Perth and Australia: A bright future in the world of energy

October 21, 2010

HOUSTON, TX, Oct. 21, 2010/ Troy Media/ – Perth, Australia’s “city of light,” got its nickname when it turned all its lights on in 1962 while John Glenn orbited above.

The city has since become a bright spot of a different kind, however. Western Australia and its capital, Perth, have unabashedly embraced energy development. This is in stark contrast to what has been happening in other developed countries such as Western Europe and, especially, the United States where rabid environmentalism has hamstrung the industry.

Perth, a city with a metropolitan population of 1.7 million (Western Australia accounts for about 10 per cent of Australia’s population of 22 million), Perth has become the centre of a massive new energy development: the statistics are impressive and are bound to quickly become even more so. Even the casual visitor is impressed with the unmistakable sense that the city is on the move.. The people are young and educated and many of them are immigrants and the ongoing action, coupled with the physical plant and landscape, have made Perth one of the top 10 livable cities in the world in at least two rankings.

Australia’s energy capital

Perth is Australia’s energy capital in a country that is already an energy powerhouse but the future is certainly going to be bigger, far bigger. In 2009, Australia produced 215 million barrels of oil but consumed 346 million (about one million barrels per day), which meant it had to import 131 million barrels. And oil imports are likely to increase as domestic production is declining.

But natural gas is another story. Australia produces almost 1.5 trillion cubic feet (Tcf) of natural gas per year, exporting 856 billion cubic feet (Bcf), all in the form of LNG. This latter figure makes Australia the fourth largest LNG exporter behind Qatar, Malaysia and Indonesia.

For now though, coal is still king, with 438 million tons produced (4th in the world), and with exports of 277 million tons, making Australia number one of all coal exporting countries.

But it is natural gas where future action will be concentrated, and that for one simple reason: China.

While Chinese gas production in 2010 is likely to increase to 3.2 Tcf, demand will be 4.3 Tcf (a 25 per cent shortage). It is expected that the gas shortage in China will be 1.8-2.1 Tcf in 2015, and 2.8-3.2 Tcf in 2020, or 50 per cent of the estimated consumption. So it comes down to simple arithmetic: China’s shortfall in 2020 will be five to six times current Australian natural gas exports. The Chinese think of Australia as a very attractive and stable potential source of energy, especially natural gas. Its alternatives have problems: Iran with the uncertainty, sanctions and instability and Russia with all the associated geopolitical challenges.

Natural gas production in Australia today consists of about 13 per cent from coal bed methane (CBM or coal seam gas, CSG, as it is called in Australia) in Queensland and New South Wales while the rest of the gas comes primarily from the massive Carnarvon basin about 100 miles (161 km) offshore, where at least 40 Tcf of natural gas reserves have been postulated. The entire country has been upgraded significantly by the Oil and Gas Journal from 30 Tcf reserves in 2009 to over 110 Tcf in early 2010.

There are four large LNG projects well on their way towards completion offshore. Of these, the Pluto project, run almost single-handedly by Woodside, is slated to begin production in 2011 with 4.3 million metric tons per annum (MTPA, about 200 Bcf). The project was the brainchild of brash American CEO Don Voelte who transformed Woodside into a nimble and very efficient operator, after considerable friction with the locals and their way of thinking. Voelte, who just announced his imminent retirement in 2011, has made believers out of a lot of people in the Australian energy industry.

The Gorgon project, a far larger LNG development (50 per cent Chevron, 25 per cent each ExxonMobil and Shell) will be comprised of three LNG trains each of five MTPA (total 700 Bcf). Expected on line in full operation by 2014 in Barrow Island about 100 miles offshore, the project has broken new ground in terms of technology, including re-injection of produced carbon dioxide, which may account for 10 per cent of produced natural gas.

By far the biggest technical and, ultimately, economic challenge for Australia is the overly ambitious LNG projects that have been announced using CBM as the source of gas. At least two of the projects have presented rather advanced development plans: 350 Bcf per year for the Gladstone project and 780 Bcf per year for the Arrow project, both of them in Queensland. The Chinese companies CNOOC, Sinopec and CNPC have all have announced their desire to provide financing and even operational involvement in these projects. CBM to LNG, with the pronounced decline in per well production observed everywhere and the relentless demand from LNG plants, will prove a formidable undertaking for Australia. It is clearly a world class challenge and will tax the country’s skill pool, service company capacity and infrastructure.

Environmental movement conflict

However, an even bigger conflict Australia will face will not be the engineering and management of its energy projects but the ever present and decades long conflict, at least in the developed world, between environmentalists, who have never seen an energy project of any kind they like and of which Australia has an abundance, and the huge opportunity to utilize the country’s massive reserves of natural gas to supply an imposing client with an insatiable energy appetite. There are conflicting signals, one of which is a punishing tax on the energy industry enacted last year.

To take advantage of the size of the opportunity ahead, however, energy developers will have to exact a clear victory over radical greens, obviously with appropriate environmental stewardship. It will not be enough to simply facilitate projects and reduce bureaucratic obstacles. The government will have to pro-actively pursue them in a way that is unprecedented in the developed world.  Western Australia’s Premier, Colin Barnett, seems to be willing to wear the mantle of energy development but he will have the unenviable task of both articulating a vision and a game plan that the many Greens in the eastern part of the country may consider as un-Australian and of selling that vision to the rest of the country.

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