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The Australian: LNG push fuels Darwin’s hopes

By Rick Wilkinson
September 23, 2006 12:00am

THERE’S a growing sense of excitement in Darwin as the petroleum industry moves into a new wave of exploration and appraisal of gas prospects in the Timor Sea.

Australia’s most northern city may soon rival the north-west of Western Australia as an important hub in the supply of gas for export and domestic use.

The main push is being driven by the upward spiral in global demand for liquefied natural gas (LNG). But more recently, the possibility has arisen of a window of opportunity in Australia’s domestic market – particularly in the south-eastern states – as doubts continue to surround the PNG-Queensland gas pipeline project.

ConocoPhillips Australia is the biggest LNG player in the Timor Sea, and it is keen to expand its existing 3.5 million tonnes per year liquefaction facility at Wickham Point by adding a second and perhaps a third train.

Other players with significant holdings in the region include Santos, the Japanese companies Inpex and Osaka Gas, Woodside, Shell, ENI of Italy and the Australian junior Methanol Australia.

But surprisingly the companies that hold the most Timor Sea acreage are a group of seven “dark horses” belonging to the stable of Melbourne-based entrepreneur Geoff Albers. Between them, these companies – Auralandia, Natural Gas Corp, Australian Oil & Gas Corp, National Oil & Gas, Australian Natural Gas and Nations Natural Gas – hold 100 per cent of eight permits.

Five of these lie in the eastern Timor Sea and occupy strategic positions in and around the acreage and existing gas discoveries held by all the major operators north and north-east of Darwin. The Albers Group intends to run preliminary surveys over the areas.The common goal for each player in the eastern Timor Sea is to prove up sufficient accessible gas reserves to support development projects that could come on stream in a 2012-2015 timeframe.

Frontrunners ConocoPhillips and Santos have geared their joint exploration/appraisal program to the mooted expansion at Wickham Point. Currently the LNG plant is being fed from the Bayu-Undan gas field in the joint petroleum development area between Australia and East Timor.

However, reserves in that field are not sufficient to supply a second train and the two companies have embarked on an initial two-well drilling program across two permits 400km north-east of Darwin. The first, now drilling in NT/P69, is a well called Barossa-1.

Despite the name it is an appraisal of a gas discovery called Lynedock originally made by Shell in 1973, but eventually relinquished by that company in 1998 in the belief that the reservoir was too “tight” to sustain commercial production. New leaseholders ConocoPhillips and Santos (with 60 per cent and 40 per cent, respectively) are hoping to find more permeable reservoir in the structure.

Barossa-1 will be followed by an appraisal of the partnership’s 2005 Caldita gas discovery in adjoining permit NT/P61. No reserves have been publicly announced for either field, but Caldita-1 flowed at 33 million cubic feet of gas a day on test, which suggests a significant hydrocarbon column.

Santos (in partnership with Shell and Osaka Gas) also drilled a well called Evans Shoal South-1 in NT/P48 during the middle of this year which found gas in primary and secondary objectives. However, mechanical problems prevented testing and the group is still evaluating the downhole logs.

A 1988 BHP Petroleum discovery at Evans Shoal about 17km to the north in the same permit is estimated to contain 6.6 trillion cubic feet of gas. Unfortunately, the find has up to 27 per cent carbon dioxide content and, to a greater or lesser extent, this appears to be a common bugbear in all the east Timor Sea discoveries so far.

The gas liquefaction process will not tolerate carbon dioxide, which means its removal is an added cost in any field development equation.

Subject to results at Barossa and Caldita, Santos and ConocoPhillips are believed to be considering a pipeline connecting both these fields (and possibly Evans Shoal/Evans Shoal South as well) with the Bayu-Undan field facilities in the central Timor Sea. Carbon dioxide could be scrubbed out at this point and injected into the depleting Bayu-Undan reservoir while clean gas is sent down the existing pipeline to Wickham Point.

One Timor Sea explorer for whom carbon dioxide is less of a problem is Methanol Australia. This company has won environmental approvals for a proposed development which involves the production of LNG and methanol in two separate but adjacent plants to be built on offshore platforms in the relatively shallow water (70 metres) of Tassie Shoals about 350km north-east of Darwin.

Carbon dioxide in amounts up to 25 per cent is an acceptable ingredient in the gas supply for the production of methanol, and preliminary talks have been held with other explorers to take gas from the carbon dioxide-prone fields nearby.

Methanol Australia is also keen to find low-CO2 gas for its parallel LNG project. The company is pinning its initial hopes on two prospects (Epenarra and Blackwood) which lie immediately west of Tassie Shoals in its 100 per cent-owned permit NT/P68.

Epenarra-1, to be drilled next year, is a follow-up to a nearby gas find called Heron made by Arco back in 1972. Blackwood, also to be drilled next year, is a promising exploration target a little to the north.

Potential supply sources for the Methanol Australia and ConocoPhillips/Santos development proposals lie solely within Australian waters. Two other possible east Timor Sea gas projects will rely on international negotiations. The first involves Japanese company Inpex, which has 100 per cent of a discovery called Abadi that lies in Indonesian waters just north of the sea boundary with Australia and not far north of the Barossa/Lynedock field.

Early estimates suggest a gas reserve of around 5 trillion cubic feet. This figure is being clarified with a three-well drilling program now under way. Although in Indonesian waters, Abadi is very remote from that country’s gas infrastructure and Inpex sees another option in attaching the field to the end of the possible Barossa-Caldita pipeline to Darwin and Wickham Point. The idea has added attraction because Inpex is already a stakeholder in the LNG plant through its 12 per cent share of Bayu-Undan.

However, this scenario depends on agreement and arrangements with the Indonesian Government.

The other political “football” is the Woodside group’s (Woodside, ConocoPhillips, Shell and Osaka Gas) Greater Sunrise gas discoveries that straddle the Australia/JPDA boundary with East Timor.

Woodside has consistently said that the development is stalled until legal, regulatory and fiscal certainty can be guaranteed — looking unlikely in the near future given the unrest in East Timor.

Some $250 million has already been spent on feasibility and commercial studies for Greater Sunrise, so there would be no need to begin again if those guarantees were given. Nevertheless, there is still some divergence within the field consortium itself.

Not surprisingly, ConocoPhillips is keen to see a pipeline to hook into the Bayu-Undan route to Wickham Point. Shell is more in favour of a separate line to a new onshore LNG plant – the most likely site being Glyde Point about 40km north-east of Darwin.

Up till now the main focus of all these development proposals has been export LNG. Recent doubts cast over the PNG-Australia gas pipeline project may also open up the Timor Sea to Australia’s domestic market.

ENI’s Blacktip field in the Bonaparte Gulf (with 1 trillion cubic feet of reserves) is already slated for supply to markets in the Northern Territory.

But an early candidate for larger volumes from the Timor Sea might be Alcan at the Gove alumina complex, which has currently organised to take PNG gas. In time, there could also be market opportunities in the country’s south-east.

Non-arrival of gas from PNG in 2009/2010 would leave a shortfall of 40-50 petajoules a year of supply to the Australian market. Some of this will probably be taken up by the rising tide of coal bed methane projects and new gas conventional developments in the Gippsland, Otway and Cooper basins.

But in the longer term, the old idea of reversing flow in the Amadeus-Darwin pipeline and connecting it to the south-east grid by closing the Amadeus-Moomba gap may be revisited.

In any event, Timor Sea gas seems likely to be a key component of Australia’s gas equation in the years to come.

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