12/10/2015 - 05:57

Next step crucial for LNG

12/10/2015 - 05:57


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Like a lot of WA’s mineral and land resources, the easy developments of LNG may be behind us; but that doesn’t mean we should simply live off the past.

Like a lot of WA’s mineral and land resources, the easy developments of LNG may be behind us; but that doesn’t mean we should simply live off the past.

While the headlines are all doom and gloom, Western Australia’s oil and gas sector exits the decade-long boom greatly enhanced in terms of scale, employment and regional significance.

That is important. Being taken seriously in the energy world means you need size. When it comes to LNG, WA will be a tier-one producer as recent projects come on line.

The next step for WA LNG is critical. Business News does not believe we should accept that the state was blessed by luck during the boom and allow the industry to stagnate as merely a safe and steady producer.

LNG in WA was never that. The decisions that led to the creation of the North West Shelf venture, both at state and corporate levels, contained significant risk.

During the first two decades of its existence, the industry continued to expand in sizeable chunks, albeit under the monopoly control of the NWS joint venture.

The recent boom was a step-change from that pattern, with significant new capacity committed to by a number of new players.

That has created significant expertise in this state around the construction of such plant. But few players have any appetite to build again. Certainly, the sudden slump in energy prices has had a devastating impact on the market and the possibility of major new ventures, but commitment to new LNG plants in WA was waning ahead of the demand drop.

The industrial relations atmosphere, excessive environmental regulations and other political issues, such as mandated domestic gas requirements, had already conspired to make building an onshore LNG plant too hard.

The stakeholders were no longer those taking the risks; they weren’t putting up the money, as happened in the early 1980s when much of the financial downside of the NWS development was borne by the state and federal governments.

These days, domestic gas users, unions, environmental groups, local councils, rock stars and other celebrities all have a say in what will happen, even though there is no direct risk for them in any project.

Although the numbers are much smaller, the same considerations apply to onshore gas production potential – with the one caveat that domestic gas users have, in some cases, become financial backers of such projects because they need to ensure supply and, in this case, are prepared to pay for that.

Another big issue with LNG is securing the future gas reserves to ensure that these capital-intensive plants can continue to operate and enjoy the profits their owners hoped for when they underwrote the original investment.

The debate is often around how much resource is being warehoused while new proponents and domestic gas users chafe at the bit for long-held reserves to be brought on stream immediately.

The government and producers need a rethink of their game plans in order for the industry to flourish and, ironically, a period of low prices is a good time to do this. The question for producers is how best to utilise assets, so WA is seen as an efficient place to operate even if it is high cost to develop?

And how can government ease the tensions around retention leases and domestic gas needs to make sure operators are comfortable their projects are profitable in the long term?

Equally, the state and federal authorities need to ensure a project’s passage from concept to production has fewer obstacles in the form of outdated industrial laws, duplication of environmental laws and too much consideration of ill-informed groups claiming to represent the community.


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