Two groups aspiring to build gas processing projects on the Burrup Peninsula are aiming to fare better than many others have in the environmentally sensitive area.
In November 2002, Business News’s front cover story ran under the headline ‘Burrup on a knife edge’.
The peninsula was earmarked for $6 billion worth of gas processing projects – a mammoth sum in the era before projects like Gorgon and Wheatstone came along and changed our perceptions of ‘big’.
The sub-head posed the question: How many of these projects will be built?
History tells us only one of the projects planned at the time proceeded – the $650 million liquid ammonia plant built by Pankaj Oswal’s Burrup Fertilisers.
That’s the same Mr Oswal who left a trail of debts and the half-built $70 million ‘Taj on the Swan’ in Peppermint Grove when he left the state in 2010.
More than a dozen different gas processing projects have been planned for the Burrup over the past 20 years (see table), hoping to take advantage of abundant gas supplies and value-adding riches.
It is instructive to look at where most of them went wrong, and why some were able to proceed.
The state government played a lead role in trying to facilitate a project in the late 1990s, with former premier Colin Barnett, who was resources development minister at the time, leading the charge.
In December 1997, he said the Pilbara was an ideal location for a petrochemical complex because of its proximity to Asian markets, the abundance of key raw materials such as solar salt and natural gas, and the availability of industrial land.
That’s when the government announced six companies, including BP, ICI, Samsung and Krupp had been short-listed for the Pilbara petrochemical project.
The winning proponent, announced in June 1998, was a joint venture between Dow Chemical and Shell.
It was suggested $4 billion could be invested in an integrated petrochemical and chemicals complex in the Dampier area.
In November 1999, Mr Barnett announced plans to invest in common-use infrastructure to support major resources projects.
He said the infrastructure would be a catalyst for the development of a gas-processing industry, building on the success of LNG exports and the use of gas in power generation.
“The Pilbara is on the verge of another great surge in resources investment, which should see the first stage of the development of a gas-processing industry in WA, adding greater value to our vast reserves of gas beyond LNG and use in power generation,” Mr Barnett said.
As well as the Dow-Shell project, other potential users of the planned infrastructure were Dampier Nitrogen’s $800 million ammonia and urea plant, and Syntroleum’s $500 million Sweetwater gas-to-liquids project.
Yet another project on the drawing boards around this time was a gas-to-liquids plant planned by Sasol and Chevron.
The Sasol-Chevron joint venture said its three-stage project, starting with a plant that would have primarily produced synthetic diesel, would involve a total investment of around $9 billion.
International companies Methanex, GTL Resources, and Japan DME followed soon after.
The Dow-Shell and Sasol-Chevron joint ventures both fell by the wayside around 2001, followed one year later by Syntroleum.
These setbacks did not deter the Gallop government, however, which committed in 2003 to spend $137 million (a very big sum at the time) on common-use infrastructure on the Burrup.
State development minister Clive Brown said it would support more than $6 billion of gas processing projects.
“With Burrup Fertilisers under way and Methanex waiting upon confirmation of Commonwealth government funding, these are exciting times for WA,” Mr Brown said.
They were, indeed, exciting times, but with the exception of Burrup Fertilisers, not for gas processing projects.
These projects were swamped by more conventional Pilbara developments – Woodside had started the train four expansion at the North West Shelf LNG project, while BHP Billiton and Rio Tinto were starting to expand their iron ore operations.
The LNG and iron ore projects very quickly inflated labour and construction costs in the Pilbara.
The gas processing projects were also squeezed by higher gas prices.
But the adverse trends did not deter all comers.
In 2004, Indian company Deepak Fertilisers announced plans to build an ammonium nitrate plant, while Norway’s Dyno Nobel and Canadian fertiliser manufacturer Agrium pursued similar plans.
However, the gas-processing projects had zero chance of success when all trends were adverse – construction costs, gas prices and the Australian dollar were all going up.
Dealmaker
Burrup Fertilisers was able to proceed because it famously struck a 25-year gas supply deal in 2001 with US company Apache Energy (now Quadrant Energy) at the extraordinarily low price of $US1.60 a gigajoule, way below the going rate of $4 a gigajoule.
In 2012, Norwegian company Yara International moved to majority ownership of the Burrup Fertilisers ammonia plant (and has subsequently acquired full ownership).
The majority stake allowed it to proceed with development of a neighbouring technical ammonium nitrate plant, at a cost of $1.1 billion.
The co-located plants allow Yara to achieve the same synergies that Agrium, Dyno Nobel and other companies had been hoping to realise.
Perth businessman Vikas Rambal, who was an early-stage partner in the Burrup Fertilisers project, is hoping to join Yara on the Burrup.
His long-running plan to build a urea manufacturing plant received a fillip last month when his company, Perdaman Industries, signed a 20-year gas supply agreement with Woodside Petroleum.
“Perdaman views the development of downstream industries using the state’s gas resources as important to the ongoing creation of jobs, development of regional communities and positioning our state as a key supplier into the growth corridor of the world through Asia,” Mr Rambal said in a statement.
With a price tag of a US$3.3 billion ($A4.4 billion), Perdaman and its advisers at EY have a lot of work ahead of them on offtake agreements, equity partners and financing.
The Perdaman announcement coincided with reports that Coogee Chemicals, Mitsubishi Corporation and Wesfarmers are working on development of a $US1 billion-plus methanol plant on the Burrup.
The three proponents declined to comment on their plans.
Both opportunities flow from the likely availability of gas at competitive prices.
A potential barrier is that the designated industrial land on the Burrup is near an extensive collection of Aboriginal rock art, which has been earmarked for World Heritage listing.
There has been concern further industrial projects would degrade the art.
