East Coast LNG not as productive as hoped

22 Feb 2019

Queensland’s new $84 billion LNG industry is unlikely to ever run at full forecast capacity. In a recent report by industry experts, it shows that the three plants – Queensland Curtis LNG, Australia Pacific LNG and Gladstone LNG – ran at only 82% capacity in 2018 and that may be the best they ever get.

The three plants source coal-seam gas – the first LNG exporters in the world to do so – and the wells they source their gas from in Australia’s Surat and Bowen basins in Queensland state have turned out to be less productive than expected. They have a combined capacity of 25.3 million tonnes a year but have never run at full capacity as GLNG, in particular, has been unable to source economic gas supplies.

“Unfortunately, there are serious headwinds coming and the outlook is less rosy as the industry over-reached by building three projects of six trains,” EnergyQuest CEO Graeme Bethune said in a statement.

QCLNG, run by Royal Dutch Shell averaged 87 percent capacity, and GLNG, run by Santos, only 65 percent, EnergyQuest, an industry consultancy, said.

In a detailed study of government and company drilling and production data and reserves booked at coal seam gas (CSG) prospects and licenses, it found that only 56 percent of booked proven and probable reserves had shown any commercial productivity.

“The emerging and critical shortages are resulting from the fact the CSG LNG projects were sanctioned on ambitious estimates of proved and probable (2P) reserves, not proven reserves (1P) that underpin conventional LNG projects,” Bethune said.

He predicted that by 2025 at least two trains would have to be shut to keep four trains running at full capacity, which would reduce medium-term exports to around 17 million tonnes a year, down from about 21 million tonnes in 2018.

About 70 percent of exports go to China, 16 percent to South Korea and 9 percent to Japan.

Exacerbating the problem, the producers have come under pressure to step up gas sales into the domestic market, with supply in Australia’s southeast falling as ageing offshore fields dry up and as states restrict drilling onshore.

The three projects supplied about 25 percent of Australia’s eastern demand in 2018.

“With dwindling production from southern gas fields, the political pressure on the LNG producers to divert gas to the domestic market is likely to intensify,” Bethune said.