Gas Processing & LNG is Produced by Gulf Publishing Holdings LLC



Japanese-backed Australian LNG import project faces delay

MELBOURNE, Nov 4 (Reuters) - Plans for a Japanese-backed project to import liquefied natural gas (LNG) to Australia have hit a hurdle as the group struggles to lock in customers, including Australia's top gas retailer, Origin Energy.

Potential buyers are holding off signing contracts after a drop in local gas prices, industry observers and sources said, leaving the A$250 million ($171 million) project well behind its initial schedule of delivering gas in late 2020.

The delay risks Australian Industrial Energy's (AIE) aim of opening a gas terminal in Port Kembla in New South Wales state ahead of a rival project by Australia's AGL Energy, while both projects are racing to meet a looming gas shortage.

AIE, backed by Japan's JERA, the world's biggest LNG buyer, trading house Marubeni Corp and Australian mining billionaire Andrew Forrest's Squadron Energy, is one of five projects aiming to bring gas to southeast Australia.

It had hoped its Port Kembla Gas Terminal would start delivering imported gas to industrial users, such as chemicals and brick makers, in late 2020, making it the first off the rank.

As of June, the project had lined up the country's no.3 gas retailer, EnergyAustralia, as its first customer, booked a floating storage and regasification unit and booked contractors to build wharf facilities.

However, since then it has failed to lock in deals with 12 industrial users who had expressed interest in 2018. A few of those 12, representing "a very small load", have since dropped out altogether, Squadron Chief Executive Stuart Johnston told Reuters.

Industry observers say manufacturers don't want to commit to AIE as a global LNG glut has spurred two gas exporters in Queensland - Royal Dutch Shell and APLNG, led by ConocoPhillips - to offer more gas into the local market, driving down prices.

"With improved gas availability on the domestic market currently and prices falling, this could delay (AIE's) process as buyers feel more comfortable continuing to contract for domestic pipeline gas," said Nicholas Browne, Asia gas and LNG research director at consultants Wood Mackenzie.

With manufacturers holding off, AIE is chasing Origin Energy, Australia's biggest gas retailer, to help get the project off the ground, people familiar with the project said.

One person, who declined to be named as talks are confidential, said one sticking point was that Origin was seeking an equity stake in the project.

Origin confirmed it has been talking to AIE, among others, about gas supply but played down talk of an equity stake.

"We are not actively looking to invest in the project," an Origin spokeswoman said.

Squadron said it would not comment on talks with potential customers. A Marubeni spokesman said AIE was talking to industrial users and energy retailers. JERA, a joint venture of Tokyo Electric Power Co and Chubu Electric Power Co , declined to comment.

TIMEFRAME UNCERTAIN

AIE's backers are no longer predicting when it will deliver first gas.

"I'm not hanging dates out there at the moment," Johnston told Reuters.

He said the facilities could be delivering gas within 16 months of a final investment decision, and customers were lining up as they expect Port Kembla to be the first to market.

The project still needs state approval for greater throughput at the site than it originally applied for.

This would meet the needs of retailers like Origin and EnergyAustralia seeking access to more cargoes during the Australian winter, when gas demand from households soars, rather than the steady supply sought year-round by manufacturers.

AGL, meanwhile, is grappling with an extended environmental review of its Crib Point import project in Victoria, but still expects to start importing LNG by June 2022.

Further delays could see Australia's southeast short on gas, as the market's ageing supply source, the Gippsland Basin, is expected to go into a steeper decline from 2023.

"This is only three years away, so the longer the projects are delayed, the more security of supply risk the east coast market will be exposed to," WoodMac's Browne said.


Copyright © 2019. All market data is provided by Barchart Solutions. Futures: at least a 10 minute delay. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

                                  CMEGroup                                     Icelogo

FEATURED COLUMNS

Editorial Comment
-Adrienne Blume
The continued expansion of natural gas trade is led primarily by growth in the LNG sector, which has tripled over the past 3 yr.
Industry Focus: The future of gas-to-power projects in Africa
-Shem Oirere
Natural gas is expected to play a central role in supporting Africa’s drive to achieve electricity connection for nearly 600 MM people without access to the grid, to reduce widespread reliance on coal for power generation, and to fast-track the continent’s slowed industrial expansion.
Regional Focus: Gazprom faces challenges for combined LNG/processing plant in Baltics
-Eugene Gerden
Russia’s largest natural gas producer, Gazprom, aims to build a giant project on the Russian Baltic seaport of Ust-Luga. The plans include the construction of a combined LNG and gas processing plant.


GasPro 2.0: A Webcast Symposium

Register Now

Following on the heels of the highly successful GasPro 2.0 Webcast Symposium in October 2018, the second GasPro Webcast Symposium 2.0 will take place on October 24, 2019.

The 2019 web event will gather experts in the fields of LNG, gas processing, and gas transport/distribution to share their operations expertise, engineering and design solutions, and technology advances and trends with our audience.

Attendees will learn about technology and operational solutions and deployments in a number of areas: plant design and expansion, construction, NGL production, optimization, sulfur removal, marine operations and separation technology.

October 24, 2019 08:30 AM CDT

Register Now

 

Please read our Term and Conditions, Cookies Policy, and Privacy Policy before using the site. All material subject to strictly enforced copyright laws.
© 2019 Gulf Publishing Holdings LLC.