LNGINDUSTRY | March 2016

March 2016

www.lngindustry.com

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ISSN 1747-1826

CONTENTS
MARCH

03 Comment
05 LNG news
12 Australia: an LNG powerhouse

76 Overcoming the challenge

17 Expanding nitrogen at sea

89 Training for the future

24 Innovation & replication

95 Playing a serious game

29 A floating fortune

99 Reading the waves

33 Island mentality

107 Spot the difference

37 FLNG: mitigating the risks

109 LNG 18 preview

41 Under control

120 15 facts... on Australia

2016

Roy Bleiberg, ABS, USA, looks at the challenges facing ship owners,
shipyards and service providers as they move to adapt to LNG as fuel.

83 Making the right choice

Alexander Harsema-Mensonides, Braemar Engineering, USA,

examines LNG containment systems and their suitability as LNG fuel
tanks for commercial ships.

Geoffrey Cann, Deloitte, Australia, outlines the critical challenges

for Australia as it readies itself to become the leading exporter of
LNG.

John Morgan, USA, and Alan Royer, Canada,

PetroSkills | John M. Campbell, explain how carefully structured
training can improve safety and cut costs at LNG plants.

Annemarie Ott Weist, znur Sayg-Arslan and Mark Roberts,

Air Products and Chemicals Inc., USA, discuss a range of
liquefaction processes suitable for floating LNG.

David Thomson, AVEVA, UK, looks at how multi-player gaming

technology can transform safety and efficiency in the management of
complex engineering assets.

Phil Hagyard and Jean-Marc Letournel, Technip, France, explain

why the future of floating LNG will depend on a balance between
repeatability and innovation.

Steve Sabin and Randall Chitwood, SETPOINT Vibration, USA,

show how modern commercial process historians can also serve as
full-featured vibration monitoring software.

Oliver Quinn, Ophir Energy, UK, discusses the latest

developments at the Fortuna FLNG project in Equatorial Guinea.
Langley Meek, Excelerate Energy, USA, presents a logistical
solution to provide island nations in the Caribbean with LNG.

Wendi Orlando, OpenLink, USA, explains how real-time CTRM can

help businesses adapt to a changing LNG market.

Jonathan Goldfarb, UK, and Patricia Tiller, Dubai, Ince & Co.,
outline some of the key areas of negotiation surrounding floating
LNG contracts.

LNG Industry previews a selection of companies that will be

exhibiting at LNG 18, which will be held in Perth, Australia, from
11 15 April 2016.

45 Organic power ideas

52 Not everything is bigger in Texas

LNGINDUSTRY | March 2016

Jacob Thomas, John Mak, Arindom Goswami and Steven Borsos,

Fluor Energy and Chemicals, USA, look at mid scale LNG
liquefaction plant innovations.

March 2016

Vivek Chandra, Texas LNG, USA, explains why the companys

mid scale LNG export project will be commercially viable in a
changing market.

57 Scaling up

Steven Vallee, Brent Heyrman, Doug Decker and Doug Ducote,

Chart Industries Inc., USA, look at the scale-up of plate-fin heat
exchangers for a mid scale LNG process.

67 An offshore option

Florian Picard, Fives Cryo, France, presents a new heat exchanger

solution suitable for offshore applications.
Derek Goh and Derya Turgay-Herz, eltherm GmbH, discuss
electrical heat tracing solutions for the offshore gas processing
industry.

Copyright Palladian Publications Ltd 2016. All rights reserved. No part of this publication may be reproduced,
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endorse any of the claims made in the articles or the advertisements. Printed in the UK.

www.lngindustry.com

70 Braving the sea

Texas LNG is strategically

located to take advantage
of abundant resources
and access to shipping
routes using a flexible
tolling model and realistic
size to ensure success
in a changing market.
Designed with proven
technology, a small
footprint and a phased
build-out to be fast to
market.

LNG Industry is audited by the AuditBureau of Circulations (ABC).

An audit certificate is available on request from our sales department.

ON THIS MONTHS COVER

Eric Morilhat and Nicolas Duhamel, FMC Technologies Loading

Systems, France, discuss the importance of customising the
design and operation management programme for different LNG
offloading systems.

