IHS Global Insight Perspective | |
Significance | BHP Billiton and ExxonMobil appear to be making progress with the planned Scarborough LNG project after many years of little activity and vacillating between an onshore location or the world's first floating LNG facility. |
Implications | The Western Australian government is supporting an onshore gas processing site in the western Pilbara region which could receive the gas from the Scarborough gas field which is situated about 280 km offshore, and the two companies now appear to favour this option. |
Outlook | A pre-Front End Engineering and Design contract has recently been awarded for Scarborough LNG to an alliance between Mustang Engineering, FloaTec and JP Kenny with work commencing in the United States but moving to Western Australia before the end of the year. |
Scarborough Fair Dinkum
After years of little activity the planned Scarborough LNG project appears to finally be making some progress. The stranded gas reserves which will be utilised as feedstock are located in Western Australia's Carnarvon Basin and initial gas supply will be from the 8 trillion cubic feet (tcf) Scarborough gas field in Block WA-1-R which is owned by BHP Billiton 50% and the operator ExxonMobil 50%. The Scarborough gas field is located in around 900 metres of water and is situated about 280 kilometres (km) offshore.
The joint venture project has failed to progress in recent years as ExxonMobil and BHP Billiton have failed to reach an agreement on the optimum development plans for Scarborough. Due to how far the gas is stranded offshore the companies had spent a number of years considering whether to sanction the project as an offshore floating LNG facility. However, while the concept of a floating LNG plant has been around for many years, no one has yet built such a project. The domestic newspaper The Australian reports another factor when considering the floating LNG option is that Scarborough is further complicated by being located in cyclonic waters.
The recent progress which has put the project back in the spotlight seems to be because ExxonMobil and BHP Billiton are now thought to favour a traditional onshore liquefaction solution. This would require a vast subsea pipeline to be constructed. The advance in the project could be linked to a landmark deal completed at the end of last year. U.S. supermajor Chevron announced it will locate an onshore gas processing site for its planned Wheatstone LNG project at Ashburton North in Western Australia. The site is 12 km west of the town of Onslow in the western Pilbara region. The Wheatstone LNG project will be split between offshore gas production and onshore liquefaction. At the time of the announcement Western Australia Premier Colin Barnett told the Western Australia Business News that the site at Ashburton North would provide the opportunity to establish processing facilities for the commercialisation of recent and expected gas discoveries. Barnett added ExxonMobil and BHP are also considering using the site to develop their Scarborough project.
Outlook and Implications
BHP Billiton has always favoured onshore liquefaction and Upstream reports BHP has carried out independent work on near-shore geophysical and offshore preliminary pipeline routes, as well as subsurface development work. BHP would also favour piping the gas to shore as they would then be able to also develop its wholly owned Thebe gas field which lies only 31 km away from the Scarborough field. BHP also has sole interest in adjoining permit WA-346-P which contains the smaller Jupiter discovery. ExxonMobil has been reluctant in the past to support an onshore liquefaction development in order to avoid Western Australian state laws that require gas projects to set aside 15% of their reserves for the local domestic market. This led to ExxonMobil spending considerable time exploring the commercial and technical viability of using an LNG floating production, storage and offloading vessel. However, now the problems with Native Title deeds have been negated with the state's support for the Ashburton North site.
ExxonMobil has not always considered the Scarborough development to be commercially viable but sustained strong demand from north Asian markets has changed the U.S. supermajor's mind. The project does not appear to be a major priority for ExxonMobil as the company is also making considerable progress with the Gorgon LNG project also in Western Australia. Chevron is leading the project and is working closely with partners ExxonMobil and Shell and hopes to make a final investment decision before the end of the year. ExxonMobil is also the operator of the PNG LNG project in Papua New Guinea which entered Front End Engineering and Design (FEED) in May 2008. Both Gorgon and PNG LNG export projects will start supplying gas many years before Scarborough should it be sanctioned.
Yet significant progress has been made in the last month with a pre-FEED contract awarded for Scarborough LNG to an alliance between Mustang Engineering, FloaTec and JP Kenny. Upstream reports the work will cover all aspects of the upstream side of the project. Mustang will concentrate on the topsides facilities, while Floatec will be responsible for the semi-submersible hull and JP Kenny will take on all sub-sea and marine facilities, such as the export pipeline and flowlines.
BHP Billiton estimates the Scarborough gas fields contain around 8tcf with less than 1% carbon dioxide content and about 5% nitrogen. BHP's petroleum chief executive, Mike Yeager, is optimistic about the LNG project moving forward and said the company considers Scarborough its top priority. Upstream reports pre-FEED will commence in Houston, in Texas but the alliance of engineering companies would like to move project work to Perth in Western Australia before the end of the year.