New micro-LNG plant starts up in Australia for domestic fuel market

By JAMES PATON
Bloomberg

In the shadow of $60 billion in Australian liquefied natural gas (LNG) export projects, a plant supplied by BG Group is going against the flow by starting production this month for the domestic market.

Instead of supplying huge Asian utilities, the “micro-LNG” plant in southern Queensland state is targeting customers in the trucking, mining and industrial sectors that want to replace diesel fuel with less-polluting LNG.

The plant, operated by BOC, part of Germany’s Linde, has contracts to sell more than half its capacity, said Alex Dronoff, general manager of LNG at the unit. The company is considering building another plant at the Queensland site, Dronoff said.

“Everybody just thinks about the export plants,” Dronoff said. “The LNG we produce doesn’t go offshore. It reduces reliance on imported diesel.”

Australia is forecast to surpass Qatar this decade to become the world’s biggest LNG exporter with $60 billion of mega projects in Queensland coming on stream.

Manufacturing Australia, an industry group, said this year that “unrestricted” LNG exports are boosting domestic prices and hurting local gas consumers.

The BOC plant has a capacity of 50 metric tons of LNG a day, enough to supply as many as 200 trucks, and has contracts with customers including Nestle SA and remote mines for power generation, Dronoff said. BG’s Australian unit, QGC, signed an agreement in 2010 to feed coal-seam gas to BOC.

While a falling oil price reduces the incentive to switch from diesel, “there is opportunity in Australia to look at how gas might be deployed into meeting” demand from the transport and mining industries, said John Young, an analyst at Ord Minnett, said by phone. “That could be in the form of micro-LNG or compressed natural gas,” he said.

The BOC project is estimated to cost more than A$200 million ($172 million) over its life, Dronoff said.

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