PESA 2010 production and development review

2010 was another busy year for Australian hydrocarbon production and development. Natural gas production was the standout performer with both domestic gas and LNG production increasing by about 5% compared to 2009. Domestic gas output was strong with significant growth in production from the Gippsland Basin, coal seam methane in the Surat-Bowen Basin, and the start-up of the Blacktip gas project in WA. Domestic gas output is set to reach record levels again next year and has strong growth prospects in the future with final investment decisions being taken on coal seam gas projects in Queensland and the Macedon project in WA. Australian LNG production increased 4.5% in 2010 accounting for 34% of Australian hydrocarbon production. LNG production will grow further in 2011 with first gas expected from Pluto LNG project during the year. Oil production was steady in 2010; however, it is set to increase in 2011 with a full year of production from the Van Gogh and Pyrenees projects. Production levels only tell part of the Australian hydrocarbon story. In addition to the proposed domestic gas and oil projects, the combined value of committed and potential LNG projects in Australia has surpassed $100 billion. A highlight of 2010 was the final investment decision on the A$15 bn Queensland Curtis LNG Project (QCLNG). The first phase of QCLNG will consist of two LNG trains with a combined capacity of 8.5 million tonnes per annum, with first LNG exports expected in 2014. QCLNG is the first of many proposed coal seam gas to LNG (CSG-LNG) developments in Queensland. Other CSG-LNG projects reached significant milestones this year. Of particular note is the federal environmental approval of Gladstone LNG and state environmental approval of Australia Pacific LNG. In WA, the Browse LNG project complied with all Browse Basin retention lease conditions and remains on track for a targeted final investment decision in 2012. Other major LNG projects including Ichthys and Wheatstone also continue to make positive progress towards a final investment decision in the next 24 months. Sunrise, Prelude and Bonaparte LNG set a technology milestone in the industry with all three selecting floating LNG (FLNG) as their preferred development concept. 2010 has also seen the emergence of further new technologies in the form of small scale LNG projects for resources previously considered un-commercial. This has opened the door for South Australia and New South Wales to enter the LNG export market in the future. The Australian hydrocarbon industry continues to grow and its global importance, particularly in LNG, reflected by the increasing number of foreign companies entering Australia. In 2010, Shell and PetroChina increased their involvement in the Australian industry purchasing Arrow Energy for A$3.5 bn. CNOOC has increased its involvement in a number of areas, including purchasing a 5–10% stake in QCLNG and investment in CSM exploration through Exoma Energy. GDF Suez and Total have reinvigorated their interests in offshore WA and Petrobras made their first entry into Australia acquiring an interest in exploration acreage offshore WA. 2010 was an active year for Australian hydrocarbon production and development–continued success depends on the successful execution of committed and proposed projects. Escalation of development costs and a looming skills shortage remain the largest risks to the Australian hydrocarbon industry as multiple projects attempt to move forward simultaneously.