Australia Natural Gas

According to the Oil and Gas Journal (OGJ), Australia’s natural gas reserves as of January 1, 2005 are estimated at 29 trillion cubic feet (Tcf), the major reserves in the Asia-Pacific region. Natural gas reserves are located in amount of Australia’s states except New South Wales and Tasmania. The majority abundant reserves are located offshore of the northwestern coast in the Carnarvon Basin, an area additional well-known as the Northwest Shelf. Other significant basins, including the Cooper/Eromanga basin in Central Australia and the Bass/Gippsland basin, are located offshore of southern Australia.

Natural gas production in Australia has increased steadily over the last decade, from 860 billion cubic feet (Bcf) in 1993, to 1,257 Bcf in 2003. In the same time period, consumption has grown as well, from 630 Bcf in 1993 to 886 Bcf in 2003. Australia’s natural gas consumption is projected to grow twice as fast as the consumption of other energy sources over the next decades, accounting for 22 % of total energy consumption by 2025. Australia is expected to maintain natural gas self-sufficiency for the ensuing decade at a minimum.

Sector Organization

The Australian government has no ownership stake in the domestic natural gas industry. However, the industry is regulated by the Ministry of Industry, Tourism and Resources (MITR) and the Ministerial Council of Energy (MCE). Natural gas policy is directed by the Ministerial Council on Energy (MCE), which was established in 2001 as a means to build policy coordination between the federal and national governments.

Exploration and Production

Recent natural gas exploration in Australia has resulted in several significant discoveries. Natural gas samples from the Henry-1 exploration well, located in the Otway Basin (estimated reserves 1.6 Tcf.), have given Santos good indication of yielding quality natural gas. The well is located a few miles from the Casino field. Both the well and the field are part of the VIC/P44 block in which Santos holds a 50 % stake. In addition, ExxonMobil discovered natural gas in the Jansz field in the Northwest Shelf region. The June 2002 discovery added reserves of 20 Tcf. to Australia’s total. Further natural gas discoveries will likely be made inadvertently as a byproduct of Australia’s recent surge in petroleum exploration, as past exploration in the deep waters off Southern Australia has primarily resulted in the discovery of natural gas.

The Timor Sea was the site of a new gas discovery in September 2005, by ConocoPhillips and Santos. Early estimates at the Caldita well, which is located near the Bayu Undan liquefied natural gas (LNG) project, suggest that natural gas flow could be as high as 33 million cubic feet per day (Mmcf/d). ConocoPhillips is the principal operator of the well. Control in the Timor Sea region has been contested during the past few years. In May 2002, East Timor expanded its maritime territory claim and challenged Australia’s claim to 25 Tcf of reserves in the Browse/Bonaparte Basin. In March 2003, the Timor Gap Agreement was established, creating a Joint Development Sector(JDA) between the nations and setting the division of royalties from hydrocarbon production at 90:10 in favor of East Timor. Only the Bayu Undan natural gas field (3.4 Tcf), which began operation in February 2004, lies all within the JDA. Eighty % of the Better Sunrise field (9.3 Tcf) is located outside of the JDA. The Timor Sea as well contains natural gas in the Evans Shoal, Petrel, and Tern gas fields, estimated to contain 4 Tcf of natural gas combined. ConocoPhillips, Woodside, and Shell are the major operators in the Timor Sea.

Liquefied Natural Gas (LNG)

Australia’s liquefied natural gas (LNG) exports have increased steadily since 1989. During July 2004-June 2005, LNG exports totaled 569,629 million cubic feet (MMcf). In 2004, Australia was the third major LNG producer in the Asia-Pacific region and the world’s fifth major LNG producer. Japan is the primary destination of Australia’s LNG exports, with smaller shipments to South Korea and Spain. Australia secured contracts to supply LNG to China in 2002 and South Korea in 2003. Australia is as well negotiating with the United States regarding possible export of LNG to markets on the US west coast.

Australia’s natural gas reserves are located primarily in the Bass Strait, the Cooper/Eromanga Basin, and on the west and northwest coasts. The majority of these reserves are located in remote areas where converting the natural gas into LNG for export is additional economical than building a pipeline to carry it inland. The Northwest Shelf Venture (NSV), a consortium of energy companies led by Woodside Petroleum, operates offshore LNG trains. It relies on natural gas supplies from North Rankin (19.3 Tcf) and nearby fields in the Northwest Shelf (NWS). NWS produces 8 % of world LNG supplies, mostly for export to Japan. In June 2005, plans for construction of a fifth LNG train were announced. The train will be used for NWS facilities on the Burrup Peninsula, with startup date of 2008. The cost for the project is an estimated $1.5 billion. China’s need for LNG imports has as well given support to the fifth train’s development. The development of pipelines across the western half of the country may allow NWS to supply domestically to Australia’s southeastern states in the next as well.

