02/09/2010 - 00:00

Some hiccups as gas surge gathers steam

02/09/2010 - 00:00

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WESTERN Australia remains the undisputed leader of the national oil and gas industry following last year’s approval of the $43 billion Gorgon LNG project on Barrow Island and the imminent start-up of Woodside’s Pluto LNG project near Karratha.

Some hiccups as gas surge gathers steam

WESTERN Australia remains the undisputed leader of the national oil and gas industry following last year’s approval of the $43 billion Gorgon LNG project on Barrow Island and the imminent start-up of Woodside’s Pluto LNG project near Karratha.

WA is already Australia’s biggest producer of LNG thanks to the North West Shelf. But the addition of Gorgon and Pluto – respectively the largest and second largest individual resources projects ever undertaken in Australia – will more than double the state’s LNG output by the time Gorgon exports its first cargo in 2014.

On any measure, then, WA is undergoing an unprecedented boom in oil and gas development with five major offshore projects worth almost $65 billion currently under construction.

In addition to Gorgon and Pluto, the list includes Woodside’s $5 billion North Rankin 2 platform and $1.8 billion replacement of the Cossack Pioneer production vessel at the North West Shelf, and Apache Energy’s $1.1 billion Devil Creek domestic gas project south of Karratha, which is due for completion next year.

A further seven projects in waters off the WA coast worth $120 billion are actively undergoing front-end engineering and design work ahead of targeted project approvals in the next three years.

On that list are: Woodside’s $30 billion Browse, $20 billion Pluto Expansion and $15 billion Sunrise LNG projects; Chevron’s $20 billion Wheatstone LNG project; Shell’s $5 billion Prelude Floating LNG project; Inpex Petroleum’s $20 billion Ichthys LNG project; and BHP Billiton’s $1.6 billion Macedon domestic gas project.

But despite WA’s bumper development pipeline, it has not been all smooth sailing as the industry battles labour shortages, rising environmental opposition, escalating costs and continuing investment uncertainty.

Gorgon has been described as a self-contained economic stimulus package, on the back of the 10,000 jobs it will create in construction and the $33 billion expected to be spent on local goods and services over the life of the project.

But since it was approved in September last year, operator Chevron has constantly had to deny the project is falling behind schedule.

As reported by WA Business News in June, a shortage of accommodation on Barrow Island has proved a major impediment, with workers being offered incentives of up to $150 a night to share their accommodation with other workers.

And last month, Woodside boss Don Voelte said slower-than-expected progress at Gorgon had given Woodside more time to consider its own expansion of Pluto before clashing construction schedules would make it too hard to secure construction workers.

Chevron, however, maintains that Gorgon is still on track to start production in 2014, with dredging, worker accommodation, offloading facilities and utility installation all well under way.

More than 1,000 workers are also now on location as construction ramps up.

While $24 billion of contracts have been awarded to date, Chevron has come under fire over the proportion awarded to local companies, particularly engineers and fabricators.

However, Chevron estimates that around $8 billion in contracts has so for been won by local firms and that the final total will be in the order of $20 billion.

Meanwhile, Woodside is facing its own challenges to meet an aggressive LNG expansion schedule.

Last month, it deferred the planned sanction of a second processing train at Pluto from the end of this year until sometime in 2011. It followed slower exploration progress and the loss of loss of potential third party gas supplies to Chevron’s rival Wheatstone project, which left Pluto without sufficient confirmed gas reserves to support an upgrade.

Nonetheless, Woodside remains highly confident it can confirm sufficient gas reserves to support an expansion next year.

At the same time, Woodside’s 2012 approval target for the $30 billion Browse project is also looking less certain due to continuing tension over the proposed processing hub at James Price Point north of Broome.

Though Woodside’s Browse joint venture partners all now endorse the site, the support of traditional owners may be lost because of the state government’s threat to compulsorily acquire the site to keep the project on track.

Such opposition was pivotal to Inpex’s decision to build its Ichthys processing plant in Darwin, limiting its main benefit in WA to a planned supply base at Derby.

Furthermore, conservationists continue to fight against any onshore processing plant in the Kimberley.

This week, a Curtin University study commissioned by environmental groups found that any oil and gas development in the region was incompatible with “nature-based and cultural tourism” which underpinned the regional economy.

 

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