Australia is internationally renowned for its iconic landmarks, breathtaking scenery and bouncing marsupials. Now, another hallmark is emerging that is expected to do for the country’s economy what the Great Barrier Reef did for its tourism. Australia is planning to use its abundance of natural gas to propel itself as the world leader in liquefied natural gas (LNG) exports.

As lofty as this all might seem, Australia seems poised to accomplish this goal by 2020, according to numerous industry experts. It’s happening thanks to multibillions of dollars in investment, innovative technology and a ravenous international appetite for gas.

Australia is already among the leading exporters of LNG, alongside countries such as Qatar, Nigeria, Indonesia and Egypt. Australia is currently the fourth largest LNG producer in the world. In coming years, however, it is expected to take the No. 1 spot—and it’s moving quickly to claim that title. In the 2010/11 fiscal year, Australia exported more than 20 million tonnes of LNG. By early the next decade, its LNG exports could exceed 80 million tonnes per year, according to companies such as Apache Corp. If these estimates are realized, this would help the Land Down Under become king of the LNG castle.

“There’s a very strong likelihood,” Dane Groeneveld, regional director at NES Global Talent, tells Midstream Business. The firm helps recruit workers to Australia’s burgeoning LNG market. “There are a lot of projects already in the execution phase. In fact, in the past eight months, we’ve seen some of the labor market challenges soften up a little bit which will only increase the likelihood of all of those project consortiums actually getting their projects completed.”

A chorus of other industry experts agrees. The country’s politicians are equally optimistic.

“Our exports are forecast to grow by a further 19% in [the fiscal year of] 2012/13,” Australian Resources Minister Martin Ferguson said during an Australian Pipeline Industry Association conference, according to local media reports. While speaking at the Brisbane, Australia, event, Ferguson added that the AU$176 billion in projects currently under construction in Australia would increase export potential by 60 million tonnes.

"Based on these proposed and committed projects, our capacity could quadruple by 2017, potentially making us the world’s largest LNG producer,” he said.

Race is on

With strong competition for the No. 1 spot—including from current leader Qatar—Australia has met a host of challenges along the way. Economic woes have been among its largest setbacks as labor shortages caused project costs to skyrocket. For awhile, there simply weren’t enough skilled workers to go around as projects fought over the same pool of resources. The cost overruns experienced by Australian LNG producers are likely to be reflected in the delivery price.

Australia’s labor and cost troubles could help another strong competitor: the U.S., which would likely have a considerable price advantage over Australia when it begins delivering LNG to the Asian market.

“The Australian projects have suffered a lot of unexpected price increases in construction facilities and labor demand,” Nicholas O’Kane, executive director and global head of Macquarie Group’s energy markets division, tells Midstream Business. “The same might end up happening here in the U.S., but at this stage, it’s not expected.”

However, Vikas Dwivedi, Macquarie Securities Group global oil and gas strategist, says Australia has bigger worries than the U.S. After all, he says, the U.S. won’t likely have startups until 2017, when Australia’s plants will already be up and running. Australia’s bigger concern, Dwivedi says, is what countries, such as Qatar, are going to do.

“(Qataris have) been generally pretty good about keeping their contractual commitments to Europe, but those are rolling over and that Qatari gas more and more will end up in Asia,” Dwivedi tells Midstream Business.

“Then you’ve got a problem because if Australian facilities don’t start up—and they’re already delayed—but if there are any more delays, some of the windows to get the contracts nice and firm with premium-paying customers [may close], and your project may be the one that’s sitting on the outside.”

Back on track

Fortunately for Australia, companies have begun reining in their costs, and labor-shortage strains have begun easing.

Numerous factors are helping relieve labor pressures for midstream companies. First, the mining and general infrastructure development sectors have softened. This has freed up manpower and allowed recruiting agencies to zoom in on the right talent for the right price. Meantime, the Australian government has introduced broader immigration programs. New agreements allow companies developing projects worth $2 billion or more to seek not just professional skilled laborers, but also those with semi-skilled trades backgrounds. Many workers are being recruited to Australian LNG projects from the U.S. and Middle East. As well, more talent is being developed, which will help drive future projects, says Groeneveld.

“The talent is very much on track to being improved,” he says. “Australia is developing some really good talent now that we didn’t have five or 10 years ago in the LNG space, which will give us an advantage.”

More is being done to control cost overruns, too. Financing is becoming more complex, and companies are forced to go through more phases of proving their projects will deliver on time before being approved. The extra approval phases are also conducted as a means of ensuring projects are conducted in an environmentally responsible manner.

It’s tough to build projects on-time and on-budget for a myriad of reasons, says Tom Maher, managing director of Apache Energy Ltd.

