Queensland’s three liquefied natural gas (LNG) plants are unlikely to ever run at their combined full capacity of 25.3 million tonnes a year as there is not enough gas to feed them and meet local demand, a study says.
The three plants – Queensland Curtis LNG, Australia Pacific LNG and Gladstone LNG – were the world’s first LNG exporters to use coal seam gas rather than gas from conventional fields.
But the wells they source their gas from in Australia’s Surat and Bowen basins in Queensland state have turned out to be less productive than expected.
As a result, the three plants – each with two processing units – have been running below capacity, operating at average 82 per cent in 2018.
“Unfortunately, there are serious headwinds coming and the outlook is less rosy as the industry over-reached by building three projects of six trains,” EnergyQuest CEO Graeme Bethune said in a statement on Thursday.
QCLNG, run by Royal Dutch Shell averaged 87 per cent capacity, and GLNG, run by Santos, only 65 per cent, according to EnergyQuest, an industry consultancy.
In a detailed study of government and company drilling and production data and reserves booked at coal seam gas (CSG) prospects and licenses, it found that only 56 per cent of booked proven and probable reserves had shown any commercial productivity.
“The emerging and critical shortages are resulting from the fact the CSG LNG projects were sanctioned on ambitious estimates of proved and probable (2P) reserves, not proven reserves (1P) that underpin conventional LNG projects,” Dr Bethune said.
“Building six LNG trains in Queensland using CSG was bold and visionary but ultimately a bridge too far,” Dr Bethune said.
He predicted that by 2025 at least two trains would have to be shut to keep four trains running at full capacity, which would reduce medium-term exports to around 17 million tonnes a year, down from about 21 million tonnes in 2018.
About 70 per cent of exports go to China, 16 per cent to South Korea and 9 per cent to Japan.
Exacerbating the problem, the producers have come under pressure to step up gas sales into the domestic market, with supply in Australia’s southeast falling as ageing offshore fields dry up and as states restrict drilling onshore.
The three projects supplied about 25 per cent of Australia’s eastern demand in 2018.
“With dwindling production from southern gas fields, the political pressure on the LNG producers to divert gas to the domestic market is likely to intensify,” Dr Bethune said.
Australian Petroleum Production and Exploration Association chief executive Dr Malcolm Roberts disputed that the plants were poorly thought out or that they would need to partially close.
“”These LNG projects are built to last and have resources to continue to be a critical part of Gladstone’s Queensland’s economy for decades to come.
“”The decision to invest in these projects was taken after years of analysis and approval processes and with a clear view to the long life of these projects and the need for ongoing gas supply.
“The companies that operate the projects are confident in their development plans and are conscious of the need to bring reserves into production to meet their commitments to both their domestic and export customers.
“The report also appears to underline, again, a point APPEA has been making since at least 2011 – the best way to place downward pressure on prices and to ensure supply security is more gas supply from more gas suppliers.”
The three plants are located on Curtis Island, just north of Gladstone, and began production in 2015 and 2016.