CALLUM OREILLY EDITOR

COMMENT
A

s the LNG industry prepares to assemble at LNG 18 in

Perth, Australia, it is the US LNG market that is stealing
the headlines.
In late February 2016, Cheniere Energy finally announced
that the first shipment of LNG had set sail from its Sabine Pass
liquefaction terminal in Louisiana. This shipment marks the arrival
of a major new player in the LNG industry; a player that would
have once been unimaginable to LNG project proponents in
Australia.
Four new projects are due to start production down under
by the end of 2017, adding approximately 37 million tpy of LNG
to the global market. At the time of writing, first production
from Chevrons Gorgon LNG project was said to be imminent.
The timing for this project the worlds most expensive
(US$54 billion) is somewhat unfortunate. In addition to the
arrival of US shale gas to an already oversupplied market, LNG
prices have fallen sharply and demand is weakening.
Evidence of the rough road ahead for Australian projects
could be seen in Santos full year results for 2015. The operator of
the Gladstone LNG (GLNG) project, which shipped its first cargo
in October 2015, reported a staggering loss of AUS$2.7 billion
for the 12 months to December 2015. Santos said that the
loss reflected lower oil prices during the period. Its rival,
Woodside Petroleum, also attributed its 99% drop in net profit
after tax for 2015 to the global fall in oil prices.
While operators of these new projects would have certainly
foreseen more favourable market conditions upon launch and
would have hoped to keep escalating costs under control
during the construction phase it is important to remember
that Australia is playing the long game. The projects have been
developed with an average life span of 40 years, and have long
offtake agreements in place based on oil-indexed pricing, which
will eventually start to climb (the International Energy Agency

james.little@lngindustry.com

Editor

1. World Energy Outlook 2015, International Energy

Agency, (2015).
2. Energy Outlook 2016, BP p.l.c., (2016), http://www.
bp.com/content/dam/bp/pdf/energy-economics/energyoutlook-2016/bp-energy-outlook-2016.pdf

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CONTACT INFORMATION

Managing Editor

James Little

expects to see a gradual rise in the price of oil to US$80/bbl by

2020).1
Whats more, the demand outlook for natural gas remains
very promising. In its 2016 Energy Outlook, BP notes that gas is
the fastest growing fossil fuel.2 BP expects LNGs share of world
demand to rise from 10% in 2014 to 15% in 2035, by which time
LNG will surpass pipeline imports as the dominant form of traded
gas. BP also said that it does not expect the recent weakness in
gas consumption to persist, as strong supply growth and stronger
environmental policies will allow gas to compete with coal in
Europe, Asia and North America.
In this issue of LNG Industry, Geoffrey Cann, Deloitte
Australias National Director, Oil and Gas, takes a look at some
of the critical challenges facing Australia as it readies itself to
become the worlds largest LNG exporter (starting on p. 12). As
well as outlining the immediate agenda for the countrys LNG
industry over the next 24 months, Cann takes a look at the future
direction of the Australian LNG sector. He believes that shortly
after the current wave of projects have been completed, attention
should turn to the many innovative technologies that have yet
to establish a significant presence within the industry. It is these
technologies that hold the key to keeping costs down and
productivity up in a market that is more competitive than ever.
An array of innovative technologies will take centre stage
at the LNG 18 Conference and Exhibition in April. As always, the
LNG Industry team will be in attendance at the show and we
invite you to drop by stand 1065 to discuss your latest products
and projects with us.

