In order to understand energy geopolitics in Asia, even in East Asia, it is no longer adequate to look westward to Central and Southwest Asia across the Arabian Peninsula to North Africa. A new, massive liquefied natural gas (LNG) development in Australia has just passed an important environmental hurdle, and China, India and Japan are lined up to be customers.
The Gorgon project on Wednesday received Australian government environmental approval to proceed. The development, comprising three production trains and a domestic gas plant, is projected to create 6,000 jobs during peak construction plus 4,000 more in indirect employment.
It is one of as many as 10 LNG projects under development in Australia. Two more are planned in Papua New Guinea, and one in Indonesia. About 130 to 200 kilometers off the northwest coast of Western Australia, Gorgon's component fields are estimated to contain up to 1.1 trillion cubic meters with an estimated life of 40 years.
According to the Financial Times, PetroChina agreed last month to purchase US$41 billion worth of LNG from the Gorgon development over the next 20 years. India's Petronet is in the game already, for $21 billion. Natural gas accounted respectively for only 3% and 8% of the two countries' primary energy consumption in 2006, the last year for which reliable statistics are available.
Another major LNG field under development in Western Australia is the Browse project, estimated to be half the size of Gorgon. Three more (Greater Sunrise, Scarborough and Pluto, all but the first likewise in Western Australia) are together as big as Browse. Browse's expected startup is during the first years of the next decade. The others are still in the planning stage.
The Gorgon agreement with China was made by Royal Dutch Shell, which together with ExxonMobil owns half of Gorgon. The other half belongs to its operator Chevron. The project is Australia's largest export agreement and will become its largest resources project.
Government approval of the Gorgon project came with 28 conditions attached, mostly linked to monitoring the status of endangered animals, as Barrow Island, where the project will be developed, is categorized as a Class A nature reserve and is home to listed threatened species such as the flatback turtle.
Anticipation of the announcement may have accounted for the recent short-term recovery of the country's equity market, as the Australian All Ordinaries stock index bounced off its Friday close last week near 4,300 to rise nearly 4% by mid-afternoon on Wednesday local time, matching the level of its August 14 close in the mid-4,460s.
Woodside Petroleum, operator of what was before Gorgon the country's largest resource project (the US$22.7 billion North West Shelf project) jumped by more than 16% from the open of trading on August 20 to the close on the 24th. In New York, Chevron has rallied over 25% since the beginning of March from $56.46 to almost $71.
As many of the LNG projects in the Asia-Pacific region seem timed to come on stream in the middle of the next decade, competition for customers may become an element in determining which of the projects actually goes forward. Because of differences in the nature of marketing natural gas and oil, and because liquefaction and re-gasification plans require enormous capital investment, long-term sale contracts are essential to underpin development plans.
At present, the US and Europe are the strongest markets for LNG. The European Union has sought to increase the proportion of natural gas in its energy consumption mix for ecological reasons. If nuclear and coal technologies remain in bad odor, then general demand for gas will only rise strongly. Poland has already increased its imports from Qatar as a result of Russia-Ukraine energy disagreements leading to gas cutoffs flowing westward.
The US Energy Information Administration, a service of the Department of Energy, foresees total world natural gas consumption rising 1.6% per year over the next two decades, but projects that consumption in China and India will rise 5.2% and 4.2% per year respectively, particularly as they continue to construct more LNG terminals.
The final investment decision in Gorgon by Chevron is still officially several weeks to months away, but company sources indicate that the conditions imposed by government authorities are consonant with those already incorporated into project planning. The recent government approval represents the project's last major regulatory hurdle.
The go-ahead for the project also re-establishes a certain degree of businesslike relations between Australia and China, its largest export market, after the failure of a Chinese bid for part of the Rio Tinto mining concern, the arrest in China of a Rio Tinto executive on charges of commercial espionage, and a diplomatic flap of an Australian visa given to an exiled Uighur leader.
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First published in Asia Times Online, 27 August 2009.