“Australia is an expensive place to work,” he tells Midstream Business in a phone interview from Perth, Australia. “There’s labor inflation, and there’s equipment inflation. We’re in an isolated part of the world. Also, the regulatory burden is very high here, particularly on the environmental side. The Australians think very highly of their environment and for good reason, it’s just beautiful out here. They want to keep that coast and area pristine and that is consistent with Apache’s mission.”

Resource rich

The country is certainly not lacking for resources. More than 150 trillion cubic feet of natural gas reserves lies mostly offshore in basins near Australia’s northwest and western coasts. Numerous LNG facilities sit on Australia’s East Coast, too. The LNG scene’s major players are tapping into, and exporting, the resource in innovative ways. In Western Australia, Royal Dutch Shell PLC is expected to produce the world’s first active floating LNG project. Production on its Prelude facility is expected to begin in or by 2017.

Shell began construction on its floating vessel in October 2012. The 488-meter long, 74- meter-wide facility will be the largest offshore floating facility ever built, according to the company. It will also be the world’s first floating LNG vessel, according to Shell. (The race is on to claim this title. Canada’s BC LNG Cooperative says it will have the world’s first floating LNG export terminal operational in 2015.) Aboard Shell’s facility, new technology will be used to liquefy gas, which will then be transferred onto ships, which will deliver the LNG to customers.

Australia has also given the green light to the Bonaparte floating LNG project, a joint venture between GDF Suez SA and Santos Ltd. The multi-billion-dollar plant—which is still subject to numerous environmental conditions— will sit about 155 miles west of Darwin. Production on the Bonaparte is expected to begin in 2018.

Countless other projects are also in the works. For example, Chevron Australia Pty Ltd.’s Gorgon project will involve the construction of a four-train, 15.6 million LNG ton-per-year facility. (A separate domestic gas plant is being built as part of the project.) Gorgon will sit on Barrow Island, about 37 miles off the northwestern coast of Western Australia. LNG production is scheduled to begin in 2014. However, the Gorgon project remains marred by financial uncertainty. Chevron recently reviewed the project’s costs and determined it will need to bump up Gorgon’s previous AU$43 billion price tag to AU$52 billion. Local news reports indicated Gorgon was facing overruns because of construction delays and a strong Australian dollar. Chevron declined a Midstream Business interview request.

Many other companies are constructing projects on a significantly smaller scale. They began popping up shortly after Australia’s first LNG project, the North West Shelf Venture (NWSV), began shipping LNG in 1989.

Apache affiliates entered Australia in 1991 with the purchase of some small fields near Airlie Island. When those fields performed better than expected, Apache expanded its presence in 1993 with the acquisition of the Varanus Island facility in Western Australia. Around the same time, Apache affiliates took over operations of the Harriet oil field and the associated smaller fields surrounding it. When making the acquisition, Apache saw additional potential for the area.

“The gas market wasn’t so good at the time. There really wasn’t a domestic gas or LNG market,” says Maher. “But the reservoirs out here in the northwest shelf where we have all of our acreage are some of the best in the world. The geology is fantastic.”

Two decades later, Apache’s foresight is paying off. The gas market has improved considerably, and Australia is among Apache’s best domestic gas—and soon to be LNG— markets. Its LNG involvement will pick up once Apache’s participation in the Wheatstone project is complete.

In 2009, Apache agreed, alongside Kuwait Foreign Petroleum Exploration Co. (KUFPEC), to join with Chevron in developing the Wheatstone LNG hub. Apache and KUFPEC will supply gas from Australia’s Julimar and Brunello discoveries and become foundation equity partners in the Chevron-operated Wheatstone facilities. Wheatstone is expected to begin producing LNG in 2016.

Apache has numerous other projects under way as well, including two oil developments, and construction on its third domestic gas plant. Recently, Apache was honored by the Chamber of Minerals and Energy in Western Australia for its work on its $1.1 billion Devil Creek Gas Plant, which came online in December 2011. Joint venture partner Santos was also recognized.

“We’re pretty proud of it,” adds Maher. “Our guys did it on time and on budget, which in Australia is a pretty hard thing to do these days.”

All of the success Australia is experiencing leaves some wondering whether Australia’s LNG phenomenon can be replicated by other countries. That, says Maher, depends heavily on geopolitics. He believes Canada is in the best position to compete with Australia, but said the U.S. also stands a chance.

“The U.S. with its abundance of shale gas could really ramp up and be an LNG exporter,” he says. “That remains to be seen, but everyone’s anxiously awaiting to see what the Obama administration will do about exports of U.S. natural gas to other parts of the world. The U.S. is probably in the best shape in terms of being able to put infrastructure together quick enough.”

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