Although NSV dominates Australia’s LNG market, other LNG projects are being developed as well. ChevronTexaco (50 % ownership), Shell (25 %) and ExxonMobil (25 %) are starting the front-end engineering and design of the NWS's Gorgon field. The area contains proven reserves of 12 Tcf. The project entails the construction of a pipeline to transport natural gas from the Gorgon field to Australia’s Barrow Island, where a liquefaction plant with an annual capacity of 238 Bcf per year is to be constructed. ChevronTexaco has secured an agreement with an affiliate for the delivery of 95 Bcf per year from the Gorgon Venture to North America over a 20-year period. In April 2004, Australia began talks with China’s major oil firm, China National Offshore Oil Corporation (CNOOC), to purchase a 12.5 % share of Gorgon’s proven reserves. An estimated $19 billion in sales over 25 years would make such a transaction the major export commitment in Australian history. A final decision on the project is due in 2006, which would allow gas approaching onstream by 2010.

ConocoPhillips has proceeded with plans to construct a liquefaction plant on Australia’s northern coast (at Darwin) to be supplied with natural gas from the developing Bayu/Undan field (3.4 Tcf) this year. The project is owned by a consortium of companies and ConocoPhillips is the majority owner with 64.4 %. In March 2002, ConocoPhillips arranged to sell 175,271 MMcf of LNG per year from the Darwin plant to Tokyo Electric Power Company and Tokyo Gas Company for 17 years beginning in 2006.

Woodside Petroleum is leading another LNG project that is taking place in Browse Basin. The project entails construction of LNG trains processing natural gas from various fields off Australia’s west coast. The project could come onstream as early as 2011. Woodside, with a 50 % stake, would be joined by BP, Chevron, Shell and BHP Billiton. China has a role in deciding the outcome of the project, as its need for LNG imports continues to rise. In addition, Woodside is moving ahead with the newly discovered, all-owned, Pluto natural gas field. A proposed plant at the site, located off the western coast of Australia, would have capacity of 267.8 to 365.1 MMcf of LNG per year. The plant could be operational as early as 2010.

The Kipper field, operated by Esso Australia, is set approaching onstream by 2009. Esso has a 32.5 % stake in the field, which is estimated at having recoverable natural gas reserves up to 620 Bcf. Esso Australia, along with partners, BHP Billiton (32.5 %), Woodside Petroleum (21 %) and Santos (14 %) plans to supply the natural gas to the Gippsland region in southern Australia over the medium term.

India has plans to import large quantities of LNG from Australia in coming years. The Gas Authority of India Ltd. (GAIL) has responsibility to help find LNG for its 2,150-megawatt (MW) Dabhol gas-fire power plant. India chose Australia as a good source for LNG. GAIL has earmarked between $300 and $500 million for gas exploration, production and liquefaction operations and LNG terminals across Australia.

Pipelines

Australia’s existing pipeline infrastructure is fragmented, designed to carry gas from centrally located fields to coastal urban hubs like Sydney and Melbourne. With centrally located fields in decline and offshore projects on the rise, a large investment in the country’s pipeline network will be necessary to bring additional natural gas into the grid. Australia estimates that it will require $5.5 billion of new investment over ten years to efficiently use natural gas to generate power. At present, the Australian Pipeline Trust (APT) operates over 4,350 miles of pipelines (oil and gas combined), while Epic Energy operates around 2,485 miles of pipelines (oil and gas combined). Australian Gas Light (AGL) is the leading owner of natural gas pipelines in the country, which APT operates.

Ongoing tensions between pipeline companies and regulators may discourage the entry of new investors. For example, Australian Epic Energy put its pipeline assets up for sale in September 2003 after determining that regulated pipeline tariffs were too low for profitable operation. Other companies, including the Australian Pipeline Trust, have halted construction on proposed pipelines due to regulatory environmental concerns. In August 2004, the Australian Pipeline Trust began negotiations with US-based CMS Energy to sell $158 million of gas pipelines in Western Australia. A lot of Australian and international investors, inclunding the Australian Pipeline Industry Association (APIA), are calling for regulatory reforms to improve the situation.

The proposed 1,300-mile Papua New Guinea (PNG) to Australia pipeline received increased support in 2005. The pipeline would deliver gas from the Kutubu/Moran natural gas fields in PNG to Queensland. In February 2004, Oil Search Ltd, the major developer of the pipeline, committed to begin its design without the requisite funding, noting that natural gas could flow by 2008 with investment of $70 million from minority partners. During the summer of 2005, Australian Gas Light Company (AGL) took a stake in the project by agreeing to buy around $3.3 billion of natural gas from the PNG project over a 20-year period. Alcan, the Canadian-based aluminum producer, has as well agreed to buy from the PNG project over a 20-year period.

In March 2005, APT submitted a bid for a transcontinental pipeline to transport gas from offshore Blacktip field to Alcan’s aluminum refinery at Gove. The pipeline would be constructed over 2 years, with first delivery in January 2008. In addition, the Australian government has been working on a feasibility study of a possible 1,800-mile transcontinental pipeline to ship gas from the Carnarvon and Browse Basins to southeastern domestic markets. The study began in January 2004.