04/06/2009 - 00:00

LNG industry warrants support

04/06/2009 - 00:00


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Big gas processing projects could insulate WA from the economic downturn.

THE annual gathering of Australia's oil and gas industry, held this week in Darwin, should give comfort to pessimists who worry about the state's economic outlook.

This newspaper has written several times about the upbeat outlook for the liquefied natural gas industry, and the latest analysis has confirmed that prognosis.

Woodside Petroleum chief Don Voelte and Chevron Australia managing director Roy Krzywosinski, whose companies are behind the state's two largest resources projects, both dismissed concerns that the industry may be adversely affected by an LNG glut.

Far from it. Looking past a short-term oversupply, they see plenty of opportunities to develop new projects.

"Woodside, along with many independent forecasters, continues to expect global LNG demand to grow by about 7 per cent a year through to 2020," Mr Voelte told the APPEA conference.

This means the world will need a new project the size of Woodside's proposed Browse Basin development to start up every year, in order to meet the expected shortfall in supply.

Mr Voelte says the biggest challenge will be delivering this many projects.

Mr Krzywosinski added some perspective on the global energy balance.

He told the conference that about 85 per cent of the global economy is powered by conventional fossil fuels - oil, natural gas and coal.

"Notwithstanding the current recession and increased energy efficiency, population and economic development trends still suggest that global energy demand will increase roughly by 40 per cent over the next 20 years," Mr Krzywosinski said.

Alternative and renewable energy sources will increasingly help to meet this need, but these sources will still account for only about 10 per cent of the world's energy mix.

"In other words, in the energy mix equation both today and in the future, we will simply need all forms of energy," Mr Krzywosinski said.

Woodside is currently building its Pluto LNG project, at a cost of $12 billion, and the company is keen to proceed with two further processing trains at Pluto.

Chevron is looking to trump Woodside by proceeding with its Gorgon LNG project, at an estimated cost of up to $50 billion, followed by its Wheatstone LNG project, also off the Pilbara coast.

Mr Krzywosinski confirmed that Chevron and its joint venture partners are looking to make a final investment decision on Gorgon "in the coming months".

"The timing is right because while current energy demand has softened, we expect the LNG market to rebound before Gorgon's first LNG deliveries in 2014," he said.

The economic impact of these projects is enormous. Gorgon will have a peak construction workforce of 10,000, up from earlier estimates of 6,000 workers, while Wheatstone is expected to create about 3,000 jobs at peak construction.

Woodside has created a similar number of jobs at its Pluto project, which is a major source of work for engineers, construction firms and other contractors in WA.

The LNG industry also delivers environmental benefits.

Mr Krzywosinski said that if Gorgon's gas replaces coal in power generation, it would reduce global greenhouse gas emissions by 45 million tonnes a year.

"This is the same impact on greenhouse gas emissions as removing two thirds of all vehicles off Australian roads," he said.

Despite this, LNG will suffer under the Rudd government's carbon pollution reduction scheme.

The scheme captures the emissions involved in extracting and processing the gas but ignores the benefits that will accrue in China, Japan and other markets, where LNG will replace other fuels used in power generation.

Mr Voelte estimates that the CPRS, in its current form, risks halving the size of the export LNG industry from what it would otherwise be in 2030.

That is a perverse outcome, made worse by the Rudd government's attempts to insulate selected industries from the CPRS but not others.

The LNG industry does not want handouts. It can be part of the solution to climate change and should not be hindered from making its contribution.


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