia's first LNG project, The North West Shelf. Asian demand is also influencing US spot prices, which rose 45 % to $ 8.29/mm Btu in January, from $ 5.71/mm Btu in October, according to the US Energy Department.
The Australian Petroleum Production and Exploration Association, an oil and gas lobby group, has laid down what it calls an "aspirational" target of tripling the country's LNG output to 50 mm-60 mm tpy by 2017, while Australian Resources and Energy Minister Martin Ferguson said Australia could be exporting 60 mm tpy by 2015.

Even though these targets don't cover all planned projects, they were shot down by Woodside Petroleum, Australia's biggest independent oil and gas producer and the operator of four planned projects.
"I don't think it is physically possible to build all that stuff," Woodside Chief Executive Don Voelte told in Perth, citing labour and equipment constraints. "It is my considered opinion that (tripling of Australian LNG output) is not an aspiration, it is not even a dream -- it is impossible," he said, adding doubling is more likely in that timeframe.

Australia produced 15.1 mm tons of LNG from just two projects in 2007; the Woodside-operated North West Shelf venture, on the north-western coast of Western Australia state, and ConocoPhillips's Darwin LNG plant, which processes gas from the Timor Sea. A North West Shelf Train Five expansion is due to add 4.4 mm tpy capacity to this in the first quarter of 2008.
Given that the projects off the coast of Western Australia Woodside is involved in will more than double Australia's current output, Voelte's expectations leave little room for others. Along with the Shelf's Train 5, Woodside is now building the only other board-approved LNG facility in Australia: the A$ 12 bn Pluto project next door on the Burrup Peninsula. The first processing unit, or train, of this is expected to add 4.3 mm tpy of LNG from 2010.

Perth-based Woodside is also planning to add about 15 mm tpy of production from the massive Browse project, offshore Western Australia, which analysts expect to cost more than A$ 20 bn, and another 5 mm tpy from the Sunrise project in the Timor Sea. Both await final designdecisions and board approval.
JP Morgan's Greenwood agrees with Voelte that doubling rather than tripling LNG output is more likely, but says it won't necessarily be all the Woodside projects that get up. Chevron is expected to provide serious competition for resources as it looks to develop its 15 mm tpy Greater Gorgon project and its smaller Wheatstone project. Both are off Western Australia.

Gorgon is the biggest of the planned LNG projects, and one of the best examples of the hurdles being faced, with its owners having been discussing the best route to development since it was discovered in 1981. If it goes ahead, there will be further expansions in the cards, and it will be Australia's most expensive development.
Estimated start dates for Gorgon were pushed back from 2000, and the most recent official cost estimate, from 2005, stands at A$ 11 bn.

Chevron has stopped giving public cost and start-up date estimates, but analysts say the complex development, which involves the world's biggest carbon dioxide geo-sequestation project, will cost over $ 25 bn and not start until at least 2015.
Most of the region's new projects, including Gorgon, Train Five, Pluto, Wheatstone and Browse plan to use gas from the Carnarvon or Browse Basins, both off the north-western coast of Western Australia state. In the Browse Basin, where so far there has been little development, state and federal governments are proposing restricting LNG plant developments to a central hub, which has worried some producers given a lack of detail on who would operate it. The talk has led Inpex Holdings to push back the start date on its 8 mm tpy Ichthys project to 2013 and to consider processing the gas in the northern Australian city of Darwin, 900 km away.

Meanwhile, on the other side of Australia, near the port town of Gladstone in Queensland, a new LNG region has sprouted in the last two years. Removed from the severe shortages in Western Australia, it may have a better chance of making good on planned production. There are now four separate proposals to produce LNG from onshore coal seam gas in the area, including a A$ 7.7 bn plan from Santos that is expected to produce 3 mm-4 mm tpy.
BG Group and Queensland Gas are planning a similar-sized venture, and two smaller projects, of around 1 mm tpy, are planned. Also a fair way from the tight Western Australian construction market, ExxonMobil's $ 11 bn PNG LNG project in Papua New Guinea, also has a strong chance of going ahead on schedule.

Planned LNG projects in Australia, Papua New Guinea and the Timor Sea:

Project -- Operator -- Location -- Output -- Cost -- Start
NWS 5 -- Woodside -- Carnarvon Basin -- 2.4 -- A$ 2.4 -- 2008
Pluto I -- Woodside -- Carnarvon Basin -- 4.3 -- A$ 12 -- 2010
LNG Ltd -- LNG Ltd. -- Gladstone -- 1.3 -- A$ 0.7 -- 2011
Pluto 2 -- Woodside -- Carnarvon Basin -- 4.3 -- ? -- 2012
Sunshine -- Sojitz -- Gladstone -- 0.5 -- A$ 0.5 -- 2012
Gladstone -- Santos -- Gladstone -- 3-4 -- A$ 7.7 -- 2013
Onshore -- BG Group -- Gladstone -- 3-4 -- A$ 8 -- 2013
Wheatstone -- Chevron -- Carnarvon Basin -- 5 -- ? -- 2013*
Ichthys -- Inpex -- Browse Basin -- 8 -- $ 10 -- 2013
Sunrise -- Woodside -- Timor Sea -- 5 -- ? -- 2013
PNG LNG -- Exxon -- PNG -- 6.3 -- $ 11 -- 2013-14
Browse -- Woodside -- Browse Basin -- 15 -- A$ 20* -- 2013-15
Abadi -- Inpex -- Timor Sea -- 3-5* -- $ 4* -- 2014-16
Gorgon -- Chevron -- Carnarvon Basin -- 15 -- A$ 25* -- 2015*
Darwin 2 -- COP -- Darwin/Timor Sea -- 5-6 -- $ 10 -- 2015+
Scarborough Exxon -- Carnarvon Basin -- 6* -- ? -- 2017+
Prelude -- Shell -- Browse Basin -- 3.5* -- ? -- ?

*Analyst's estimate, not issued by company.
Output figures are in mm tpy.
Costs are in billions of dollars.