TRI-CON
SERIES FOR
CRYOGENIC
APPLICATIONS

WWW.ZWICK-ARMATUREN.DE

LNGNEWS
USA

China

First LNG cargo exported from Sabine Pass

Origin and ENN ink LNG supply agreement

echtel has announced that the first LNG commissioning

cargo has been exported from Cheniere Energys
Sabine Pass liquefaction terminal in Louisiana, US. The
Asia Vision LNG carrier was loaded with 160 000 m3 of LNG
(equivalent to 96 million m of natural gas), which will be
shipped to Petrobras regasification terminal in All Saints Bay,
Bahia, Brazil.
Bechtel is the lump-sum turnkey (LSTK) contractor for the
five liquefaction trains being constructed at the facility. This
first cargo was produced on the first of the five trains.
Alasdair Cathcart, the General Manager of Bechtels
LNG business line, said: The first LNG commissioning
cargo exported from the Sabine Pass facility is a historic
achievement for Bechtel as it marks the first LNG export from
the US since we commissioned Kenai LNG in Alaska more
than 40 years ago.
We relied on our people, their expertise and experience,
in designing and building the plant, and finding innovative
solutions to the challenges of megaproject construction. I
would like to congratulate the entire team our customer
Cheniere, our global suppliers, and the Bechtel team on
this extraordinary achievement as it is a testament to their
collaboration and hard work.

rigin Energy Ltd has signed a non-binding heads of

agreement with ENN LNG Trading Co. Ltd for the
supply of 500 000 tpy of LNG for a period of five years.
Origin also confirmed that the parties have the ability
to extend the supply period by an additional five years, and
that a binding LNG Sales and Purchase Agreement (SPA)
is expected to be executed during 2H16. Deliveries of LNG
under the SPA would be expected to begin in 2018 or 2019,
after completion of ENNs Zhoushan receiving terminal in
Zhejiang province, China.
Under the heads of agreement, Origin has the flexibility
to supply ENN from its portfolio interests, optimised with
third party purchases where market conditions create an
opportunity to lower the overall cost of supply.
As LNG and commodity markets strengthen in the
future, Origin, together with its partners, has the option to
bring forward the development of its resource positions on
Australias east coast.
Origin Chief Executive Officer, Integrated Gas,
David Baldwin, said: The heads of agreement represents
a significant milestone in the relationship between
Origin and ENN, and in the development of Origins LNG
business.

Australia

Valmec awarded APLNG services contract

almec Ltd has been awarded a long-term

services contract from Origin Energy on behalf of
Australia Pacific LNG (APLNG).
Under the contract, Valmec will provide specialist
technicians, equipment and parts as part of its
preventative and corrective maintenance services to
Origin as joint venture partner and operator of APLNGs
upstream gas compression and power generation
assets located in South West Queensland, Australia.
The contract is for an initial period of two years,
with extension options for a further two years. Service

works under the contract are expected to commence

immediately and will be managed from Valmecs
facilities in Dalby, Queensland.
Valmec Managing Director, Steve Dropulich,
said: We are very pleased to have been selected by
Origin as a service provider and be able to continue
our strong working relationship. This contract is of
strategic importance to Valmec as it is aligned with
our mission of delivering value to our clients across
every aspect of our operations and the entire project
lifecycle.

MARCH 2016

LNGINDUSTRY

LNGNEWS
Panama

USA

POSCO awarded LNG terminal construction

contract

Sempra Energy and Woodside sign Port Arthur LNG

project agreement

OSCO E&C has announced that it recently

executed a US$650 million EPC turn-key contract
with Gas Natural Atlantico S. de R.L and Costa Norte
LNG Terminal S. R.L (a subsidiary of AES Panama)
for a combined cycle power plant and LNG terminal
in Panama. The power plant will have a generating
capacity of 380 MW and will be capable of supplying
approximately 15 million households. Meanwhile, the
LNG terminal will have a capacity of 180 000 m3. The
project will be located in Colon Province, which is 60 km
from Panama City.
Mr Kun Soo Oh, the Senior Executive Vice President
of POSCO E&C, said: POSCO E&C was consecutively
awarded two projects since December 2015 (by AES),
in the Philippines and Chile. These awards have helped
POSCO E&C to increase its competitiveness in overseas
power plant markets.
POSCO E&C became the first Korean construction
company to construct a power plant in Latin America in
2006, when it built the AES Ventanas coal-fired plant in
Chile, as well as the Campiche and Angamos projects in
2007.

empra Energy has announced that its Sempra LNG &

Midstream unit has entered into a Project Development
Agreement with a subsidiary of Woodside Petroleum Ltd to
advance the development of the proposed Port Arthur LNG
natural gas liquefaction facility in Port Arthur, Texas, US.
The new agreement expands on the Memorandum
of Understanding (MoU) previously signed by the parties
in June 2015 and provides a framework regarding how
Sempra LNG & Midstream and Woodside will contribute
their experience and share the costs related to the
development, technical design, permitting and commercial
development of the liquefaction project.
The proposed Port Arthur LNG liquefaction project,
located at a site previously permitted for an LNG
regasification terminal along the Sabine-Neches Ship
Channel, would initially be designed to include two natural
gas liquefaction trains with a total export capability of
approximately 10 million tpy.
Octvio M. C. Simes, President of Sempra LNG &
Midstream, said: We are confident that, together, we can
develop a facility that will meet the highest standards of
LNG supply for the global market.

