Western Australia looks set for a new $US6 billion ($7.3 billion) offshore petroleum development thanks to a long-awaited deal struck between US player Hess Corporation and the North West Shelf venture, which also opens a new era for the Woodside-managed venture in the processing of third-party gas.
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The North West Shelf venture will process gas supplied by Hess from its fields in the Carnarvon Basin through its LNG plant at Karratha for a fee, providing an extra revenue stream and helping extend the life of the project.
The deal will allow Hess to go ahead with the development of the gas it has discovered in the Carnarvon Basin off WA, in a project expected to cost $US6 billion to develop. It will also secure LNG that it can then market to customers in the Asia-Pacific region.
Although no increase in LNG plant capacity is required, Hess' new offshore project, called Equus, will be one of the few large-scale resources projects set to go ahead in the next few years after the fading of the mining investment boom and after a splurge of investment in new LNG infrastructure that triggered an escalation in costs and made further new LNG projects unlikely. A final investment decision in Equus is not expected until 2017 or later, Hess said.
"Everybody has been saying and probably rightly that because of costs in Australia it's very challenging to build a new greenfield LNG plant but this does show that once you've got a lot of established LNG infrastructure there are these brown-field opportunities," said Graeme Bethune, principal of consultancy EnergyQuest.
"People have been saying, 'Why don't these companies get together and co-operate?', and this is an example of that."
Woodside's senior vice-president, North West Shelf, Niall Myles said the letter of intent with Hess shows the Karratha gas plant is "open for business", providing "an attractive option for third-party gas owners to commercialise their resources in proximity to existing LNG infrastructure".
Negotiations between New York-based Hess and owners of LNG plants in WA have been going on for several years, after the US company decided against building its own LNG infrastructure to process its several gas discoveries in the WA-390-P and WA-474-P permits off the coast. Potential partners for the processing arrangement also included Woodside's Pluto LNG venture and Chevron's Wheatstone venture, while Hess was also at one stage considering developing a floating project.
The initial accord struck with the North West Shelf venture has a downside for Woodside, however, in that Hess gas would now be ruled out as an option to feed a potential expansion of its $15 billion Pluto LNG plant, also at Karratha. Woodside has so far failed to find enough new discoveries of its own to add a second LNG train at the plant, and has been in talks for years with other holders of gas resources on potential supply arrangements.
Hess would not disclose the volume of gas involved in its discoveries, nor how much LNG it would get from the North West Shelf venture for sale to its own customers.
A spokeswoman said the terms of the letter of intent were confidential, as were information on gas volumes. Estimating the capital cost of the upstream Equus project is "premature", she said.
The news of the deal came as new research from global consultancy Douglas-Westwood confirmed Australia would will see a plunge in investment in the LNG sector over the next five years.
Although total investment globally in LNG is set to surge 88 per cent to $US259 billion over the 2015-19 period from the previous five years, Australasia is one of only two regions along with the Middle East that will see a drop, as the focus of spending shifts to new North American export ventures, new projects in Africa, and new import terminals across Asia.
"Australasia and Asia have dominated global LNG capex in recent years, however, over the forecast period all the regions are expected to experience positive growth in capex, except for Australasia and the Middle East," said Amanda Tay, author of the Douglas-Westwood report.
Australia last saw a final investment decision for a new LNG project in January 2012, for Inpex Corporation's $US34 billion Ichthys venture in Darwin. Since then, Woodside has ditched a plan to build a new onshore LNG plant at James Price Point on the Kimberley coast for its Browse gas venture, while Shell and PetroChina have held off committing to building an LNG plant in Queensland for their Arrow coal seam gas venture.
Santos and GDF Suez have also called off a floating LNG plant at their Bonaparte venture off the northern coast, while ExxonMobil and BHP Billiton are holding off committing to a proposed floating project for their Scarborough gas resource well off the WA coast.
The delays have caused players to urge more co-operative development of gas resources to avoid wasteful and costly spending on new infrastructure, of which the Hess-North West Shelf deal is a significant example.
"This arrangement would bring together Hess' strong deepwater drilling and development capabilities with NWS' proven track record in natural gas processing and liquefaction," Hess president and chief operating officer Greg Hill said in a statement.
"The combination provides an attractive option for Hess to commercialise commercialise its important Equus natural gas resource in a manner that delivers secure, reliable energy supplies into Asia Pacific LNG markets and creates value for our shareholders."
Hess said it would sort out the detail of how Equus gas would be transported to the North West Shelf processing facilities as part of joint engineering studies the partners would now carry out.
"It is envisaged that Hess will deliver its gas to an offshore North West Shelf platform by means of a Hess-constructed main pipe/trunkline from our Equus platform to the North West Shelf platform," the spokeswoman said.
