KBC IoE Webinar - Australian Gas

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The scale of conventional and unconventional gas development in Australia continues to outweigh all other regional gas development. However, given the softening demand in many economies and the prospect of a worsening economic outlook, where does the Australian gas frontier fit in the global context today with: the momentum of renewable energy, nuclear restarts in Japan, the prospect of global shale (or not), and the capital cost escalation we are seeing almost daily. The Australian boom is underpinned by shareholder optimism and agreed offtakes, which together may counter the escalating capital cost, but where will that end in the long term, with unmanageable project debt potentially made worse by the loss of linkage between gas and oil prices?

This free 45-minute webinar answers these questions and covers other related topics - view now to learn more!

Presented by: Dr. Jim Wright, a KBC Executive Director, has over 25 years of international oil & gas and strategic leadership experience. Jim is KBC's Gas Strategy Lead and provides global oversight and direction to KBC's gas business. Jim also provides Environmental & Social Impact Assessment (ESIA) leadership.

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KBC IoE Webinar - Australian Gas

  1. 1. What’s Happening withAustralian Gas?Webinar Presented by Dr. Jim Wright 14 August 2012 © 2012 KBC Advanced Technologies plc. All Rights Reserved.
  2. 2. Agenda• Introduction• Investor sentiment and LNG• Global: demand, supply, reserves, exports• The Australian projects• Global competition to Australia• Global challenges in the LNG arena• Finally: where does that leave Australia 14 August 2012 PROPRIETARY INFORMATION 2
  3. 3. LNG and investment sentiment> Downturn and fragile Asian economies> Linkage to oil price in Asia> Alternate energy sources – Nuclear - loss of traction following Fukishima, although 2 nuclear plants back on line, Germany’s nuclear shut down, etc – Coal: politics – price - environment – Renewables (In Germany this winter – Photovoltaic, not gas, prevented brown outs)> Global Shale; and> Investor (over?) optimism 14 August 2012 PROPRIETARY INFORMATION 3
  4. 4. Demand v Supply- Where is the tipping point?> Global LNG trade: – 2010: 211.9 million tons – 2011: 234 mt (provisional) – 2012: 249 mt (predicted)> Overarching any uncertainty - the clear demand in the late ‘teens for additional supply 14 August 2012 PROPRIETARY INFORMATION 4
  5. 5. Where are the reserves? 14 August 2012 PROPRIETARY INFORMATION 5
  6. 6. Global v Australian LNG exports> 2011 LNG exports > Australia (bcm) – 25.9 bcm from 3 existing – Qatar: 102.6 plants – Malaysia: 33.3 – A further 7 plants with FID – Indonesia: 29.2 – A further 8 under – Nigeria: 25.9 consideration – Australia: 25.9 (BP statistical review 2012) 14 August 2012 PROPRIETARY INFORMATION 6
  7. 7. Australian LNG- existing, constructing and planned 14 August 2012 PROPRIETARY INFORMATION 7
  8. 8. Australian costs> Santos pulls $US2.5 billion from Exchange 2015 for 300 wells - over and rates above original $US18.5bn> Arrow Energy 2010 estimate of $24-$26 billion, now $34-$36 billion Technical> BG Group’s QGCLNG, in part challenge due to the cost of regulatory compliance, from $15b to Delay $20.4b> The Australian LNG industry has Skills shortage "probably the highest cost base now" anywhere in the world, Shell Australia Chairman Ann Pickard Materials inflation 14 August 2012 PROPRIETARY INFORMATION 8
  9. 9. How are the project responding?> Shareholders remain • Australian condensate will not replace ME LPG optimistic • However, Australian condensate will be> Long term offtakes sold on a commodity basis as light crude continue to be made at a substantial premium to Natural Gas> Focus on OpEx - not CapEx> Full cost recovery still possible - based on oil linkage; and> Ignore the competition 14 August 2012 PROPRIETARY INFORMATION 9
  10. 10. What lies in future for Australian LNG?> No doubt there is global demand for LNG in the late ‘teens.> But: – Australian CSG does not benefit from valuable liquids – Australian condensate will not compete with C4-C5 from ME – Australian cost escalation means higher debt burden – US shale exports may undermine oil linkage – Asian shale may compete> However: – Australia is politically stable and secure – Has well defined legislation; and – Projects can address costs by: • Consolidation (why are there 4 planned LNG plants on Curtis Island) • Extension rather than new build • Improve efficiencies to reduce both CapEx and OpEx 14 August 2012 PROPRIETARY INFORMATION 10
