TAPS proposal has merit: analyst

A TRANS-AUSTRALIAN Pipeline between the west coast gas fields and the east coast markets may be challenging but appears to have compelling economics, according to one Perth-based analyst.
TAPS proposal has merit: analyst TAPS proposal has merit: analyst TAPS proposal has merit: analyst TAPS proposal has merit: analyst TAPS proposal has merit: analyst

Haydn Black


Dumped Western Australian premier Colin Barnett broke his silence at the weekend, calling for a vast transnational pipeline to be considered to solve Australia's gas problems: a shortage of supply in the east, a lack of cheap gas in the south-west, and a lack of a truly national pipeline network.
Barnett once lost an election by floating the no-less controversial idea of a canal from WA's far north to bring water to the dry south, so he is no stranger to big, challenging infrastructure projects that may or may not work, depending on who you talk to.
His words have found a receptive audience in Canberra, with WA Senator and Finance Minister Mathias Cormann saying the government believed the idea was worth at least considering as a means of improving energy security and affordability.
The sentiment was echoed by Energy Minister Josh Frydenberg, although he admitted the economics of any pipeline would be challenging if gas from the Carnarvon and Browse basins was to become a saviour for east coast jobs. 
The Commonwealth is also considering an LNG hub in the east, which AGL Energy is independently exploring, feeling that LNG shipments could offer fewer logistical and native title headaches than a massive pipeline to the Moomba gas hub would pose. 
Hartleys analyst Aiden Bradley said this week that, assuming his estimates on pipeline costs were near the mark, the idea was "quite compelling".
The east coast already has available pipeline infrastructure and in the west there is significant discovered and undeveloped resources, enough for a century of domestic use. 
He suggested a pipeline from WA to Moomba could be supported with new trunk lines servicing South Australia, Victoria and New South Wales. 
While the pipeline would need to be up to 5000km in length, that would be a "baby" compared to the 9000km-long West-East China 40-488-inch diameter pipelines that carry around 1.2 trillion cubic feet per annum.
CNPC has believed to have paid $US20-22 billion for the two most recent pipelines, but Bradley said it was reasonable to assume costs would be similar for the 3500km-long Keystone XL proposal in the US which is estimated to cost close to $US7 billion for a 36-inch oil pipeline.
Barnett suggested a $5 billion cost, with completion possible within three years.
Jemena's Northern Gas Pipeline was costing $800 million for a 12-inch pipeline that will only be able to deliver 90TJpd, and could be expanded for a couple of hundred million dollars more to 200TJpd.
"We have done some rough modelling to see if a west to east coast pipeline has any merit. We have assumed 500TJpd of capacity and looked at a range of pipeline construction costs. 
"We have also assumed offshore operators in WA will require a minimum of a $5/GJ price at the wellhead to develop the gas.
"Based on these simple metrics it would seem a pipeline developed by a commercial operator may struggle assuming they require a 7% or greater WACC [weighted average cost of capital], however, a government-sponsored pipeline financed at 5% would likely be able to deliver large volumes of gas in the range of A$8.50-9.50/GJ."
He said the mix of benefits, including jobs, upstream royalties and taxes from the benefits of having adequate gas supply on both the west and east coasts could even entice the government to fully sponsor the pipeline, and that could deliver gas for around $8/GJ, a reasonable return, if not stellar profits from LNG sales.
But, to make a go of it, the state and Commonwealth would have to toughen up the use-it or lose-it regime and tighten offshore retention lease terms so operators could not blame a lack of commercial opportunity for not developing gas fields.
That would mean oilers who warehouse gas resources for development of new LNG export resources would lose out, but there would be others only too pleased to develop smaller and stranded gas resources in the window before they are really threatened by the clean energy revolutions. 
Bradley said it was possible that demand for gas could be much smaller within 20 years due to the rapid developments in renewable energy technology.
"Some in the oil and gas industry may view this as unlikely, but given the pace of developments in the renewable sector, it has to be a consideration," he said.
He said without a pipeline, real or virtual, any major gas consumers wanting to make sure they are not disadvantaged by the continued gas shortages in WA and the east coast have no choice but to either compete for what third party gas is available in the market or be more proactive and go now and acquire their own upstream production. 
But, while Bradley's numbers are compelling, others use the same figures to conclude that the Trans-Australian Pipeline had no chance of flying. 
The NGP between Mt Isa and Tennant Creek extends across 622km at a cost of $800 million and will meet less than 3% the 1430PJ a year the Australian Energy Market Operator estimates Queensland's three LNG plants will consume by 2020.
Past guesses have suggested a 2500km link between Karratha and Moomba would cost more than $5 billion. 
Before construction could start gas supplies would need to be guaranteed, offshore fields developed, which in the case of the Browse Basin may require new onshore gas plants and long distance subsea pipelines, plus liquids extraction facilities, all of which would create new jobs.
Native title would also need to be cleared across the route.
Those are not impossible obstacles, but they are far from simple tasks, and in the same period pipeline would need to stack up against other alternatives such as LNG exports, which would be more flexible to changing market demands, or developing resources such as the Galilee Basin in Queensland or any Beetaloo Sub-basin shales.
Getting the call wrong could lumber Australia with a white elephant.