Gas `spaghetti’ past prompts australian cost-cutting – bloomberg 2015 electricity rates


Chevron proposed building a massive pipeline that would connect the Scarborough, Thebe and Exmouth fields, which lie hundreds of kilometers off the coast of northwest Australia, to the existing Wheatstone, Pluto and North West Shelf LNG plants, which sit along a 200 kilometer stretch of the coast. The plan would minimize duplication and would have superior economics over individual point-to-point concepts, Nigel Hearne, Chevron’s managing director for the country, said in a speech Tuesday at the annual conference of the Australian Petroleum Production & Exploration Association.

Collaboration along those lines was missing last decade when energy companies were planning the slate of LNG plants that have been coming online in recent years. In Queensland, three separate LNG plants built adjacent to each other shared virtually no infrastructure such as jetties and storage tanks. In northern Australia, two gas fields that are connected to each other are being developed in two separate projects, one using a floating liquefaction plant and one using a 900-kilometer (560-mile) pipeline to the shore. ‘Real Collaboration’

And in Western Australia, gas pipelines splay out west and east from offshore fields, crisscrossing each other as they connect to four different liquefaction plants located on the mainland and an island. The developments in Western Australia and Queensland cost about $36 billion more than they would have if companies had collaborated from the beginning, according to a 2016 study by Wilkes at Perth-based RISC Advisory.

Failure to collaborate eroded shareholder value in the projects, Shell Australia Chairwoman Zoe Yujnovich said in a speech at the conference. Australian companies will have to overcome that history to convince investors to fund drilling projects needed to keep LNG plants full.

“Unless we can improve the attractiveness of our projects to investors, the specter of growing ullage in LNG trains may fast become an unmanaged reality,” she said, using an industry term for unused space in a storage tank. “And that is not a situation that will be easily recovered.”

Duplication not only hurt the companies involved, but local governments as well, as higher capital cost deductions reduce royalty and tax payments. Australia is set to reap A$800 million from taxes on LNG in fiscal year 2020, when it’s expected to be the world’s largest exporter of the fuel, according to analysis by the Tax Justice Network’s Australian office. Qatar, which will then be the second-biggest seller, will bring in the equivalent of A$26.6 billion.

Collaboration is also in vogue outside Australia as LNG projects seek to cut costs to compete for buyers spoiled for choice amid new supply from the U.S. and Australia. Separate projects in Papua New Guinea have proposed working together, and competing ventures in Mozambique will share some infrastructure.

"If we rewind 10 years, the original plan always should have been collaboration, but it wasn’t favored,” Saul Kavonic, an analyst with Wood Mackenzie Ltd., said in an interview. “There’s nothing like a massive shock drop in oil prices to force some really hard commercial and technical issues to the fore."