Tuesday 13th Nov, 2018

LNG SPECIAL REPORT: FSRU to the rescue

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THERE is a spectre haunting the east coast of Australia – the spectre of increasing prices for natural gas. While myriad ways to exorcise this looming wraith have been proposed, one has been gaining traction – build liquefied natural-gas import facilities so gas can be bought on the international market, and shipped to Australian shores.

Two such proposals have been generating a buzz in the ports world – one at the Victorian Port of Hastings, and the other at Port Kembla in New South Wales.

PKGT here we come
Use of sea freight rather than pipelines will ensure the Port Kembla Gas Terminal (PKGT) would provide a cheaper source of fuel to east-coast Australian consumers, proponents for the terminal said.

The PKGT recently moved one step closer to reality after gaining Critical State Significant Infrastructure (CSSI) status from the NSW government.

The government’s awarding of CSSI status was welcomed by Andrew “Twiggy” Forrest, who is the lead investor in the Australian Industrial Energy consortium (AIE), which is planning to develop the terminal.

Mr Forrest’s Squadron Energy is a key investor alongside Japan’s JERA and Marubeni Corporation.

“Australian manufacturers have asked us to work with them to solve their future gas supply issues and skyrocketing prices, which threaten their viability,” Mr Forrest said recently.

Port Kembla was chosen as the site for the first LNG import terminal in NSW, with AIE signing a memorandum of understanding with NSW Ports in June.

AIE chief executive James Baulderstone told Daily Cargo News the project would bring in new sources of supply at the “best available prices from around the globe”.

“By providing both genuine new supply and an alternative transportation mode – sea freight as opposed to pipeline – the project introduces new competitive pressures into the market to help keep downward pressure on prices,” Mr Baulderstone said.

“In particular, the ability to supply industrial users in close proximity to Port Kembla means those industrial users need not incur the $2 to $3-plus gas pipeline transmission tariffs that they are currently paying for interstate gas supplies.”

Ships better than pipes
Shipping gas supplies by sea from Australian export terminals to Port Kembla is expected to be done at a fraction of the cost of inter-state pipeline transmission.

“To ensure we procure the lowest priced gas possible, AIE will be scouring the globe to identify the most competitively priced gas available,” Mr Baulderstone said.

“JERA is the world’s largest buyer of LNG, ensuring we have access to gas at competitive prices. Gas may come from a variety of international sources, and subject to competitive pricing, may also come from Australian sources.”

JERA is a joint venture between Japan’s biggest and third-biggest electricity suppliers, TEPCO and Chubu Electric. Founded three years ago, JERA has contracts for about 40m tonnes of LNG a year, making it the world’s biggest buyer. It has an equity share in four major LNG projects in Australia and operates a fuel trading and shipping business.

PKGT becomes classy
The new state-significant classification for the PKGT means the project will go through a separate assessment pathway, which will be overseen by the Independent Planning Commission.

“CSSI clearly sets out the approval pathway the project needs to follow. This includes completing comprehensive environmental, safety, social and economic assessments prior to any decision in relation to a development consent,” Mr Baulderstone said.

As with all major projects in NSW, there will need to be a public exhibition of an environmental impact statement and engagement with the community.

NSW currently consumes around 140 petajoules (PJs) of gas each year, with growth in demand expected to continue out to 2035, especially if gas demand for power generation increases.

“AIE, through its LNG import terminal, will be able to supply over 100 PJs of gas per annum – this equates to around 70% of all of NSW’s industrial, small business and household needs,” Mr Baulderstone said.

“In addition, the AIE’s floating storage and regasification unit [FSRU] has the capacity to provide NSW with around 4PJs of on-demand gas storage, critical in the event of a supply disruption from existing inter-state sources.”

This equates to approximately ten to twelve days of emergency supply for NSW, which relies on supplies from Victoria, South Australia and Queensland for 95% of its gas needs.

The Australian Energy Market Operator predicts a significant shortfall in gas supply from existing sources from 2018 onwards.

State planning minister Anthony Roberts has said this shortfall could be worse if there is a greater reliance on gas-fired power generation following the planned closure of the Liddell coal-fired power station in 2022.

Win for Port Kembla
Mr Bauldestone said AIE had entered into 15 memoranda of understanding for the supply of gas to date, providing AIE with confidence to move to the detailed engineering phase of the project.

Port Kembla was chosen after an evaluation process that assessed three locations: Port Botany, Port Kembla and the Port of Newcastle.

