Global Insight Perspective | |
Significance | The A$900-million (US$586 million) Reindeer gas development in the Carnarvon Basin off Western Australia has been suspended after a gas sale agreement could not be completed. |
Implications | The project has been put on hold, not totally abandoned. Work will only re-start when a gas sale agreement has been reached. |
Outlook | The project will only move forward once economic conditions are adjudged to be right for the development of the offshore gas reserves. Given the collapse of commodity prices and tight credit markets this could be several years. |
No Reindeer Gains
The Reindeer gas project off Western Australia has been deferred due to the global economic downturn. Santos and U.S. energy firm Apache Corp. have postponed the A$900-million (US$586 million) development due to a softening of demand. A number of sources have reported that a Chinese mining company would have purchased the gas, but no agreement has been signed due to the sudden drop in commodity prices. The project was due to start up in 2010 but as contracts are now being terminated this date is no longer applicable.
It is important to note that Reindeer is not being abandoned and only deferred until the economy picks up. In April Australia's Clough Ltd. was awarded a A$260-million engineering, procurement and construction (EPC) contract from Apache for the onshore processing and transportation of gas reserves from the Reindeer gas field at Devil Creek, which is located about 80 kilometres off the port of Dampier, Western Australia. Clough has already completed the front-end engineering and design (FEED) studies for both the offshore and onshore elements of the Reindeer Field and the Devil Creek Development project. Platts reports that the proposed Devil Creek plant would comprise two gas-processing trains, each with a capacity of 100,000 mmcf/d. The gas would then be compressed and exported to the Western Australian domestic gas market via the Dampier–Bunbury natural gas pipeline. The offshore project involves the construction of an unmanned, minimum facility wellhead platform to draw gas from the Reindeer field. Gas and liquids will be exported from the platform via a 105-km pipeline to the onshore plant at Devil Creek.
Bloomberg reports that the gas was due to be sold to a Chinese-backed iron ore project as part of a seven-year contract. Citic Pacific Ltd., the Hong Kong-traded arm of China’s biggest state-owned investment company, has been developing a A$5.2-billion iron ore project at Cape Prospect in Western Australia.
Outlook and Implications
According to Santos, efforts will continue to obtain regulatory approval for the offshore Reindeer field and the onshore Devil Creek plant to allow for the project to recommence once a gas sale agreement with the original buyer, or a new customer, has been signed.
The deferral of the Reindeer project caps a frustrating year for Apache in Western Australia. In June an explosion in a gas pipeline forced the company to shut in gas for two months at its Varanus Island gas plant some 100km west of Karratha. About 330 mmcf/d of gas and 8,000 b/d of oil are usually produced at the island, about 6% of Australia's output. The facility supplies about one-third of Western Australia, including major mining clients BHP Billiton and Rio Tinto as well as the domestic market. Damage to pipelines forced Apache to call a force majeure on its supply commitments. Meanwhile the removal of the 15% limit on individual shareholdings in Santos by the South Australian government on 29 November has seen the company become subject to takeover speculation, with China National Petroleum Corp. (CNPC) and BP suggested as likely suitors. This could mean that when the Reindeer project re-commences, Santos may not be the company developing the project.
The collapse of commodity prices and tightened credit markets have caused a number of projects to be abandoned or halted but the offshore Reindeer project is the first one to be suspended in Australia. IHS Global Insight believes the project will go ahead in the future but not until the economic conditions are judged to be right for its development, which could see the project put on hold for several years.
The Reindeer gas field was discovered in 1997 and is located in the Carnarvon Basin offshore Western Australia within exploration permit WA-209-P. It has proven and probable (2P) reserves estimated at about 457.35 bcf and 1.6 million barrels of condensate. Apache operates the gas project with a 55% stake, while Santos holds the remaining 45%.