Western Australia’s gas hopes float away

Last week, Woodside Petroleum confirmed that it was planning to develop its Browse gas field off northwest Western Australia using technology that allows processing at sea. This followed an April announcement that it would not pursue earlier plans to build a processing plant onshore at James Price Point in the Kimberley, which had ignited significant controversy. The Premier of Western Australia, Colin Barnett, reportedly expressed disappointment over the news, citing the loss of jobs associated with an onshore project. But what else does Western Australia stand to lose with floating LNG?


What is FLNG?

Floating liquefied natural gas (FLNG) processing is a new technology that is being developed by Shell for its Prelude gas project, also off Western Australia. In previous LNG projects, offshore gas wells were connected to an onshore facility by long pipelines. At the onshore LNG plant, the gas is purified and chilled to less than -164°C, when it turns into a liquid. This liquid is loaded on ships for export. In essence, FLNG simply takes the onshore processing plant and puts it onto a specially designed floating barge or platform, which is anchored over the gas field. The gas wells are connected to the FLNG platform, which liquefies the gas, and then loads it into tankers directly from the platform.

Why use FLNG?

The FLNG model has several advantages from Woodside’s perspective. At the end of the project, the platform can be moved to a new project easily, removing the need to rehabilitate land used for processing. As LNG tankers will take product directly from the platform, there will be no need to construct or operate port facilities, reducing capital and operational expenditure. There are also a number of smaller cost savings, such as removing the need to purchase or lease land, pay land taxes and maintain land-based infrastructure such as roads and related services. FLNG will also neutralise environmental criticism of the use of James Price Point, and possibly relieve Woodside of a $1 billion Native Title agreement.


What’s the difference?

The major difference between the approaches is that a processing plant won’t be built onshore. In the case of Shell’s Prelude LNG development, the floating platform is being built in South Korea and Dubai and will be towed to Australia. If Woodside follows this model, then there will be few jobs related to the project’s construction located in Australia.

But perhaps a more substantial change to the project is that Woodside no longer has to seek the approval of the WA government to use land at James Price Point for a processing facility. Significantly, this means that Western Australia has lost any ability to enforce its domestic gas reservation policy. As the gas lies beneath Commonwealth waters, the Commonwealth has the final decision about the development of the petroleum resource.

WA’s reservation policy requires that 15 per cent of the production from any major gas development must be directed to the domestic gas market in Western Australia. In those situations where the WA Government controls the resource to be developed (i.e. when the resource is located less than three nautical miles offshore), it may set this condition specifically as a part of the licence to develop the resource. In instances where the resource has been outside of the WA Government’s control, it has imposed this condition through land-use agreements. This is happening with the Gorgon LNG project, where gas from offshore fields will be processed at Barrow Island, Chevron’s Wheatstone LNG project near Onslow and Woodside’s Pluto LNG project near Dampier.


Implications of the change

The domestic gas reservation policy, which is strongly opposed by petroleum producers, is designed to ensure that WA has reliable and affordable access to natural gas. Petroleum producers argue that reservation policies discourage investment in the development of new resources and that only new investment can ensure domestic gas supply. However, a 2011 WA Legislative Assembly inquiry found that the policy was an “essential policy instrument for ensuring that an appropriate level of gas is supplied into the local market to achieve reasonable price outcomes.”, and that “In the absence of a gas reservation policy it is unlikely that LNG producers would develop adequate domestic gas processing facilities.”

If FLNG is used successfully at Prelude and Browse, it might signal the demise for the WA Government’s gas reservation policy for offshore developments, unless the Commonwealth is agreeable to extending the policy to offshore resources. However, the Commonwealth has consistently argued against reservation policies, most recently in the 2012 Energy White Paper. In turn, WA may have to concentrate on finding and developing onshore unconventional gas resources to fulfil its future domestic demand.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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