News Highlights
NEWS HIGHLIGHTS

XX Woodside appoints
Non-Executive Director
XX Flogas invests in LNG distribution fleet
XX ENGIE appoints new CEO

Visit our website for more news: www.lngindustry.com

COMPLETE
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LIFE CYCLE
From engineering and construction to
commissioning, initial operations and ongoing
maintenance, CB&I helps customers get their gas
to market. Our expansive range of technology
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of a projectdelivering consistent results
regardless of the project location.
With recent awards and on-going projects
in the U.S. and around the world, CB&I
continues to build on its legacy of leadership
in the LNG industry. Contact CB&I to learn
how our complete solutions can benefit your
next LNG project.

Photo Courtesy of Freeport LNG Development, L.P.

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LNGNEWS
USA

Norway

Emerson to automate liquefaction project

Hegh LNG receives financing for seventh FSRU

merson Process Management has announced

that it has been chosen by Cameron LNG to help
automate its new liquefaction project, adding three
LNG trains to facilitate export of domestic natural
gas to international markets. The company has been
awarded automation contracts for more than half of all
North American LNG export capacity.
Cameron has chosen Emerson Process Management
to provide automation expertise and technologies that
will help Cameron manage the LNG facilitys operations
safely and efficiently.
Three new liquefaction trains will give the
Hackberry, Louisiana, facility the flexibility to export up
to 12 million tpy of US produced natural gas.
Emerson will provide its DeltaV distributed
control and DeltaV SIS integrated safety system for
both new and existing portions of the facility. It will
also provide its AMS Suite predictive maintenance
software to optimise the availability and performance
of key production assets. Project specialists in Houston
and in Pune, India, will provide related design and
configuration services to help accelerate the project
schedule.

DIARY DATES

17 - 18 March 2016

China LNG International Summit &

Exhibition
Beijing, China
www.chinalngsummit.com

egh LNG Holdings Ltd has announced that

it has received commitment letters for the
US$223 million financing of its seventh floating
storage and regasification unit (FSRU). The financing
is able to fund 65% of the delivered cost, with a
15-year amortisation profile increasing to 75% and
20 years, respectively, upon a long-term contract
being secured. The structure, which has a five-year
post-delivery tenor, has the flexibility to be able to
be dropped down to Hegh LNG Partners LP together
with the FSRU. The interest rate will be swapped, and
it is expected that it will be fixed at approximately
3.8%. The commitments remain subject to final
documentation. The vessel is scheduled for delivery at
the end of 1Q17.
President and CEO of Hegh LNG Holdings Ltd,
Sveinung J.S. Sthle, said: With this transaction,
Hegh LNG has once again secured competitive debt
financing for its FSRU fleet expansion, and this time
at the lowest cost ever achieved by the company.
The financing terms reflects the financial strength of
Hegh LNGs balance sheet in addition to its position
as the market leader in the FSRU segment.

