China Demand Drives A Double-Barreled Australian LNG Proposal

China's appetite for relatively clean-burning natural gas, and its dislike for U.S. products, has created a perfect climate for the $30 billion development of two new liquefied natural gas (LNG) projects in Australia that have sitting on the sidelines for more than 40 years.

The Browse project, a series of gasfields off the north-west coast of Australia, were discovered in the 1970s but their remote location and lack of an acceptable landing for onshore processing, made them too difficult to commercialize despite repeated attempts.

Scarborough, further south but deeper into the Indian Ocean, was discovered a few years after Browse but suffered the same problems of location and a lack of commercial options.

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Both gasfields are now moving off the drawing board thanks to a combination of factors that includes improved gas extraction technology, demand in China and other Asian countries for LNG, Chinese cutbacks in oil and gas purchases from the U.S., and a fresh sense of urgency among the gasfield owners that unless they act quickly a window of opportunity will close.

Woodside Petroleum, the Australian leader in LNG, is behind the double barreled development proposal with the first steps taken last week with the signing of agreements between the owners of the gasfields and existing processing plants.

Aligning Owners Not Easy
Aligning the interests of the different parties is a major achievement, perhaps even more difficult than actually building the offshore gas gathering systems and associated pipelines.

Browse is in a joint venture with five owners, Woodside (30.6%), Shell (27%), BP (17.33%) Mitsui and Mitsubishi as Japan Australia LNG (14.4%) and PetroChina (10.67).

Scarborough has two shareholders. Woodside 75% and BHP 25%.

The processing plants have a different mix of owners. One, called the Karratha gas Plant, is owned by the North West Shelf joint venture, which includes Woodside, Shell, BP, BHP and Japan Australia LNG. The other, called Pluto, is majority owner by Woodside with Kansai Electric and Tokyo Gas as minority shareholders. Both are located at Karratha on Australia's north-west coast.

As if getting those companies to agree there is an added layer of complexity with Chevron Corporation signing up as an interested party to get some of its isolated gas to an onshore LNG processing.

700-Mile Submarine Pipeline
The plan is for Browse gas to be piped more than 700 miles south from two floating offshore gas production vessels to the North West Shelf which will act as a toll treating facility with the new gas needed to make up for a looming shortfall from existing gasfields which have been in production for 38 years.

Scarborough gas will head for the Pluto LNG plant, with gas from Chevron's Clio-Acme fields being added to the pipeline.

Woodside chief executive, Peter Coleman, said the agreements signed last week was a key move towards the realization of an LNG production hub on the Burrup Peninsula near Karratha.

"Central to our vision for the Burrup Hub is the transition of the Karratha Gas Plant into a third-party tolling facility as the North West Shelf joint venture fields reach the end of their lives," Coleman said when announcing the deal.

"The Browse Joint Venture will be the anchor tenant underpinning that transition and this preliminary agreement enables the participants to progress toward an earlier final investment decision to develop the gas resource, targeted for 2020.

Interconnected Pipelines
"Gas from Clio-Acme is planned to be brought to the Burrup Hub through the Woodside operated Pluto offshore infrastructure and then transported via the proposed Pluto-North West Shelf interconnector pipleline to be processed at the Karratha Gas Plant.

The Scarborough LNG plan is a far simpler proposal because of the clear ownership structure. Gas will be piped to the Pluto plant and liquefied through a second processing line.

Investment banks are warming to the concept of the double-barreled LNG development plan with Morgan Stanley advising clients in a tactical research idea that it expects Woodside's share price to rise from its current $24.70, to  $28.80 over the next 30 days.

"This is because the stock has traded off recently, making short-term valuation much more compelling," Morgan Stanley said.

Source: Forbes
Date: Nov 12, 2018