The Gorgon gas project set to proceed this year will be followed by more mega projects off the WA coast, presenting exciting opportunities.
READERS with a long memory may have grown tired hearing about the Gorgon gas project - it was discovered nearly 30 years ago, concerted planning for its development started more than a decade ago, and it has been caught up in environmental and political controversy ever since.
Now is the time to sit up and take notice because it has become increasingly clear that the project will gain official approval this year.
Gorgon will break many records. Research and energy consulting firm Wood Mackenzie estimates capital spending will be at least $35 billion, from the final investment decision this year to commissioning of the third production train in 2016.
It will have a construction workforce of 6,000 and will operate for 30 years or more - probably a lot more.
Over that time, it will spend $33 billion buying Australian goods and services from engineers and lawyers, welders and scaffolders, caterers and cleaners, to name a few.
Those sorts of numbers can make the eyes glaze over; but there's more.
Close watchers of the energy industry expect Gorgon will be followed by a succession of other giant liquefied natural gas projects (LNG) over the next decade.
Only some of these will be located on WA soil. Woodside Petroleum's Pluto 2 project, Chevron's Wheatstone project and Woodside's Browse project will be built in WA.
Japanese company Inpex is expected to proceed with its Ichthys LNG plant in Darwin, after failing to gain approval for its preferred site off the Kimberley coast.
Woodside is still evaluating options for its Sunrise gas field in the Timor Sea. It may pipe the gas to Darwin, or it may build a world's first floating LNG plant that would be moored above the gas field.
Shell is also evaluating a floating LNG plant for its Prelude gas field off the Kimberley coast.
These west coast projects will be competing for money, skilled workers, specialised equipment and market share with several other big LNG projects in the region.
Exxon Mobil is widely expected to proceed with its project in Papua New Guinea late this year, while four LNG projects in central Queensland, backed by global companies Shell, BG Group, Petronas and ConocoPhillips, are racing to proceed.
Strange as it may seem at the current time, the scale of these projects could lead to the re-emergence of problems that arose during the resources boom - supply bottlenecks, skilled labour shortages and cost pressures.
The anticipated surge in LNG projects is driven by two factors - LNG is seen as a clean fuel, and it can provide a secure energy supply for 50 years in a world where oil supplies are limited or declining.
"The current economic downturn is largely irrelevant because these projects will not come on-stream until 2014 at the earliest," Wood Mackenzie senior analyst Richard Quin said.
"LNG is a very long-term game. You don't make investment decisions based on the oil price tomorrow; it's 'what is your oil price assumption over the next 25 years'."
Engineering and energy group Poyry's consulting manager, Larry Narraway, said locking in assured energy supplies was key for the major buyers of LNG, like Japan and South Korea.
"For them it's security of supply and that, really, is the key to where these projects are going," Mr Narraway said.
Mr Quin said Australia could be a world leader in LNG supply by the year 2025 and anticipates that the big oil and gas companies will develop all of their fields in Australia.
"It's in their long-term growth plans to monetise the lot," he said.
Poyry's business development manager, Fraser Maywood, shares this view.
"They will all go to development at some stage because they are world-class size reserves. And not only that, Australia as an investment location is attractive. The only question is the time frame," Mr Maywood said.
Opinion is divided on the impact of the fall in oil prices, which provide the benchmark for LNG pricing.
Deutsche Bank analyst John Hirjee said some LNG projects would be able to break even with an oil price as low as $US30 per barrel.
At a long-term oil price of $US80 per barrel, he said the majority of Australasian LNG projects, but not all of them, would be viable.
Citi analyst Di Brockman is more upbeat, even though Citi cut its long-term oil price projection from $US85 per barrel to $US65 per barrel last week.
"Input costs are decreasing and this could mean that large, capex-intensive projects such as LNG developments can still generate acceptable returns in a lower oil price environment," Ms Brockman said in a research note.
New LNG projects will build upon a substantial industry base.
The North West Shelf venture, owned by six major international groups and operated by Perth-based Woodside, is the leader in Australia.
It has progressively invested $25 billion in its Karratha gas plant, building five LNG trains (production lines) for the export market and a gas plant to supply the domestic market.
US company ConocoPhillips built Australia's second LNG plant in Darwin and Woodside is currently building the third - its $12 billion Pluto project, also at Karratha.
Looking ahead, the next two large-scale projects to proceed in the region are expected to be Exxon's PNG project and Chevron's Gorgon project.
"We're fundamentally bullish on Gorgon, it's a robust project," Mr Quin said.
"We think Gorgon will probably achieve FID this year; it will be a massive decision based on the immense capital required, the technical challenges, the economic implications."
In one fell swoop, Chevron and its partners Shell and Exxon will commit to build an LNG plant with capacity of 15 million tonnes per year, nearly as much capacity as the North West Shelf venture built over 20 years.
Chevron has been talking up the Gorgon project for the past year though some sceptics questioned whether its joint venture partners shared its enthusiasm.
Those doubts should have been quashed last August when the three partners agreed to spend $1 billion and hire 1,200 staff and contractors so they could advance to a final investment decision (FID).
Arguably the major hurdle facing the project is the need to gain environmental approval for a third production train on Barrow Island, which is an A-class nature reserve.
Barrow also has more than 700 onshore oil wells and has been producing oil for many years, which Chevron says shows that industry and nature can co-exist.
Speaking to analysts in the US last week, Chevron chairman Dave O'Reilly said Gorgon was the group's number one priority and expressed confidence it would gain approval.
"We're going to get the permit, I'm highly confident that's going to happen," he said.
Chevron's executive vice-president of upstream and gas, George Kirkland, was upbeat on both Gorgon and the group's wholly owned Wheatstone project.
"We've made substantial progress on both Gorgon and Wheatstone in the past 12 months," Mr Kirkland said.
"We expect Gorgon to be sanctioned during the second half of 2009, and Wheatstone is advancing toward front-end engineering and design later this year."
Mr Quin believes Chevron is keen to proceed with Wheatstone because it provides a growth platform beyond Gorgon.
Wheatstone is likely to have two 5mt trains initially and could be expanded to five trains if sufficient gas is discovered.
Chevron's confidence in its development plans is helped by its abundant gas reserves, particularly at Gorgon.
In contrast, Woodside is heavily constrained by its limited reserves, which have stopped it committing to a second production train at its Pluto project.
"Reserve uncertainty is the single largest issue that Woodside faces with Pluto 2," Deutsche Bank's John Hirjee said.
Woodside was buoyed by successful exploration results last month but will need further exploration success, or will need to buy gas from a third party, such as US companies Hess or Apache, before proceeding with Pluto 2.