CSG-LNG facing pricing, policy issues
WHILE liquefied natural gas projects drawing on conventional gas fields in Western Australia have been having a field day, their Queensland counterparts – which use coal seam gas as feedstock – have run into some hurdles with gas quality and government policies.
First up was ConocoPhillips admitting that it probably would not get as much for its CSG-derived LNG as traditional LNG, confirming most analysts’ expectations that CSG-to-LNG players would have to offer a discount to account for the lower heating value of CSG, which consists of about 98% methane.
In a client note, Credit Suisse analysts Andrew Williams and Jenny Wong quoted ConocoPhillips Australia president Joe Marushack as saying that CSG's lower calorific content was likely to affect the price its Australia Pacific LNG joint venture with Origin Energy could get for its gas.
The JV, which plans to develop its CSG reserves base into a 14-16 million tonne per annum CSG-to-LNG plant, is one of five LNG projects that use CSG as feedstock at Gladstone.
Marushack added the gas would either be sold as leaner LNG or sold to customers who would spike it with liquefied petroleum gas to lift its heating value, a procedure that Santos’s Gladstone LNG president Rick Wilkinson said was both cheap and “not rocket science”.
Dow Jones Newswires quoted Wilkinson as saying that Japan had been importing low heating value gas from Alaska since the late 1960s and that some oncoming LNG projects sourced with traditional natural gas were "at the lower end of the scale" in terms of their product's heating value anyway.
Wilkinson may well have reason for his confidence.
While several other CSG-LNG players have signed up customers for their gas, GLNG has already signed up Malaysian national oil company Petronas, which is also a partner of the project, to buy up to 3MMtpa of LNG.
Even if GLNG receives less for its LNG compared to traditional LNG, this still represents a major chunk of its planned initial capacity of 3.5MMtpa.
Petronas plans to use the gas for the Malaysian domestic gas market though it is not inconceivable that the company could divert any excess cargoes to other potential buyers – after injecting some LPG from its own substantial gas reserves.
Fears that Japanese buyers might shun CSG-LNG have been alleviated somewhat after Japan’s Toyota Tsusho Corporation agreed to buy about 1.5MMtpa of LNG over 12 years from Liquefied Natural Gas Limited’s Fisherman’s Landing LNG project.
Pricing issues are not all that face CSG-LNG projects though.
The Australian reported today the Queensland government – echoing similar efforts by the Western Australian and South Australian governments – is keen to reserve up 20% of the gas produced by CSG-LNG projects for domestic use.
This places the state government at loggerheads with the federal government which, along with the gas industry, worries the proposed restrictions could curb international investment in Australian gas.
Federal Resources Minister Martin Ferguson took Queensland to task, saying it should make its decision on a purely commercial basis.
He added that LNG was essential to the federal government's greenhouse gas reduction aims.
A gas reservation policy could threaten even the mid-range projections of the effects that the LNG developments could have on Queensland.
According to the state’s own mid-range estimates, it could receive about $850 million in royalties a year while Premier Anna Bligh has said the industry would create 18,000 jobs in Queensland, including 4300 in the Darling Downs.
These issues could well contribute to the much-talked about consolidation of the CSG-LNG industry.
Four of the five planned projects are scheduled to start production in 2014, prompting Arrow chief executive of Australian operations Shaun Scott to say the industry was headed for consolidation as rival ventures looked for cost efficiencies.
He added it was likely the three Curtis Island operations would seek to share infrastructure or even merge their projects.
Meanwhile, Shell executive director Upstream International Malcolm Brinded said recently that the company was in consolidation talks with other companies planning to build CSG-LNG projects.
Wednesday, 14 October 2009
PNN
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