Sector changes, currency issues hit LNG producers

TUMBLING Australian-dollar oil and gas prices took the wind out of the sails of Western Australia’s petroleum producers last financial year, despite the state further cementing its title as the nation’s premier petroleum exporter.

According to Department of Mines and Petroleum figures, petroleum exports accounted for just less than 20 per cent of the state’s total exports in 2009-10, at $15.7 billion.

That represents a drop of almost 25 per cent from the $20 billion in petroleum exports recorded for the previous year.

The decline was the result of structural changes in the make-up of WA’s petroleum sector and the impact of conflicting international price and currency trends.

WA’s oil and gas producers easily remain the nation’s biggest suppliers of liquid petroleum products such as oil and condensate, yet total oil output fell 9 per cent to 74.5 million barrels as the state’s most established fields matured.

Though the average realised price of WA’s oil output actually rose 9 per cent to $US79 per barrel for the year, the rising Australian dollar cut oil revenues by 17 per cent to $6.4 billion.

The decline in oil revenues was partly offset by an 11 per cent rise in condensate output to 46.7MMbbl, and a 13 per cent rise in the value of condensate sales to $3.5 billion.

The big kick in condensate output was largely the result of increased gas production, particularly as Apache Energy’s Varanus Island facility returned to full capacity, and the Angel field at the Woodside-operated North West Shelf started production. Condensate is a premium quality liquid hydrocarbon produced as a by-product of so-called ‘wet gas’.

WA also produced 12.6 per cent more liquid petroleum gas, another high quality byproduct of gas extraction, to 975,752 tonnes, but the lower average Australian dollar price meant the value of LPG output actually fell almost 14 per cent to $647.3 million.

Overall, export revenues for petroleum products other than liquefied natural gas fell by about $2.75 billion to $8.75 billion during 2009-10.

The same factors were at play in the LNG sector.

WA is the nation’s biggest producer of LNG, with the North West Shelf venture accounting for more than 90 per cent of the nation’s LNG exports. The small Concoco-Philips-operated Bayu-Undan project in the Timor Sea is currently Australia’s only other LNG producer.

The North West Shelf achieved a significant 12.6 per cent rise in production to a record 15.7 million tonnes last financial year, only to lose all the gains due to the stronger dollar and plunging international gas prices.

Total LNG export revenue subsequently declined almost 19 per cent to $6.92 billion, well down on the $8.54 billion in sales racked up the previous year when only 13.96mt were produced.

Nonetheless, LNG remained the state’s fourth most valuable export after iron ore, gold and non-LNG petroleum products.

That was enough to ensure the North West Shelf Venture, the joint vehicle company managed by Woodside on behalf of the six NWS partners, was the state’s fourth largest exporter in its own right.

The venture racked up total exports of $12.9 billion in 2009-10, down from $14.3 billion previously, equating to an average of $2.15 billion for each of the partners.

Consequently, Woodside was WA’s fifth largest exporter with export revenue for 2009-10 of $4.1 billion, down from $5.1 billion previously. Outside the Shelf, Woodside also exports oil and condensate from the Laminaria-Corallina, Mutiner-Exeter, Enfield, Stybarrow and Vincent oilfields off north-west WA.

However, Woodside should book a significantly higher export figure this financial year with its $13 billion Pluto LNG project slated to start exports early next year.

Chevron will become the second NWS partner to become a major WA LNG exporter in its own right when the $43 billion Gorgon LNG project starts production in 2014.

Meanwhile, other oil and gas producers continue to build their export revenues from developments off the WA coast.

Since 2007, Varanus Island’s US operator Apache Energy has invested around $1.5 billion developing its Van Gogh oil project and funding its 28 per cent share of BHP’s $2 billion Pyrenees oil project nearby.

Both came on stream earlier this year and helped Apache achieve a 250 per cent rise in output to almost 95,000 barrels of oil equivalent a day in the June quarter.

Apache now ranks in the state’s top 12 exporters with 2009-10 exports estimated at $685 million.

That figure should grow in coming years as Apache develops its Coniston and Balnaves oilfields near Van Gogh, and its Julimar and Brunello gasfields are developed as part of Chevron’s massive Wheatstone LNG development at Onslow.

Apache also expects its WA revenues to surge as it commissions its Devil Creek domestic gas project, now nearing completion, and the $1.7 billion Macedon gas joint venture with BHP nearby that was approved earlier this month.

Also quietly building its WA export base is Santos, which last financial year generated WA export revenue of $340 million from total WA sales of $650 million. Santos is Apache’s partner in the Varanus, Thevenard Island and John Brookes gas projects, and has stakes in the Barrow Island, Stag, Legendre and Mutineer-Exeter oil projects.