Superficial talk overplays Oz LNG threats

Martin Wilkes, Principal Advisor – LNG Developments, recently spoke to ENP about Australian LNG competitiveness and how many commentators missed the point by talking too generically…

Friday, 19 September 2014
Anthony Barich, EnergyNewsPremium

IF AUSTRALIA’S industry thinks it is struggling with costs, productivity issues, environmentalists and over-regulation, spare a thought for its competitors in the LNG space whose industries have run into all sorts of trouble.

Earlier this week Douglas-Westwood group chairman John Westwood said the cost of building new LNG plants onshore Australia – a key supplier to Asia – had soared to the point where it had “become economically unviable”.

“[Australia] stands to lose $US97 billion ($A106.96 billion) of potential LNG projects to east Africa and North America unless radical cost reduction is applied,” Westwood said.

“Furthermore, Russia and China’s $400 billion gas deal could possibly also undermine some of Australia’s gas projects.

“In order to assure its industrial future, the Asia Pacific region needs to be taking a very long-term view on energy, not only by increasing supplies and their diversity but by improving energy efficiency.

“In this, the need for progressive removal of fuel subsidies in countries such as Indonesia is a vital element.”

However, talking exclusively to Energy News, RISC Perth-based principal advisor Martin Wilkes conceded that while the plethora of discussion around Australian LNG projects’ productivity was “undoubtedly an issue, my sense is that it is overplayed”.

Wilkes said competition from Canada, east Africa and the US had been blunted by Canada facing similar issues to Australian projects, US projects still facing political uncertainty and east African projects facing all of the above, plus regulatory uncertainty.

Besides, the strong demand growth for LNG appears to only be continuing, with buyers still active and growing in number and diversity.

He said current Australian projects were insulated because they had sales agreements in place but he conceded that unsanctioned Australian projects faced increased market complexity and price competition, with what appeared to be downward pressure on pricing in the medium term and slower progress being made on sales agreements.

He said the “generic discussion” masked some very project-specific issues and in particular development choices, which were more influential than productivity.

He cited Gorgon as an example. Being on Barrow Island, the conditions imposed for working in a Class A nature reserve mean that “they would never have the same productivity as, say, Queensland Curtis LNG working on Curtis Island – hence why QCLNG has ‘overtaken’ Gorgon and will start up first”.

“The generic discussion around LNG projects on a regional or a country level masks the fact that each project is unique and faces its own set of challenges – although many of the challenges are similar across the globe,” Wilkes said.

“Fundamentally, LNG projects are about the quality of the assets and the ability to exploit them in a commercially attractive way.

“For example, the decision to re-assess the viability of the Bonaparte development has little or nothing to do with Australian working conditions [because it was predicated as an offshore floating development], but is more about the ability to come up with a suitable development concept that will successfully exploit the resources in question.”

Wilkes said it was clear that many of the issues that affected the recent/ongoing Australian projects were becoming issues in other areas – talk of “unprecedented levels of investment” leading to skills shortages and increased costs had been mentioned in Louisiana, which has a lower unemployment rate than Western Australia, Canada and east Africa.

Back to previous page
Contact Us

Contact us and one of our team members will get back to you as soon as we can.

Contact Us