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Australia looks to brownfield projects as LNG boom peaks

Australia is unlikely see any new greenfield liquefied natural gas projects in coming years due to low global LNG prices and no discoveries of major gas fields, but the next wave of brownfield expansions could easily dwarf existing projects.

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The last of Australia's initial wave of LNG export projects were set t to start operations by end-2018, making it the world's largest LNG exporter by the end of the decade, surpassing Qatar, in a feat set for the record books.

Australia's LNG exports and outlookA spike in Chinese gas demand due to fuel switching and growing domestic gas shortages in Australia have tightened the market earlier than expected, prompting calls for exploration and production companies to seek new capacity.

However, it is unlikely that Australian E&P companies will see any new projects built from scratch, and they are focused instead on expansion of existing facilities, which include backfilling declining capacity as well as tapping into known reserves.



"There's no other accumulation out there in my view that supports a greenfield project," Woodside Energy's managing director and chief executive officer Peter Coleman said.

"There's discovered gas that supports what we are doing but there is not enough discovered gas to support a greenfield project," Coleman said on the sidelines of a press briefing of the APPEA 2018 conference in Adelaide.

Separately, Wood Mackenzie's principal Australasia analyst Saul Kavonic said it might be another 10-15 years before we see a new greenfield LNG project in Australia.


FUTURE OF AUSTRALIAN LNG


Woodside Energy is leading some of the main expansions in Australian LNG that will be finalized in the next two to three years.

Earlier this year, Woodside took control of the Scarborough gas field, around 300 km offshore Western Australia, by acquiring ExxonMobil's 50% interest in the acreage.

It now has a 75% interest in the Scarborough development and planned to connect it to its Pluto LNG export facility, with a production capacity of 6 million mt. The Pluto expansion is expected to clear final investment decision, or FID, by 2020 and start operations by 2025.

Woodside's second brownfield project is even larger. It is to develop the Browse basin for a whopping 10 million mt of LNG production capacity, that will backfill the North West Shelf Project, one of Australia's oldest LNG plants accounting for more than one third of the country's oil and gas production.

The Browse-NWS development is expected to clear FID by 2021.

"I would say scale wise, with respect to volume going through the plant, Browse will be bigger than Ichthys and Scarborough will be bigger than Prelude. Both of those are brownfield, utilizing existing infrastructure, and that's why we can keep Scarborough so cost effective," Coleman said.

Ichthys is the Inpex-operated LNG project with a production capacity of 8.9 million mt/year of LNG. Prelude is Shell's floating LNG vessel with a capacity of 3.6 million mt/yr.

Coleman said the new LNG volumes from Pluto and NWS are being marketed in Asian countries like Japan, China and Taiwan, and buyers were waiting for the projects to complete front end engineering design, or FEED, before taking the plunge.

"There's a lot of interest in it," he said. "Once you get through FEED you'll see a lot more movement."

"We have said that we are happy to go to FID for Scarborough with only 50% of our volumes on long-term contracts. And we have also said those contracts can be as short as 10 years. We are fine with that," Coleman said.

"The reason for that is that markets are a lot more liquid now and if we don't have a buyer we know we can sell it on the short term or the spot market. The market is becoming a lot more like crude oil," he added.


LNG PROJECT BACKFILLS


Apart from Woodside, Adelaide-based Santos is also developing the brownfield project to boost Darwin LNG with a backfill of 3 million mt from the Caldita Barossa gasfield.

Darwin LNG was the first LNG project in the Northern Territory and the second in Australia. ConocoPhillips is the majority interest holder and operator of the Bayu-Undan gas field that feeds the plant and the Darwin LNG plant. The other stakeholders are Santos, Inpex, Eni, JERA and Tokyo Gas.

"Our strategy is that Santos is very much focused on brownfield projects around our existing infrastructure across the key hubs in the Cooper basin, GLNG, Darwin LNG, Western Australia and PLNG," Santos' managing director and chief executive Kevin Gallagher said.

He said historically, brownfield projects pay a much higher level of return to investors because you do not have the same level of capital expenditure exposure.

"That will keep us pretty busy for the next decade or so," Gallagher said.

-- Eric Yep, eric.yep@spglobal.com

-- Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com