Much has been said about the Lucky Country’s golden age of gas which will see Australia overtake Qatar to become the largest exporter in 2020, tripling its capacity to 86 million tonnes per annum (mtpa). But with a number of LNG projects set to come online in coming years, and with no new large capital investments being locked in, concerns about when and if Australia will be able to secure its next big wave of resources investment are rightfully warranted.

More infrastructure sharing and third party access arrangements in the oil and gas industry could assist in unlocking the next pipeline of earmarked oil and gas developments, according to Clare Pope, a Perth-based partner of the international law firm Squire Patton Boggs.

Speaking to Oil and Gas Investor Australia ahead of her presentation at this year’s APPEA conference and exhibition, the corporate and energy lawyer said her experience working overseas where infrastructure sharing was more commonplace had made her appreciate that Australia’s upstream players could take learnings from other developed oil and gas hubs such as the North Sea.

“There is a large contrast between Australia and the UK in terms of infrastructure sharing and access arrangements,” she said.

“Many projects in the UK share facilities and pipelines, whereas looking in Australia each LNG project has been developed separately by the project proponents with minimal sharing between them.”

Pope said many hard lessons had been learnt from the unprecedented wave of greenfield LNG developments in Australia, including the realisation that the country was a high cost destination to do business, which was harming new investment opportunities.

“There are still significant resources in Australia but given the hard lessons of the greenfield development over the last 10 years, companies do not feel encouraged to bring the developments onshore, and as a result there is now a significant focus on floating LNG developments,” she said.

“FLNG remains an exciting, but as yet, untested technology and could be the answer to encourage the next wave of development. An alternative or third wave could be infrastructure sharing and access agreements.”

Pope said there had already been early indications by the industry that it was moving towards adopting infrastructure sharing or access arrangements, referring to an agreement Hess Corporation inked with the North West Shelf joint venture late last year in relation to the Equus field. The non-binding letter of intent will enable the parties to toll production through existing NWS processing and liquefaction facilities in Karratha, specifically at Woodside Petroleum’s Karratha LNG plant.

“It is possible that the Equus agreement represents a watershed moment in the Australian oil & gas industry and the start of a new phase where companies will look more actively for opportunities to tie in to existing infrastructure,” Pope said.

“The contrast with the Australian position is that there hasn't historically been the large amount of existing infrastructure to tie into like we see in the UK and the US.

“Until the recent wave of developments, Australia had been missing the critical mass of infrastructure which allows infrastructure access and sharing to take place – and of course the other critical element is capacity in that infrastructure in order for it to be feasible for the owners to grant third parties access to it,” she said.

Exploring the possibilities

Infrastructure sharing possibilities remain at the top end of Australia’s oil and gas industry, mainly in the Timor Sea’s Bonaparte and Browse Basins.

Last year, Santos and joint venture partner GDF Suez scrapped FLNG as a development option for its Bonaparte Basin development after revealing that floating technology was not commercially viable.

The duo are now looking at alternative options to develop the Petrel, Tern and Frigate gas fields which includes developing a pipeline to Darwin where the gas could be fed into Inpex’s Ichthys project or ConocoPhillips’ Darwin LNG plant. This is a development option that Pope believes we may see more of in the future.

“It’s about finding the best way to get the gas to market and it seems clear that they couldn’t make FLNG work so tying the project into existing infrastructure is a logical option – if it is available,” she said.

Pope said the concept of infrastructure sharing and collaboration was not a foreign concept to many of the oil and gas majors working in Australia.

“They either are, or have been, in places where it’s common to have infrastructure sharing arrangements so it’s not new to them as a company but it may be new to them in Australia,” she said.

“This is something that the project proponents should be thinking about and getting together to discuss.”

While upstream players, under legislation, aren’t required to provide infrastructure access to a third party, Pope said communication lines between upstream players about sharing infrastructure should be open.

At the end of the day, commercial imperatives and incentives will be the overriding factors in making infrastructure arrangements more enticing.

“The main issue with any discovery is whether the resource is sufficient to underpin its development,” Pope said.

“In some cases the resource will be and in some cases it won’t. But the project may become economic if it can be tied-in to existing infrastructure, with payment of a tolling fee to the infrastructure owner. This arrangement has the effect of reducing the capex spend because a smaller amount of infrastructure needs to be developed to get the gas to market.”

Pope believes companies operating in Australia have not yet adopted the same mindset when it comes to infrastructure access and sharing arrangements as some of their counterparts overseas.