09 - 12 May 2016

06 - 09 September 2016

Amsterdam, the Netherlands

www.flame-event.com

Hamburg, Germany
www.smm-hamburg.com

Flame

SMM

11 - 15 April 2016

29 August - 01 September 2016

04 - 07 April 2017

Perth, Australia
www.lng18.org

Stavanger, Norway
www.ons.no

Tokyo, Japan
www.gastechevent.com

LNG 18

8 LNGINDUSTRY

MARCH 2016

ONS

Gastech 2017

www.ChartLNG.com

LNGNEWS
Lithuania

USA

Chart Ferox and PPS win LNG reloading station

contract

Souki and Houston start new LNG company

hart Industries Inc. has announced that its wholly owned

Czech subsidiary, Chart Ferox, and EPC consortium
partner, PPS Pipeline Systems Germany, have been selected
to provide an LNG reloading station for AB Klaipdos nafta at
the Port of Klaipda, Lithuania.
Chart said that the consortium will deliver a total project
scope, including equipment engineering, production,
installation, and commissioning, as well as construction of
the associated infrastructure. The contract, which is valued
at 27.7 million, will enter into full force after approval of
conclusion of the EPC contract by the general meeting of
shareholders of AB Klaipdos nafta.
Chart confirmed that its scope of supply is nearly 50% of
the total award value. Five Chart cryogenic storage tanks will
provide 5000 m3 of LNG storage at the station, which will
be equipped with two loading areas for LNG trucks and jetty
modules for ship bunkering.
The Chart LNG regasification facility will have the
capacity to provide 6000 Nm3/hr of natural gas. The LNG
reloading station will be operational within 15 months with
full scope delivery anticipated during 2H17. The overall plant
design will also incorporate a potential future expansion,
capable of doubling the storage capacity.
The main project aim is to develop Klaipda as a Baltic
hub and virtual pipeline to fuel ships and deliver LNG by truck
to reduce the traditional dependence on imported pipeline
gas.

harif Souki the former Chairman, President and CEO of

Cheniere Energy has announced that he is teaming up
with former BG Group executive, Martin Houston, to form a
new company offering mid scale natural gas liquefaction and
export projects along the US Gulf Coast.
Tellurian Investments aims to deliver low cost LNG to global
customers by acting upon the advantages offered by the US.
These include low cost natural gas, excellent locations for facilities
on the Gulf Coast, low cost manufacturing, availability of labour,
and a regulatory environment that is well suited for and has a track
record for approving these projects.
Tellurian said that it will partner with Bechtel to construct the
LNG plants. It has selected Chart Industries for the liquefaction
technology.
Mr Souki said: What differentiates us from every other LNG
developer is our combination of talent. I see what can be done
and Martin knows exactly how to get it done. He has developed
liquefaction facilities in Trinidad, Egypt [and] Australia, and built
the worlds first portfolio LNG trading company. The combination
of Martin and I together is as seasoned an LNG team as you can
dream up.
Both Souki and Houston added: It is important to remember
that the gas industry is not about the short-term; we are thinking
about the energy needs of the world from 2020 to 2040. We are
absolutely in this for the long haul. Natural gas is a tremendously
important commodity for the worlds future, and we will be
successful because we fully understand the opportunity and have
the experience to do something about it.

Mozambique

Eni receives approval for planned development of Coral discovery

ni has received approval from the Government of

Mozambiques Council of Ministers for its plan of
development for the first 5 trillion ft3 of gas from the Coral
discovery. The discovery, which was made in May 2012, has
approximately 16 trillion ft3 of gas, and is located in the Area 4
permit, at a depth of 2000 m and approximately 80 km
offshore of the Palma bay, Mozambique.
Enis plan of development involves the construction and
installation of a floating LNG (FLNG) unit, and the drilling

10 LNGINDUSTRY

MARCH 2016

of six subsea wells. The FLNG unit will have a capacity of

approximately 3.4 million tpy.
In September 2015, the project became the first in the
Rovuma Basin to be granted an environmental license. This
process involved local communities, as well as national
authorities, and was the result of an environmental and social
impact assessment study.
Alongside its partners, Eni is currently also pursuing the
development of gas in the Mamba discovery.

Modular, scalable,
cleaner energy.
Fueling the future of natural gas.
A skid-mounted, plug-n-play natural gas liquefaction plant
that provides a cleaner more abundant LNG fuel source for
remote locations. GEs small scale LNG plants mean faster
commissioning times and reduced installation costs.

Imagination at work.

Visit us at LNG 18, booth 1364

April 11 15 Perth, Australia

www.geoilandgas.com/smallscalelng

Australia:
an LNG powerhouse

12

Geoffrey Cann, Deloitte, Australia,

outlines the critical challenges for
Australia as it readies itself to become
the leading exporter of LNG.

any countries strive to be an energy superpower. From a single project in 1989,

Australia has achieved this status and is now set to become the worlds largest
exporter of LNG, with 10 projects and close to 100 million tpy of LNG production
coming online at a value of AUS$70 billion. With a diverse range of project configurations
and future possibilities, the countrys LNG transformation has been extraordinary.

