17/12/2009 - 00:00

Gorgon the main game in bright future

17/12/2009 - 00:00


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IF there is one phrase to sum up 2009, it is liquefied natural gas, for it was undoubtedly the year that LNG became the main game in town and the virtual saviour of business confidence and Treasury projections.

Gorgon the main game in bright future

IF there is one phrase to sum up 2009, it is liquefied natural gas, for it was undoubtedly the year that LNG became the main game in town and the virtual saviour of business confidence and Treasury projections.

It was also the year in which Chevron Australia chief Roy Krzywosinski and Woodside Petroleum boss Don Voelte’s influence over state affairs reached an all-time high.

The September approval of the $43 billion Gorgon project by Chevron, Shell and ExxonMobil was the defining event of 2009.

Premier Colin Barnett was so awed by the venture’s importance that as early as April, he declared it would “fill up every workshop in Western Australia for years”.

Who could argue with 10,000 jobs during construction, countless thousands more indirectly over its life, and $33 billion to be spent on local goods and services during that time?

Already about $10.5 billion in contracts have been awarded even though the first sod was not officially turned until early this month.

But as a number of local engineering firms quickly noted, Australia would battle to secure even half of the upfront $43 billion investment, with most high-end engineering awarded to international specialists in Europe. Similarly, most primary fabrication work has been awarded to low-cost yards in Asia.

They also argue the flood of work offshore will be exacerbated by a skilled labour shortage even more severe than that suffered during the peak of the mining-led boom as construction starts on several LNG projects at the same time.

Yet Gorgon has undoubtedly renewed confidence in the business community as a concrete sign of Australia’s emergence as a global energy powerhouse.

Nor is it the only sign, with a slew of other multi-billion dollar LNG projects planned here, in the Northern Territory and in Queensland.

In WA alone, LNG projects worth more than $180 billion are either under way, in advanced design, or are planned for the next decade.

Critically, standing in the queue behind Gorgon are at least four major LNG developments, which have formally begun costly front-end engineering and design (FEED).

The two most advanced are Chevron’s $20 billion Wheatstone venture, which will process gas onshore near Onslow, and Woodside’s proposed $20 billion expansion of its nearly complete Pluto LNG project on the Burrup Peninsula.

FEED was announced for both within days of each other in August – before the Gorgon go-ahead – stamping 2009 as the year in which LNG became a contest for the boldest and quickest.

Previously, the capital-intensive business was a marathon in which only the biggest, most conservative energy groups were able to last the distance.

Woodside’s Don Voelte pioneered this new spirit of aggressive competition when Woodside approved the Pluto development in 2007, just two years after the field was discovered. When the initial $12 billion project starts production next year, it will cut the record for LNG development by more than half.

That spirit was taken up with gusto by his Chevron counterpart Mr Krzywosinski, who recognised the value in getting to market quickly to shut out the opposition.

With both Pluto and Wheatstone likely to need substantial volumes of gas from third-party suppliers, the pair has been slugging it out ever since.

On the one hand, Mr Voelte is racing to treble the size of Pluto by the time Gorgon is on stream in 2104. Meanwhile, Mr Krzywosinski is stitching up as many potential gas suppliers as possible to keep Pluto at bay and get his project going by 2016.

The two have also been battling over the bigger Browse LNG project in the Kimberley.

Woodside, which owns 50 per cent, wants to start FEED next year using a site onshore at James Price Point to process gas from 2017.

Chevron, and fellow minority partners Shell, BHP, would rather wait and pipe gas to the North West Shelf and gradually “backfill’ output there when it starts to decline after 2022.

But Mr Voelte emerged triumphant this month, when the federal and state governments gave the Browse partners until April to agree on using James Price Point (or come up with a speedier alternative) or lose their Browse permits.

This new resolve to enforce the “use it or lose it” provisions of mining and energy licences is itself a major landmark of 2009 and flows directly from the enhanced importance of the LNG industry to the nation’s economic prospects.

The flipside of LNG’s growing importance also manifested itself late in the year with the fate of WA’s biggest gas distributor, Alinta, hanging by a thread.

For five years, big industrial gas users have complained of a looming shortage of competitively priced domestic gas because of producers’ increasing focus on the more lucrative LNG export market.

Suppliers meanwhile argue that plenty of gas is available for those willing to pay a fair market price reflecting international demand.

That debate came to a head late last month.

After a year of formal arbitration, a federal judge last month ruled on whether the Woodside-led North West Shelf was entitled to demand that Alinta pay up to four times more for gas as a condition of extending existing supply contracts.

The details remain confidential but the Shelf partners have clearly prevailed, with Alinta owner Babcock & Brown Power warning a life-saving debt restructure now depends on it negotiating a compromise deal with the Shelf.

With that seemingly unlikely and BBP needing to restructure $2.7 billion in short term debt, 2010 looks likely to start with the sale of Alinta for the third time in a decade.


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