Given the large number of projects, observers predict Australia will easily overtake Malaysia’s LNG output soon and then push past Qatar to become the world’s largest LNG exporter by 2018.
Lodged in the Asia-Pacific region, close to key Asian buyers, Australia also enjoys a geographic advantage over Canada.
However, the whopping $54-billion price tag on the Chevron-led Gorgon project, which has soared by 40 per cent since the original estimates, shows LNG infrastructure can be painfully costly.
High commodity prices in recent years flooded Australia with investment and drove up the Australian dollar while construction materials and labour costs soared.
The BG Group-led $20.4-billion QCLNG project at first was projected to cost $15-billion. Firms in Australia will need to cut costs if they want to remain competitive, particularly as the United States and Canada plow into LNG.
“Australia has a permanent shipping advantage to these markets because it is physically closer, but it is hampered by the highest costs in the world and some of the lowest productivity,” says Geoffrey Cann, who heads Deloitte Australia’s oil and gas consultancy out of Brisbane. “The shipping advantage is not much. You can chew through it in a hurry.”
But even with high costs and low productivity, which could be damaging if global LNG prices drop in years ahead, Australian projects have a distinct advantage because of the head start. By 2015, many of these LNG projects will be operating with two “trains,” or separate LNG cooling processes, but most LNG sites are approved for three or four production trains. Western Australia’s $50-billion North West Shelf Venture (Woodside, BHP Billiton, BP PLC and others) already has five trains.
Expanding facilities is much cheaper than building new ones. That means Australian projects – with land already cleared, and jetties and storage tanks already built – will be fighting for sales contracts in Asia against brand new Canadian projects that have much higher startup costs.
“If they decided to expand the plants at the exact time that Canadian projects are trying to find buyers, they will absolutely compete,” Mr. Cann says. “And it’s much cheaper to expand than to find new buyers. This is why it’s a bit of a foot race.”
Mr. Cann suggests Canada’s legislators could also learn from mistakes made already in Australia, where companies pursuing similar projects have duplicated infrastructure such as pipelines unnecessarily.
He also suggests firms looking at projects in Canada consider more advanced technology, such as Shell’s massive, 488-metre-long floating LNG terminal Prelude.
Industry experts say there will be pressure for B.C. LNG projects to consolidate. Petronas, for instance, has held talks with BG Group to combine forces to build one pipeline from northeastern British Columbia to the coast instead of two.
It is late afternoon on Goodoon Street when two members of the “fluoro army” swagger into the middle of the road and yell suggestively at a group of three women standing on the corner. “You got to see it first hand,” Anita Street sighs. She and her friends describe a boomtown that has become increasingly hostile to women as workers flooded in for LNG projects. The women said they no longer go to clubs or bars any more because they get grabbed, and even while shopping in grocery stores they are ogled, hit on and heckled. “I have a son and they still do it,” Ms. Street says.
Gladstone has weathered booms and busts before, but the sheer scale of the race in the global LNG industry has strained the city and the environment on a number of levels – as well as relationships with aboriginal groups, farmers and fishermen.
Mr. McLeod, the real estate agent, describes an increase in drug use, drunken fights and public urination downtown. Rents on some properties doubled or tripled quickly, to the point where the town opened nearby showgrounds so locals driven out of the housing market could live in RVs. Firms responded by building new houses and apartments, which in turn led to an oversupply of housing, and prices have fallen. “I’m born and bred local,” Mr. McLeod says. “It’s probably the largest boom we’ve seen.”Report Typo/Error