Diverse and innovative

Broadly, Australia taps into two different gas resources using four different LNG project
configurations. In Western Australia (WA) and the Northern Territory (NT), gas is extracted
principally from offshore fields, and transported to shore where it is treated and liquefied
(North West Shelf Gas BHP Billiton, BP, Chevron, Japan Australia LNG,
Shell, Woodside; Darwin LNG ConocoPhillips; Pluto LNG Woodside;
Gorgon Chevron; and Wheatstone Chevron).

13

In Queensland, three coal bed methane (CBM) projects

(Queensland Curtis LNG QGC/BG Group; Gladstone LNG
Santos; and Australia Pacific LNG Origin, ConocoPhilips,
Sinopec) extract dry methane from shallow coal measures, and
transport the gas to the coast for treatment and liquefaction.
These projects are great examples of Australian innovation, as the
gas value chains have limited storage and are the first of their kind.
In addition, the industry is pioneering two hybrid models. The
Ichthys (Inpex) project will also tap into offshore gas fields, but will
separate liquids at a floating production vessel, with the residual
methane treated and liquefied in Darwin. The Prelude project
(Shell) is another example of innovation, as it is the worlds first
purely floating LNG (FLNG) facility that will treat gas and
manufacture LNG entirely at sea.
Commercially, Australias LNG projects have strong
underpinnings. All have largely sold gas forward on long offtake
agreements to large credit worthy customers on terms based on
oil indexed pricing. Those same customers are frequently
investors in the projects to help align interests.
The countrys growth as an LNG exporting nation was based
on expected rising demand for gas in Asia a physically close
market with which Australia shares close exporting ties (based on
its coal and iron ore industries) and, at the time, falling gas
supplies in the US. The sector received a significant boost in the
aftermath of the global financial crisis, which had the effect of
constricting capital availability for rival nations, leaving only the
Australian projects to capture growth markets.
The demand outlook for gas remains promising, with growth
rates expected to be above global GDP growth rates. However,
Australia no longer has the market to itself, with US supplies,
unlocked by technology innovations, such as horizontal drilling
and multi-stage fracture stimulation, to be more than abundant via
five large projects under construction, and new trade agreements
that allow US gas to be freely exported to some of the worlds
largest gas consumers, such as Japan.

Critical challenges

It goes without saying that, in an eternally challenging sector,

Australias LNG industry has encountered a number of challenges,
including some of the highest costs in the world, low productivity
and significant social license concerns.
Studies show that Australia leads the world in capital costs,
driven by a small available working population, remote project
sites far from settlements, long transportation supply routes, and
a demanding regulatory burden. Hand-in-hand with high costs is
the low productivity of the workforce, which is tied to strong
organised labour, restrictive work practices and high levels of
compliance-related activity.
It is also proving difficult for the industry to earn and maintain
a high social license to operate. The political environment
translates to an unstable regulatory environment, with frequent
rule changes for gas projects. High levels of social activism also
block project approvals, drilling activity and other legitimate gas
industry business. The export oriented LNG trade has exposed the
domestic market to the global price of gas, leading to frequent
calls for gas reservation as a protective measure for domestic
manufacturers ill-prepared for shifting energy costs.
As the projects transition to operations, operators are taking a
firm hand to their cost structures and are working hard to improve
their economics by rightsizing staffing, reshaping contracts, and
collaborating to share costs. Suppliers are also acutely aware of
the need to rethink their own cost structures (under no small

14 LNGINDUSTRY

MARCH 2016

pressure from the operators), and costs are at last coming down in
the sector.
Coincident with the drop in oil prices, which has caused a fall
in eventual LNG revenues, the Australian dollar has also fallen
relative to the US dollar. This has helped lower the cost of inputs,
such as labour and logistics, and has helped offset these
challenges.

Structural shifts

A small set of structural shifts underway in global gas markets

may have some eventual commercial impacts on the Australian
LNG players.

