LNG opportunities in the pain game

AUSTRALIA'S LNG industry riding high on the prospect of overtaking Qatar as the world's top LNG producer are in for a world of pain if they think they can transition from "project mentality" to an operation environment, Transfield's resources, energy and industrial CEO Joe Sofra told Energy News.
LNG opportunities in the pain game LNG opportunities in the pain game LNG opportunities in the pain game LNG opportunities in the pain game LNG opportunities in the pain game

Transfield, already heavily involved in Queensland's historic CSG to LNG mega-projects and others off and onshore across the continent's north, is taking lessons learned from its own work installing telecommunications networks for the National Broadband Network in Australia to helping the LNG industry make the transition as smooth as possible, both for its own benefit and for its clients.

Speaking to Energy News at APPEA 2015 in Melbourne last week, Sofra said that while Australia's resources sector suffered a slowdown in a depressed commodity environment, this transitional period from investment and construction into operations phase was a boom period for the Australian service company.

A key challenge for Australia's LNG industry, Sofra said, was that "we haven't yet moved towards running the upstream component of that in that lean, factory-manufacturing mentality where we have highly repetitive activities out there".

"We need to really be continuing to drive hard on streamlining and improving that productivity and getting that efficiency where we need to get it to," he said.

"The industry is very much turning its mind to it now. We've seen a lot of the synergy in services, and for an organisation like us, [which does] the end to end upstream, we can see and model the synergistic benefits of doing wells servicing with field services, camp management, bundling that and what that brings in real productivity efficiencies.

"Slowly but surely we're starting to evolve people's thinking. As people move out of that truly project-oriented environment to that operational environment it's a different mindset.

"My boss [Transfield CEO Graeme Hunt] has a great analogy that the person that sits on the Toyota line doing the engine installation is not necessarily the person you want driving the car."

Sofra said that while this is a potential danger for the LNG industry, it's a different view from his side of the fence.

"We're a brownfields service provider. It's not new to anybody that from 2016 and beyond is when you'll see some heavy transition from asset construction into operation. So for us, this should be our boom period, and that's very much how we're looking at it," Sofra said.

"There's always a transitionary period in that which is a bit bumpy and rough, with the cost of labour and productivity changes that need to happen.

"The downturn in the oil price has overlaid another layer of pressure or complexity onto that, and we've had to work pretty closely with a lot of our customers to help them accelerate their cost-out programs and ensure they're spending their money in the right places.

"But as we've seen in a number of discussions (at APPEA 2015), that's just about making sure you leverage the strength of your relationships so that you can have the right kind of conversations about getting an outcome that ultimately sees a reduction in their costs, but also some improvement in our market share and our longevity with our customers.

"We do a lot of Woodside's offshore work in the North West Shelf, a lot of maintenance and minor capital works, active in looking to secure a number of those key contracts for Shell's Prelude project and Inpex."

The potential cost issues compound concerns about technical and economic concerns among analysts with CSG - a fire which former Woodside CEO Don Voelte doused with petrol last September when he said "field costs and compression costs and everything are rising".

Meanwhile, Voelte said while in London for a Goldman Sachs investment conference, increased competition from shale gas producers in the United States also raised questions about the economics of the Queensland LNG industry.

Sofra said what many people underestimate, however, was industry's ability to evolve and learn as it went - and given that, on some estimates, up to 40,000 CSG wells need to be drilled across Queensland over the three CSG-LNG projects' lives, there's plenty of scope to learn.

NBN analogy

"Particularly in the upstream environment in CSG, we draw some parallels to what we've done in Queensland with the NBN roll-out: highly repetitive work, so rather than building one large processing plant, you're installing a whole lot of wells, and you're trying to do that each and every time a little bit more efficiently," Sofra said.

"It is strictly capex work but don't with that ongoing, continuous sustainment mindset. It's probably what separates the CSG environment to what we've seen in the conventional space where you build one big asset rather than lots of wells."

No CSG shortfall - for now

Queensland's LNG ventures have long denied a CSG shortfall to feed the three CSG-LNG projects, a doubt which has fuelled in February when ExxonMobil Australia chairman Richard Owen said: "The domestic gas market is in a period of significant change, significant transition, and there is a lot of uncertainty, and a lot of that uncertainty means that people are a little reticent to make decisions without any more data.

"We really don't know" whether there was enough supply to meet the LNG plants' needs."

Yet Sofra believes there is definitely enough for the three CSG-LNG projects for now. Indeed, producers on Australia's east coast have pointed to spare capacity at the Exxon-BHP Billiton Bass Strait venture and the Cooper Basin and potential new supply projects that are capable of feeding both domestic and international markets.

"What we've seen is that our operators are out there pursuing all avenues to secure gas," Sofra said.

"We're not seeing it (shortfall of gas) for the first period of operation [for the first three to four years of production], but we wouldn't get a perspective better than that [at the moment anyway].

"It's been fairly public that you have a lot of gas coming from a lot of wells, rather than a lot of gas coming from a smaller number of wells with a more conventional understanding. From our perspective, there is a lot of CSG.

"The other thing that's often forgotten is that as the industry continues to operate, it will get better and better at extracting that gas at the right cost.

"We're already seeing efficiencies in terms of how often you need to intervene in the wells' operation; and we'll continue to see that, whether it be through technology or service improvements.

While the likes of Santos are working hard on both conventional and unconventional in the Cooper Basin, Sofra believes the unconventional gas might be without our reach sooner than some think.

"We're certainly seeing a lot of activity around it [unconventional Cooper basin gas], with some marginal production," Sofra said.

"I don't think it's that far into the distant future, the shale gas. How viable that becomes I'll leave that to the operators. But I don't think we're too far away from considering the viability of that gas."