  11. 11. What about the competition?(assuming limited US export)Issue E Africa British Conventional Global Shale Columbia (Africa, SE Asia)Stable politics Broad range UncertainO&G law Broad range UncertainSecurity Piracy Broad range UncertainLiquids Shale / tight gas Probably notWorkforce A Global ChallengePermitting Uncertain Being simplified Uncertain UncertainGHG $30/tonneCapEx (all of the Workforce, Workforce, Workforce Technicalabove - plus) offshore?, pipelines, challenges, materials permitting workforceOpEx Workforce, Workforce Workforce Workforce offshore? 14 August 2012 PROPRIETARY INFORMATION 11
  12. 12. What then are the global challenges?> O&G Law - the lack of tried and tested, or worse, “flexible”> Permitting – e.g. Queensland permitting has contributed to CapEx> Lack of liquids - pivotal to tipping the balance for unconventional> Workforce - the key issue> Australian disease - cost escalation, therefore: – Squeeze the CapEx – Squeeze the OpEx 14 August 2012 PROPRIETARY INFORMATION 12
  13. 13. Addressing the challenges> Skills Australia estimate > Example of KBC 4.8m new jobs by 2026 response in South Africa:> Australian Government – Work with NMMU to estimates that in LNG develop education and training capability to meet operations by 2015 (10 the requirements of the oil new trains) 3,200 new & gas sector workers – Develop National Diploma> Global skills shortages in Chemical Plant Process encourage skills flight Operations – New fuels lab. and pilot> Increasing local plant facilities to provide competition for skills practical training> Trend to demonstrate employees competence 14 August 2012 PROPRIETARY INFORMATION 13
  14. 14. Addressing the challenge> Silo mentality across assets > Organisational readiness> What is “best-practice” assessment> Initiative overload > Strategic planning> Which OpEx Model > Organisation transformation> Low-level of buy-in strategy and transition plan> Balancing asset needs with > Organisational infrastructure (e.g., enterprise wide objectives work processes, management systems, job aids, value driver tree) alignment and development > Align functional support with central and field teams > Workforce capability development 14 August 2012 PROPRIETARY INFORMATION 14
  15. 15. Addressing the challenge> LNG Trains typically designed for  Benchmarking identified shaft minimum CapEx with low work issues efficiency  ProSteam model evaluated> Complex interaction of scenarios process/fuel/power balances  Holistic solution provided> Site imperative to maintain throughput debottlenecking and throughput and availability improved reliability performance> Boil-off gas management  Titan reliability modelling to constrains potential energy evaluate options reduction  Complex-wide RoadMap to outline> Site expansion and development constraints and manage plans can affect energy projects uncertainty  Identified $16.5m/yr non- investment savings potential and $250m/yr with < 5 year payback 14 August 2012 PROPRIETARY INFORMATION 15
  16. 16. So?> Australian projects in construction will go to completion> Australia will overtake Qatar as 7 Australian projects come fully on line around 2020> Australia pre-eminence will last a relatively short time (2025?) as less expensive LNG comes on line (e.g. East Africa to India; US via Panama Canal, British Columbia and Russia all to Asia)> Australian assets will need to be squeezed to offset Project debt – requiring a change in project philosophy: – Skills have to be sustainable – Company processes must reflect needs – It will no longer be acceptable to use 10-12% of gas in production of LNG 14 August 2012 PROPRIETARY INFORMATION 16
  17. 17. A Question and Quick Survey> Was this topic valuable? > How do you rate the – Yes webinar overall? – No – Excellent> Was the presentation – Good clear? – Fair – Yes – Poor – No Please send any further> Would you be interested questions and feedback to: in future webinars? kbc-marketing@kbcat.com – Yes – No 14 August 2012 PROPRIETARY INFORMATION 17
  18. 18. Closing> Questions?> Future webinar topics: – Market conditions – Asset optimisation – Investment support – Sustainable workforce development> We welcome suggestions for future topics – please email kbc-marketing@kbcat.com> Next webinar information will go out shortly.> Thank you for joining us! 14 August 2012 PROPRIETARY INFORMATION 18

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