Australia's Pipeline Projects Multiply

The Sydney Harbor Opera House lights the way home for Australian producers working to install subsea pipelines to support big offshore gas plays.

Australia’s Wheatstone, Gladstone, Ichthys and Pluto pipeline projects are turning out to be hot topics. Coal-seam gas has opened the door for producers, and Australia’s pipeline construction is expected to reach record levels over the next three years.

Coal-seam gas is mostly methane found on the surface of coal. It can be extracted when pressure on the seams is reduced, and the process typically involves water removal. The financing, drilling and processing required for these projects in offshore Australia have subsequently turned the area into quite the hub of activity.

In light of coal-seam gas opportunities, the Gladstone liquefied natural gas (LNG) project, which became Australia’s first major coal-seam gas-to-LNG project to receive environmental approval from the Queensland government, is expected to pave the way for more like-minded projects in the future.

Meanwhile, Chevron Corp. and Korea Gas Corp. have entered into agreements regarding the Wheatstone LNG project, which could cost about $17 billion.

Also, Santos Ltd. has been able to create a billion-dollar credit facility, with plans to use the new facility to refinance its existing A$700 million in undrawn bilateral bank facilities that mature between 2011 and 2013. The decision to refinance existing debt allows flexibility to fund Santos’ growth, particularly for the Gladstone LNG project.

Elsewhere, Inpex Corp. is generating funds via a new share issue. The new share issue will help fund development of Inpex’s flagship Ichthys gas-development project in Australia, which will also aid in Inpex’s development plans to build a $20-billion liquefaction plant near Darwin in Australia’s Northern Territory.

Woodside Petroleum Ltd.’s Pluto offshore pipeline project is wrapping up on-schedule, and will boast a production train at the Burrup LNG plant, with a forecast production of 4.3 million tons per year (Mtpa). Given all of these projects, gas pipeline construction to support take-away is also expected to increase substantially within the coming years.

Wheatstone Project

On July 19, 2010, Chevron announced that its Australian subsidiaries signed an agreement with Korea Gas for the delivery of LNG from the Chevron-operated Wheatstone natural gas project in Australia. The Wheatstone project, which includes a 120-mile undersea pipeline, could cost $17 billion, and pipeline construction has the potential to reach record levels within the next few years due to large offshore gas discoveries.

The price tag for Chevron’s Wheatstone gas project, which includes a 120-mile undersea pipeline, could reach $17 billion.

Under the agreement, Korea Gas expects to purchase 1.5 Mtpa of LNG for up to 20 years from the Wheatstone project participants. About 75% of the 1.5 Mtpa is estimated to be purchased from Chevron, with the remainder from other participants.

In addition to being a foundation customer of the project, Korea Gas also agreed to acquire a 5% interest in each of Chevron’s Wheatstone field licenses and in the Wheatstone project LNG and domestic gas processing facilities. Including this equity participation, Korea Gas plans to take delivery of some 1.95 Mtpa of LNG.

Chevron Australia managing director, Roy Krzywosinski, says the agreement demonstrates successful LNG marketing for the Wheatstone foundation project.

“The Wheatstone hub at Ashburton North has been established to process our significant equity gas, as well as third-party natural gas resources located in the Western Carnarvon Basin,” he says.

John Gass, president of Chevron Global Gas, says “Chevron is pleased to have Korea Gas, the largest LNG buyer in the world, as part of the Wheatstone project. Their entry adds further momentum to this development.”

In September 2009, Korea Gas and Chevron also agreed to the delivery of 1.5 Mtpa of LNG from the Gorgon project for 15 years, with the ability to extend the agreement for an additional five years. In October of that year, Chevron announced it had signed a binding agreement with Apache Julimar Pty Ltd., a subsidiary of Apache Corp., which will assume a 16.25% equity interest in the Wheatstone project. KUFPEC Australia (Julimar) Pty Ltd, a subsidiary of the Kuwait Foreign Petroleum Exploration Co., will assume an 8.75% interest. Chevron, however, is primarily responsible for the marketing of LNG from the Wheatstone project.

Gladstone LNG Funding

On July 19, 2010, Santos Ltd. completed a major refinancing of existing debt to fund the company’s growth, particularly towards the Gladstone LNG project.

Santos arranged a A$2 billion ($1.7 billion) bank-loan facility that will help Australia’s third-largest oil and gas producer fund a project in Queensland state. Santos plans to use the credit line to refinance A$700 million of existing undrawn debt.

The need for a share sale depends on how much Santos potentially receives for selling a stake in the proposed Gladstone liquefied natural gas project. Santos and BG Group Plc will make final decisions on whether to proceed with Queensland ventures that will convert gas extracted from coal seams into LNG for export to Asia.

The Gladstone project, with two processing units, is expected to cost A$16.4 billion. Santos chief executive David Knox says, “The Gladstone LNG project remains in detailed discussions with a number of parties in relation to potential LNG sales, equity in the project and collaboration between projects.”

Although the company discourages speculation, there have been rumors that Royal Dutch Shell Plc is a potential buyer of a stake in the Santos venture, though these have yet to be confirmed. Santos owns 60% of the project, and Malaysia’s Petroliam National Bhd., or Petronas, owns the remainder.

