Australia is poised to become the world’s largest liquefied natural gas producer, but in typical fashion is wrestling with a largely self-inflicted problem about the supply of domestic gas into the heavily-populated eastern states.

In Western Australia, there is a whirl of activity offshore and onshore, as three mega-LNG projects move into the final construction and commissioning phases.

Wheatstone, Prelude and Ichthys are due on stream this year, and will mark the end of the “Australian LNG boom” — eight mega LNG projects costing more than US$200 billion that began with the Pluto sanction in 2007.

Huge cost overruns, delays and a lack of collaboration between the proponents overshadowed the scale of their achievement, and the next wave of greenfield LNG investment is on hold partly because of certain Australia-specific challenges.

Costs are still judged to be too high, the regulatory and tax regimes lack stability, and the industrial relations framework that empowers workers’ unions is a constant challenge.

Hess’ cancellation of the Equus gas project was a stark reminder that operators will suspend Australian investment if they can generate higher returns elsewhere.

New investments

Despite all that, there is some new gas investment planned.

ConocoPhillips and partners are developing the Caldita-Barossa resource off northern Australia because they need more feedstock gas for the Darwin LNG plant.

The project will enter the front-end engineering and design phase this year, and the idea is that volumes from Caldita-Barossa will provide backfill to Darwin LNG in about 2022 when the Bayu-Undan field begins to run down.

The ConocoPhillips-led owners of the Darwin LNG plant are also considering an expansion train, which could receive volumes from the Greater Poseidon area or third-party gas.

Chevron will also develop more gas for the three-train Gorgon LNG plant by adding new subsea production systems at the Gorgon and Jansz-Io fields.

LNG projects that were cancelled in the last two years included Scarborough, Browse, Cash-Maple and Bonaparte (Petrel-Tern).

Scarborough and Browse are moving forward carefully. The Scarborough joint venture has targeted entering front-end engineering and design in 2018, and a final investment decision by 2020, while the Browse co-owners are targeting concept selection in the second half of 2017 .

Both projects were originally conceived as floating LNG developments, and this remains the basecase, but enthusiasm is growing for utilising existing LNG facilities like the North West Shelf, Pluto or Wheatstone. Cash-Maple and Bonaparte were placed on the backburner a couple of years ago by operators PTTEP and Engie. Given their modest reserves they are possibly more suited to the Australian domestic market.

Other undeveloped gas resources off Western Australia that are not linked to LNG projects include Quadrant Energy’s Zola-Bianchi-Olympus complex, BHP Billiton’s Tallaganda-Bunyip resource, and Quadrant’s Phoenix-Roc discoveries. The domestic gas market in Western Australia is understood to be functioning well, with industrial demand growing and the state’s gas reservation policy obligating LNG developers to provide 15% of their gas domestically.

This means gas explorers in the state’s onshore Perth and Canning basins have a spring in their steps as they believe the domestic market can absorb new discoveries.

Good health is not, however, synonymous with Australia’s eastern gas market, which is facing domestic gas shortages from 2019.

The problem is caused by political interference, and by the three LNG projects in Queensland absorbing so much third-party gas. The managing director of Queensland explorer Blue Energy, John Phillips, explains the situation well: “The exponential demand growth for gas (in the eastern states) and the commensurate surge in the domestic gas price would ordinarily have sparked furious exploration activity to discover and develop more gas supplies and take advantage of the improved economics.

“However, exploration activity is at very low levels across the country courtesy of a combination of increased regulatory burden, government bans on (onshore) exploration (in New South Wales, Victoria, Northern Territory and Tasmania), environmental activism, the world oil price and restricted capital availability,” he says. Australia’s infant shale gas sector was given a huge lift by Origin Energy’s recent announcement of the Amungee discovery in the Beetaloo basin, with best estimate contingent resources of 6.6 trillion cubic feet of gas.

However, the Beetaloo basin is in the Northern Territory, where the state government has banned hydraulic fracture stimulation, and therefore further testing of Amungee is not possible.

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Self-inflicted woes mar Australia's LNG surge