“Port Kembla provided the best total solution after consideration of port operations, berth configuration options, proximity to the existing east coast gas transmission network and support from the local business community,” Mr Baulderstone said.

“In addition, it provides for some interesting potential future options, including LNG bunkering and even a new gas-fired power station.”

The Illawarra Business Chamber has estimated there are around 15,000 jobs in the Illawarra region that are associated with gas-dependent businesses, including large users such as BlueScope, Manildra, Bisalloy and others.

“As gas is expensive to move via pipeline, those industries and businesses located close to the source of supply enjoy a competitive advantage over businesses located further away from supplies”

“As such, access to competitive gas supplies should not only provide some assistance in retaining those jobs in the region, but also act as a potential incentive for new industrial clients to consider establishing operations in the region.”

Port Kembla was chosen partly because of its proximity to existing gas transmission networks, specifically the Eastern Gas Pipeline (EGP).

The EGP is a natural gas transmission pipeline that runs from the Gippsland Basin in Victoria through to Sydney.

The EGP is 797 kilometres long and supplies natural gas to regional markets on its way north through to NSW, including Cooma, Canberra and Wollongong.

Mr Baulderstone said, “AIE can provide gas to all the large consumption centres in NSW… Wollongong, Sydney and Newcastle… as well as potentially Victoria and other regional areas of NSW connected to the existing gas transmission network”.

AIE will now request assessment requirements for the preparation of an environmental impact statement on the project. When received, the impact statement is to then go on public exhibition for community feedback.

After the consultation period ends, the applicant will address the issues through a response to submissions report, which will be made publicly available on its website.

Subject to planning approvals, AIE is aiming to complete the required berth upgrades at Port Kembla, in addition to a short connection pipeline in time to deliver first gas to New South Wales industry in early 2020.

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The Hastings plan
Leaving New South Wales and turning our gaze to Victoria, another, similar proposition has been floated for the Port of Hastings, south east of Melbourne.

AGL Energy has reached an agreement with the Port of Hastings Development Authority for the long-term use of Crib Point jetty Berth 2 to import LNG.

The energy company aims to work through the commercial and stakeholder engagement process to enable a final investment decision on the Crib Point LNG Import Jetty during the 2019 financial year, with first gas planned for FY 2021.

AGL said the Port of Hastings Development Authority would begin jetty remediation works to prepare for AGL’s exclusive occupation of the berth, with a continuously moored FSRU.

An AGL spokesperson told Daily Cargo News, “Crib Point at the Port of Hastings offers an existing jetty and deep-water berth and channel, and is best placed to serve Victoria, Australia’s largest gas market, without major modifications to the gas network”.

AGL estimates between 12 and 40 LNG carriers would moor alongside the FSRU per year to supply it with liquefied gas.

Pipe to Pakenham
The FSRU would be connected by pipeline to an existing gas pipeline in Pakenham. AGL has signed an agreement with APA Group for the development, construction and operation of the pipeline.

“We have gone to the market for an initial 40-50 PJ per year of gas, which is equivalent to 12 shipments,” the spokesperson told DCN, adding that Victoria’s LNG demand is around 200 PJ per year.

“This volume can be increased to provide energy security for eastern Australia as supply from traditional production areas continues to decline.

“Crib Point is ideally located to send gas to NSW and SA and support energy security for the broader south eastern market”

AGL is in discussions with global LNG suppliers, but is not able to comment on which suppliers are being considered.

“In addition to importing LNG, we are pursuing options to purchase competitively priced gas from domestic sources,” the spokesperson said.

The Port of Hastings, including Crib Point, has been an active industrial port since the mid-1960s.

“More than 160 vessels called at the port in 2016, but this is a fraction of the traffic during the peak of production from the offshore Gippsland oil facilities,” the spokesperson said.

AGL says the “simplest” way to drive down gas prices is to “increase supply by increasing gas production in Australia or bringing more gas into the market through a gas import jetty”.

“The LNG import jetty would increase competition in the east coast gas market by increasing supply,” the spokesperson said.

Prior to announcing Crib Point as the preferred site in August 2017, AGL signed memoranda of understanding with about a dozen large industrial users that rely on gas.

“This project will provide energy security to households and commercial customers in the broader east coast market who rely on gas for cooking, heating and energy,” the spokesperson said.

This article appeared in the August edition of DCN Magazine



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