Oz East Coast LNG Projects Face Serious Headwinds
Australia’s east coast LNG projects face significant headwinds owing to a gas supply shortage, a report published February 21 by consultancy EnergyQuest said.
“Queensland faces the partial shut-down of a third of its barely decade-old A$84bn ($60bn) LNG industry by the middle of next decade due to a gas supply shortage, together with diversions to the domestic market,” it said. “This would cut output to four LNG production trains from the current six trains built on Curtis Island off Gladstone by three project owners.”
The three LNG exports projects – ConocoPhillips-Origin Energy Australia Pacific LNG (APLNG), Shell’s Queensland Curtis LNG and the Santos-led Gladstone LNG – on Australia's east coast are all in Queensland. All three rely on coalbed methane (CBM) from the Bowen and Surat Basins, which are a less conventional gas source than feeds Australia’s successful west coast LNG industry.
The report’s findings show that there is now doubt if sufficient Queensland CBM will be available for the three Gladstone plants to ever achieve full-scale production. The plants operated at only an average 82% capacity in 2018, it said.
A shortage is expected by 2025 and will be exacerbated by potential political pressure for the LNG operators to divert gas to the domestic market. Gladstone plant shut-downs are not expected to dampen Queensland’s new status as a major global LNG supplier, but its LNG potential has been summed up as “now is as good as it will get”.
“The three Australian east coast projects are all successfully producing, with China the biggest market (70% of 2018 Queensland exports) followed by Korea (16%) and Japan (9%). However, two projects, the Shell-operated QCLNG and the Santos-operated GLNG, are operating well below capacity," said EnergyQuest CEO Graeme Bethune. He said this was due to upstream gas shortages and diversions to the domestic market. In 2018, QCLNG output averaged 87% and GLNG only 65% of their capacity.
He added that there are serious headwinds coming and the outlook is less rosy as the industry over-reached by building three projects of six trains.
“Queensland will remain a significant LNG exporter, one of the world’s largest, but with more like four trains fully utilised, reducing medium-term exports to around 17mn mt/yr.”
Bethune said the three plants have a combined nameplate capacity of 25.3mn mt/yr but there is insufficient gas to run the plants at capacity and also meet supply the needs of the domestic market.
“We have to recognise that the capacity of the east coast’s CSG resource base to feed multiple LNG trains was largely untried. The emerging and critical shortages are resulting from the fact the CSG LNG projects were sanctioned on ambitious estimates of Proved and Probable (2P) reserves, not Proven (1P) reserves that underpin conventional LNG projects,” he said.
According to Bethune , rather that Queensland exports ultimately rising to 25mn mt/yr, current export levels "are likely to be as good as it gets and maintaining these will require drilling an ultimate total addition of more than 18,000 wells.”
EnergyQuest noted that Santos GLNG had already negotiated down its offtake contracts from 7.2mn mt/yr to 6mn mt/yr and is yet to reach even this level.
In 2018, Queensland projects shipped record 20.57mn mt of LNG from Port of Gladstone, up 1.7% year-on-year.