While the Santos-led GLNG and Origin Energy-led APLNG projects announced in 2013 a plan to share pipeline infrastructure to avoid duplication of a 140 km pipeline and alleviate some capital costs, the cooperation agreement came slightly too late to capture the efficiencies that would have been created had the LNG trains been planned together and shared more infrastructure. Even GLNG downstream vice president Rod Duke admitted that in hindsight, it would have been better if the three separate plants at Gladstone were built with more collaboration.

“There is still a way to go in terms of getting managements minds around having tie-ins and infrastructure sharing as an option,” Pope said.

“Of course there is also the issue of the existing infrastructure having the capacity, and often infrastructure is not built to take this into account, it is built for the project it relates to.”

East Coast gas supply

While tie ins and infrastructure sharing present an opportunity to help spawn the next wave of oil and gas investment in Australia, a proposed pipeline linking Northern Territory’s gas supplies to the east coast gas grid could present an opportunity to alleviate a forecast gas crisis set to emerge on the east coast of Australia as soon as 2016.

While the pipeline, which would cost anywhere from $900 million to upwards of $1 billion depending on the final route, has already created much heated industry debate with some commentators doubting its economic viability, the criticism hasn’t hampered the project’s progress.

APA Group, which late last year inked a deal to acquire the QCLNG pipeline from BG Group for US5 billion, is among a handful of companies vying for the right to develop the pipeline link, dubbed the North East Coast Interconnector.

The local player was recently shortlisted in the second round of the expression of interest process, along with Duet Group, Jemena and Merlin Energy Australia.

The bid process is expected to be wrapped up by late September.

APA Group has a slight head-start on its competition having initiated a $2 million feasibility study assessing three potential routes for the proposed development last year. The pipeline, which has been endorsed by Adam Giles and New South Wales Premier Mike Baird under the signing of a memorandum of understanding, could be commissioned in time for first gas to be delivered in 2018, a timeframe that APA is working to.

APA Group executive of transmission Rob Wheals said the fundamentals of the pipeline were compelling.

“At the heart of the opportunity is the NT government’s estimate the NT has in excess of 200 TCF of conventional and unconventional gas reserves, both onshore and offshore,” he said.

“This is a significant supply which, if successfully developed, is potentially available to support supply in the south east of Australia as well as the NT’s future demand.”

While Wheals said the key challenge would be the ability to identify sufficient gas supply that would be available at the right price early on to support the development of the link, he said the quantum of prospective reserves does provide an opportunity. And where there is opportunity, there is will and usually a way.

Wheals said APA Group was still developing the commercial case for the NT link but it was making solid progress towards the “NT link becoming a reality.”

“We’ve now reached a point where preliminary design works have commenced, we’ve completed route flyovers and applications have been submitted for our pipeline survey licence,” he said.

Upcoming planned activities include the commencement of environmental surveys immediately after the wet season and further development of its engineering design. The company has also started an early contractor involvement process with two pipeline contractors.

Another advantage APA has is its extensive knowledge of the NT. The Sydney-based company has had a presence in the Territory since 1984- controlling some 2000km of transmission pipelines and having offices in Darwin, Katherine, Tennant Creek and Alice Springs.

Whatever the outcome of the bidding process, Wheals said APA Group would have a part to play in the pipeline through providing terms of access to its existing infrastructure on an “open, transparent and parity terms basis.”

“This is consistent with our belief that the NT link will be an integral component in delivering on the potential of APA’s east coast gas grid,” Wheals said.

While opportunities present itself in the NT for APA Group, which is the largest owner of pipelines in Australia, it believes the emergence of the east coast LNG industry will also create significant opportunities under the backdrop of reports and industry commentary suggesting at least one of the LNG projects could be scrambling to secure enough gas to reach full capacity.

“It is possible that the three Gladstone LNG projects may further de-risk supply from their coal seam gas developments by contracting additional third party gas if the economics stack up,” Wheals said.

“That’s the sort of opportunity that is front of mind as we consider the next steps in expanding the grid and improving its capabilities in Victoria, NSW, Queensland and South Australia.”

While the opening up of the international LNG market on the east coast may be advantageous for some, major domestic gas users and retailers are facing significant uncertainty about the availability and price of gas which, according to the Eastern Australian Domestic Gas Market Study 2013, raises questions about how well the gas market will adjust to the new conditions in the presence of massive and rapid change and the possibility of transitional supply tightness.

Pope said it was an interesting time for Australia’s east coast gas industry which was undergoing a rapid transformation underpinned by the development of the three LNG projects on Curtis Island.

“Traditionally the east coast gas market has been driven by domestic supply arrangements, now all of a sudden there is an export market which has changed the basis of that market” she said.

“It’s certainly a dynamic environment and we are yet to see where it will end up at this stage.”

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