02/05/2012 - 10:56

Devil Creek, Macedon projects to boost gas supply to domestic energy market

02/05/2012 - 10:56

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Devil Creek, Macedon projects to boost gas supply to domestic energy market

Giant liquefied natural gas projects like Gorgon and Pluto dominate coverage of the oil and gas sector, yet there are plenty of other developments under way.

These include new gas plants to supply the domestic Western Australian market, along with offshore oil field developments.

In any other industry, these developments would be hailed for their economic contribution but in the midst of a resources boom they struggle for attention.

The Macedon gas project, for instance, is a $1.5 billion investment but it is rapidly being overshadowed by its near neighbour, the $29 billion Wheatstone LNG development.

Together, the two projects will turn Onslow from a dusty fishing town well off the beaten track, to a major resources service town.

Currently being developed by BHP Billiton, the Macedon project has already delivered some timely contracts to local suppliers. 

BGC Contracting has won the earthworks, access road and civil works contract and OTOC has been contracted to supply the accommodation camp.

That is on top of the engineering work being undertaken by the likes of Technip Oceania, JP Kenny and Cameron.

Macedon will be the fourth gas plant dedicated to supplying the domestic market.

Until this year, the state had only two domgas plants – the North West Shelf project’s Karratha gas plant and Apache Energy’s Varanus Island gas plant.

The state’s heavy reliance on these facilities was highlighted when the explosion at Varanus cut off 30 per cent of the state’s gas supplies.

Apache and its partner Santos added a third domgas plant last December, when their Devil Creek plant started production.

This $1.1 billion project involved the joint development of the Reindeer gas field, a 105km pipeline to shore and a new gas processing plant south of Karratha.

The gas plant has a gross production capacity of 215 TJ/day but is initially planned to operate at 120 TJ/day.

Speaking at the time first gas was produced, Santos vice president WA & NT John Anderson said it signified the completion of a major project for the state.

“For many years, WA has been reliant almost entirely on the North West Shelf and Varanus Island for its domestic gas,” he said. “With Devil Creek, the state now has greater energy security with a third gas processing plant.”

BHP Billiton expects to start production from the Macedon project next year, adding a further 200TJ/day to the state’s supply.

That will be followed two years later by the start of production at the Gorgon domgas plant, with initial output of 150TJ/day.

Collectively, these projects will lift the state’s domestic gas supply from 1,050TJ/day in 2010 to 1,600TJ/day in 2016.

The gas industry believes the increased volume of supply and the larger number of suppliers, will foster the establishment of a competitive gas market in WA.

Looking further ahead, the supply options are due to become even wider.

The Gorgon project includes plans to double domgas supply from 2020, subject to demand, and the Wheatstone LNG project incorporates a domgas plant with capacity of 200TJ/day.

In addition, Woodside has committed to market and sell the equivalent of 15 per cent of the LNG produced at the Pluto site, “providing it is commercially viable”.

The commitment, struck in 2006, starts five years after the first LNG is exported, which is due to occur this month, or 30 million tonnes of Pluto LNG have been shipped.

The Woodside agreement was put in place at a time when there was heated debate in WA over the domgas reservation policy, which requires the equivalent of 15 per cent of LNG production to be set aside for the local market.

The DomGas Alliance, representing buyers of gas, has urged the state government to ensure that the 15 per cent reservation policy is applied to all new LNG projects.

It has also called on the state to enforce its right to prioritise ongoing domestic supply over new LNG contracts.

It wants necessary steps to be taken to keep producers from warehousing gas fields that could be developed for the domestic market. 

The alliance has suggested that tax, royalty and investor incentives should be granted at federal and state level to promote domestic gas exploration.

While the debate in WA has dissipated, it has heated up on the east coast, where the advent of LNG export projects, using coal seam gas, has led to a spike in domestic gas prices.

The DomGas Alliance has used the WA experience to argue that similar policies should apply in other states.

“Domestic gas reservation has worked in Western Australia,” Alliance chairman Tony Peterson said recently in a letter to the Financial Review.

“The Wheatstone project has committed to supplying domestic gas equivalent to 15 per cent of LNG production.  For local industry and households, this means energy security over the 40-year life of the project.

“With gas prices in Australia now among the highest of any gas exporting country, there is no suggestion that the Wheatstone partners will be subsidising local customers.” 

Mr Peterson noted that other countries, including the United States, have a more interventionist approach.

“The United States has made LNG exports conditional on gas producers prioritising US supply and ensuring affordable domestic prices,” he said. 

“The evidence in Western Australia and overseas is overwhelming. A national reservation policy will not discourage investment or make Australia a less attractive place to invest.” 

Offshore oil projects

As well as domgas developments, another industry segment that sails below the radar, despite the substantial budgets, is offshore oil projects.

There are four significant offshore oil projects under way, with a collective budget in excess of $2 billion.

That is small relative to the budgets for LNG projects but would be massive in just about any other industry.

The next oil project due to start production is Montara, which was the subject of a major oil leak two years ago.

Thai company PTTEP Australia is planning to produce 40,000 barrels of oil per day once Montara enters production later this year. Like most oil projects, it involves the development of several subsea wells, linked to a floating, production, storage and offtake (FPSO) vessel.

Another oil project, approved this year, is Santos’ $490 million Fletcher Finucane development. Santos made a swift transition from exploration to development, with the project approval coming only six months after discovery of the Finucane South field.

A major player in the state’s oil industry is Apache, which has sanctioned three oil projects in Australia since 2007.

Its most recent is the $438 million Balnaves development, which will produce up to 30,000 barrels of oil per day at its peak.

“With the Van Gogh field on production and first output from Coniston expected in 2012, Balnaves will add to our position as one of Australia’s leading oil producers,” Apache’s managing director in Australia, Tom Maher, said at the time.

 

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