Perth and Australia: A Bright Future in the World of Energy
Perth, Australia’s “city of light” got its nickname when it turned all its lights on in 1962 when John Glen orbited above. The city has become a newly illuminated place of a different kind. Western Australia and its capital, Perth, have unabashedly embraced energy development, in a stark departure from what has been happening in other developed countries such as Western Europe and, especially, the United States where rabid environmentalism has hamstrung the industry.
A city with a metropolitan population of 1.7 million (Western Australia accounts for about 10% of Australia’s 22 million), Perth has become the center of a massive new energy development and while the statistics are impressive and are bound to become even more so quickly, there is an unmistakable sense that things are happening that impresses even the casual visitor. The people are young and educated, many are immigrants and the ongoing action plus the physical plant and landscape have made Perth one of the top ten livable cities in the world in at least two rankings.
Perth is Australia’s energy capital and the country is already an energy powerhouse but the future is certainly going to be bigger, far bigger. In 2009 Australia produced 215 million barrels of oil but consumed 346 million (about 1 million barrels per day), importing 131 million. Oil imports are likely to increase as domestic production is declining.
But natural gas is another story. Production was almost 1.5 Tcf per year, exporting 856 Bcf, all in the form of LNG, making Australia the fourth LNG exporter behind Qatar, Malaysia and Indonesia. For now though, coal is still king, with 438 million tons produced (fourth in the world) with exports of 277 million tons, number one of all coal exporting countries. But it is natural gas where future action will concentrate.
The simple reason is China. While Chinese gas production in 2010 is likely to increase to 3.2 Tcf, demand will be 4.3 Tcf (~25% shortage). It is expected that the gas shortage in China will be 1.8-2.1 Tcf in 2015, and 2.8-3.2 Tcf in 2020, or 50% of the estimated consumption. It is simple arithmetic that China’s shortfall in 2020 will be five to six times current Australian natural gas exports. The Chinese think of Australia as a very attractive and stable potential source of energy, especially natural gas. The alternatives have problems: Iran with the uncertainty, sanctions and instability and Russia with all the associated geopolitical challenges.
Natural gas production in Australia today consists of about 13% from coal bed methane (CBM or coal seam gas, CSG, as it is called in Australia) in Queensland and New South Wales and the rest of the gas comes primarily from the massive Carnarvon basin about 100 miles offshore, where at least 40 Tcf of natural gas reserves have been postulated. The entire country has been upgraded significantly by the Oil and Gas Journal from 30 Tcf reserves in 2009 to over 110 Tcf in early 2010.
There are four large LNG projects well on their way towards completion offshore. Of these the Pluto project, run almost single-handedly by Woodside, is slated to begin production in 2011 with 4.3 million metric tons per annum (MTPA, about 200 Bcf). The project was the brainchild of brash American CEO Don Voelte who transformed Woodside into a nimble and very efficient operator, after considerable friction with the locals and their way of thinking. Voelte, who just announced his imminent retirement in 2011, has made believers out of a lot of people in the Australian energy industry.
The Gorgon project, a far larger LNG development (50% Chevron, 25% each ExxonMobil and Shell) will be comprised of three LNG trains each of 5 MTPA (total 700 Bcf). Expected on line in full operation by 2014 in Barrow Island about 100 miles offshore, the project has broken new ground in terms of technology, including re-injection of produced carbon dioxide, which may account for 10% of produced natural gas.
By far the biggest technical and, ultimately, economic challenge for Australia is the overly ambitious LNG projects that have been announced using CBM as the source of gas. At least two of the projects have presented rather advanced development plans: 350 Bcf per year for the Gladstone project and 780 Bcf per year for the Arrow project, both of them in Queensland. Chinese companies, CNOOC, Sinopec and CNPC, all have announced their desire to provide financing and even operational involvement in these projects. CBM to LNG with the pronounced decline in per well production, observed everywhere, and the relentless demand from LNG plants will prove a formidable undertaking in Australia, clearly a world class challenge and taxing the country’s skill pool, service company capacity and infrastructure.
Of course the even bigger conflict in Australia will not be the engineering and management of its energy projects. What will be ever present for decades to come is the classic, developed world, conflict pitting environmentalists that have never seen an energy project of any kind they like and of which Australia has an abundance, and the huge opportunity to utilize the country’s massive reserves of natural gas to supply an imposing client with an insatiable energy appetite. Signs are conflicting, with a punishing to the energy industry tax enacted last year.
However, for the size of the opportunity ahead, instead of ideological conflicts between radical greens and energy developers, the latter will have to exact a clear victory in Australia, obviously with appropriate environmental stewardship. It would not be enough to simply facilitate projects and reduce bureaucratic obstacles. The government would have to pro-actively pursue them in a way that is unprecedented in the developed world. Western Australia’s Premier, Colin Barnett, seems to be willing to take the mantle of energy development but he will have the unenviable task to both articulate a vision and a game plan that the many Greens in the eastern part of the country may consider as un-Australian and sell that vision to the rest of the country.
Note: I gave the keynote talk at the 2010 Accenture APAC Meeting in Perth on October 14.