Destination flexibility

The looming US LNG supply will feature less restrictive destination

flexibility than other supply arrangements. This is an attractive
contracting arrangement, particularly for Japanese buyers who
face an uncertain and possibly shrinking market, and need the
ability to redirect LNG cargoes away from Japanese shores.

Oil pricing delinking

Another US market innovation, export LNG contracts may be

priced, in part, on North American domestic gas prices, which
were at historic lows at the time of writing. Japan joined the
Trans Pacific Partnership, in part, because of tariff-free access to
US gas that would help delink LNG from oil pricing.

Infrastructure expansion

The widening of the Panama Canal will allow the vast majority of
LNG carriers to transit, which will further enable trade flow and
make Asian markets more accessible to planned US Gulf Coast
LNG plants.

Market deregulation

Japan and China have announced energy market deregulation,

which will have an eventual impact on spot markets, competition
for customers and cargo destinations. In tandem, there will be
a rise in LNG trading activity as the flood of LNG comes to an
already oversupplied market.

Contract renegotiation

India and Qatar have made headlines recently through the

renegotiation of their supply contracts now that LNG markets are
in medium-term oversupply. Australias LNG contracts feature
some of the highest pricing models, which were established
when markets were short, and gas buyers may be tempted to
renegotiate the Australian supply contracts.

The immediate agenda

In the midst of so many global and local forces, challenges, and

opportunities, the agenda for the Australian industry over the next
24 months is largely set.

Complete construction

There is still considerable build activity in WA and the NT that

must come to a successful conclusion, while under ongoing
threats of labour activism. Projects in build will increase their focus
on cost of construction.

Transition to operations

Confidence in the CBM projects is growing, with the successful

launch of the QGC project and its transition to operations. The

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remaining Queensland projects should experience the same

success, and this experience will eventually benefit the WA
projects as well. A greater emphasis on marketing and trading
activities is expected.

Take costs out

While Australias costs have come down significantly, they still

have further to go. Suppliers and employees should expect a
ruthless and relentless cost emphasis the only variable the
projects can control.

Collaborate more

The projects are racking up a small but successful track record in

collaboration, including safety forums, emergency preparedness,
and shutdown and turnover planning and execution, but there are
still ample opportunities for greater collaboration to take out cost
and improve productivity.

Future directions

Australias LNG sector is well positioned to tackle its challenges

and ready itself for the future, but what does that future hold?
So long as oil prices remain low, few greenfield LNG projects,
including those in Australia, are likely to be sanctioned. This is,
therefore, setting up the countrys 10 projects as viable
competitors for brownfield expansion. Indeed, the economics of
LNG projects generally improves with expansion, since there is
often considerable latent capacity in the asset mix (such as
underutilised jetties, storage assets, power generation, and
control rooms).
The focus on completing the projects has limited the capacity
for innovation. Therefore, shortly after project completion, the
innovation agenda is expected to rise in importance. Many
innovative technologies have yet to establish a significant
presence in the industry, including social media, virtual reality,
the sharing economy, autonomous vehicles (rigs, trucks, drones),
additive manufacturing, the internet of things, nanotechnology,
energy storage solutions, analytics, and mobile and tablet
computing.
The industry should also soon be undertaking more
aggressive capital recycling programmes. Many of the gas
processing assets in the onshore value chains, including the
plants, water treatment facilities and pipelines, could be spun off
to third party operators. This would free up capital to finance
expansion of the gas fields to grow the sector. The more
developed gas markets in North America have separated the
gas processing sector from gas field owners, which has resulted
in a better optimised capital allocation that matches low return,
low risk assets with appropriate shareholders.
Finally, the overall industry will be seeking a significantly
lower regulatory burden, and Australias various governments
should be stepping up to assist. The industry competes for
capital with other global basins, and not for gas in Australia (the
competition for resources ended long ago). While suppliers,
owners and operators will do their best to improve sector
economics, the regulatory burden and related compliance costs
are a direct charge against the slim royalties governments need
to finance public sector debt, operations and social programmes.

Conclusion

Australia will be the world leader in the LNG sector and has
bright and exciting prospects as it races to conclude the
immediate slate of development.

THAT WAS A SAMPLE OF

MARCH ISSUE

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