Gas projects near crossroads

TWO joint ventures proposing projects that could monetise a significant proportion of WA’s north west gas reserves are at critical stages in their decision-making.

Dampier Nitrogen – a project consortium comprising Canadian fertiliser heavyweight Agrium Inc (51 per cent), listed Australian company Plenty River (39 per cent), Australian engineering and construction firm Thiess (10 per cent), and Kruppe Uhde – is deliberating on an onshore Burrup Peninsula urea and ammonia production facility.

The project is scheduled for possible financial closure later this year but Agrium CEO and vice-chairman John Van Brunt said in Perth last week that the group was literally “at the crossroads” on the proposed project.

Conditional environmental approval has been obtained and a Native Title agreement covering the land allocated to the project is in place.

However, after conducting definitive engineering and marketing and logistics studies, the project partners are now looking at ways to reduce adverse impacts from identified key issues.

These include engineering and construction costs – described as “very high” – and proposed charges for common-use infrastructure, including utilities.

Labour costs were up to 20 per cent higher than in alternative locations, Mr Van Brunt said, and the rising euro and Australian dollar would adversely affect capital expenditure.

This added greater urgency to gaining assurance on economically beneficial infrastructure and utility agreements.

“We’re not going to give up easily but timing is critical in all this,” Mr Van Brunt said.

Australia imports most of its urea requirements, but Dampier Nitrogen wants to produce 1.2 million tonnes of urea per year and make at least 700,000 tonnes of this available to the domestic market.

A Brisbane operation currently produces 240,000 tonnes per annum, but Australia’s demand for urea – a nitrogen fertiliser made from ammonia and carbon dioxide – has been forecast at an annual 2.3 million tonnes by 2010, partly underpinned by a reduction in agricultural trade barriers.

Mr Van Brunt said urea added 85 per cent more value, by revenue, to natural gas than LNG, and WA offered a sizeable, competitively priced natural gas supply.

Dampier Nitrogen estimated it would require 100 terrajoules of gas per day, or an annual 35 petajoules.

Mr Van Brun said Australia’s gross domestic product would benefit by $5.9 billion over the lifetime of the project.

Chamber of Minerals and Energy of WA chief executive Tim Shanahan said the chamber was supportive of the WA Government’s common use infrastructure app-roach.

Some economies could be had with plans by projects to coordinate their use of skilled labour forces.

Demand was driven by the timing of projects, but the chamber was working with training institutions to ensure long-term availability of skilled labour.

The region was remote, Mr Shanahan said, making construction costs high.

He said one challenge for the Government was in managing timely approval and pre-development processes, while meeting community expectations.

Meanwhile, should SasolChevron proceed with its Australian gas-to-liquids plans, it will require 20 trillion cubic feet of gas to produce environmentally efficient synthetic diesel in a $6 billion project that could deliver enough transport fuel to take some of the pressure off Australia’s oil import budget.

But the joint venture’s Australian director Tony Pytte said Sasol-Chevron still required three things before signing off on an Australian location.

Financial capability is not one of these. The essentials for the giant partnership are a competitive fiscal regime, a site that works for the project and a firm supplier.

Mr Pytte said SasolChevron would not move to technical feasibility – an undertaking of between $30 million and $40 million – before it was satisfied on all three essentials that the project could be profitable and internationally competitive.

One issue to be solved is the decision on whether ChevronTexaco can use Barrow Island for the development of gas from the Gorgon fields.

SasolChevron has indicated that while an offshore location such as Barrow Island is the best economic option for a proposed Australian GTL project, the company has contingency plans for an operation anywhere between Karratha and Darwin.

With the Bayu Undan, Sunrise and Blacktip fields all potential suppliers of natural gas to Darwin, it is not inconceivable that WA could lose the SasolChevron project, should it not be able to offer a competitive scenario.