With the loan facility offered by nine banks, Santos will have potentially A$6 billion of available funding, including cash and debt, according to the companies’ most recent statement. Santos plans to use the new facility to refinance its existing A$700 million in undrawn bilateral bank facilities that mature between 2011 and 2013.

Ichthys Project

Oil and gas producer Inpex Corp. has plans to raise about $6 billion, half its market value, on a new share issue to help fund development of its flagship Ichthys gas development project in Australia. With Mizuho’s nearly $10 billion offer due to be finalized this month, and the Tokyo market sagging in recent weeks as the strength of the yen saps export-heavy stocks, Inpex’s issue is sure to test investors’ appetite for mega-deals.

Ichthys production will move through an 885-kilometer subsea pipeline to an LNG plant proposed for Blaydin Point on Middle Arm Peninsula, Darwin, Northern Territory.

The project is intended to move gas and condensate from the Ichthys Field. Production will undergo preliminary processing at the offshore central processing facility to remove water and raw liquids, including a large proportion of the condensate. This condensate will be pumped to a floating production, storage and offloading facility anchored nearby, from which it will be transferred to tankers for delivery to markets.

The gas will be transported from the CPF through a subsea pipeline more than 885 kilometres to the onshore LNG processing plant proposed for Blaydin Point on Middle Arm Peninsula, Darwin, Northern Territory.

The Ichthys Project will have an initial capacity to produce 8.4 million tonnes of LNG per annum and about 1.6 million tonnes of liquefied petroleum gas per year, as well as 100,000 barrels of condensate per day at peak.

Inpex plans to sell the LNG from Ichthys mainly to Japanese buyers. It will build the $20-billion liquefaction plant near Darwin in Australia’s Northern Territory. Inpex, Japan’s largest energy producer, plans to at least double its output to the equivalent of about 800,000 barrels per day of crude oil in the next few years. A large part of that planned output increase will come from both Ichthys in Australia and the Masela block in Indonesia.

Of note, the capital raise will be the third-largest equity-financing deal in Japan this year. Other massive deals were formed by Sumitomo Mitsui Financial Group and Mizuho Financial Group. The Ichthys LNG project (Inpex owns 76%) is a core project for Inpex.

Observers noted that despite the fact that an issue of this size will mean significant dilution for investors in Inpex, some market participants might respond positively, mindful of the intensive investments required to finance big energy projects.

“Investors may buy the shares even though it means they need to sell other shares to absorb this offering,” says Takeo Kusajima, a senior fund manager at Chuo Mitsui Asset Management. “The company has so many costly projects going on, so they would understand the company’s need to raise capital.”

If the offering reaches its maximum amount, the number of Inpex’s outstanding shares will increase from 2.36 million to 3.66 million. Inpex has over 75 oil and LNG projects around the world, including Ichthys.

Pluto Pipeline

Woodside Energy’s Pluto gas project in Karratha, Western Australia, recently completed the offshore-pipeline segment of its 4.3-Mtpa LNG facility.

Woodside Petroleum is now able to celebrate the completion of the construction of the offshore pipeline related to its Pluto LNG Project, located on the Burrup peninsula in Western Australia. The success has been made that much sweeter due to the challenging time frame the project has been trying to meet. The company’s statements reported that the project had been at 91% completion by the end of June.

Woodside Petroleum’s Pluto LNG Project includes an LNG production train at the Burrup LNG plant, with a forecasted production rate of 4.3 Mtpa. The LNG train will process gas from the offshore Pluto and Xena fields. First gas is expected in late 2010 and the first LNG shipment as early as 2011. The offshore components of the Pluto pipelines consist of two 20-inch diameter, 16.7-mile flowlines, a four-inch diameter monoethylene glycol pipeline and also a control umbilical to a platform.

Throughout the design stages, designing engineers from JP Kenny worked on the project’s more difficult portions. The role of the design team was to manage design changes immediately before and during construction. For this particular project, however, it was not an easy task, as the flowlines faced steep challenges throughout the project.

In particular, the steep slope and the high temperature in the line resulted in the risk that the flowlines could “walk” down the slope after every operation shutdown. These risks associated with the trunkline caused the team of designers to address the situation in an especially unique way. The risks involved with the pipeline resulted in the development and application of industry–first design techniques, which cost some $2 million in engineering and research. Ultimately, the design team was forced to eliminate all gravity anchors and trenching requirements, which saved millions.

Instead, the designers implemented the accurate assessment of the hydrodynamic loads and wave kinematics on the bundled trunkline and MEG line system and the behavior of the pipeline under hydrodynamic loading. The design team addressed the risks associated with the flowlines shifting by installing the lines in the choke within very tight routing tolerances, and also finite element analyses were performed to predict the walking characteristics of the line.

Allseas Construction Contractors was contracted to install the pipelines. Some 1,400 personnel were directly involved with the pipeline installation scope of work, with more than 500 personnel working offshore at one time during the height of the campaign on over 22 different vessels.

Holden Point was ultimately selected as the ideal site to receive and process the natural gas. The dredging of a seven-meter deep and seven-meter wide trench across the NWSV shipping channel was a particularly challenging task due to frequent LNG tanker movements. The traffic provided limited working windows for the dredging. Near-shore pipeline installation comprised the construction of some 15.5 miles of pipeline across the NWSV shipping channel.