Japan's Inpex Corp. signed around $70 billion worth of LNG sales agreements for its Ichthys project in Australia, clearing the way for the go-ahead for a venture seen as a classic of its kind in terms of technology and contracts, but with the unusual make-up of being made in Japan from exploration to delivery.
All the production has been signed up on long-term contracts for the 8.4 million tonnes per annum to be produced from two liquefaction Trains to be built with French partner Total at Blaydin Point near the port of Darwin in Australia’s Northern Territory.
In the last deal before the final investment decision, five Japanese utilities, Tokyo Electric Power, Tokyo Gas, Osaka Gas, Kyushu Electric, and Kansai Electric bought a total of 4 MTPA of LNG for 15 years.
Delivery
The feed-gas for the project will be delivered from the Ichthys field in the Browse Basin offshore Australia to the Blaydin Point plant via 800 kilometres of subsea pipelines.
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The feed-gas for the project will be delivered from the Ichthys field in the Browse Basin offshore Australia to the Blaydin Point plant via subsea pipelines |
The SPAs for the five Japanese buyers will come into force at the beginning of 2017, allowing for some project drift because of lead-times for equipment and a shortage of skilled manpower in a country developing eight other LNG projects over the next five years.
The Japanese volumes bought are as follows: Tepco (1.05 MTPA); Togas (1.05 MTPA); Kansai (800,000); Osaka (800,000 MTPA); and Kyushu (300,000).
Inpex had previously signed LNG sales deals with Taiwan's state energy company CPC for 1.75 MTPA of LNG and with Japan's Chubu Electric Power and Toho Gas for 490,000 tonnes per annum and 280,000 tonnes per annum respectively.
The French company for its part has an agreement with Korea Gas Corp. to sell 2 MTPA of Ichthys LNG until 2031.
Engineers
Onshore engineering work is being undertaken by the JKC Joint Venture, comprising JGC Corp. and Chiyoda Corp. of Japan, and KBR of the US, the most experienced and respected companies in the LNG engineering business.
The Ichthys project has the potential significantly to boost Australia's standing as a major energy supplier, and represents Japan's single biggest financial investment in the country and the first Australian Japanese-operated LNG project.
The Ichthys project will help total exports of Australia's booming LNG industry to around 80 million tonnes per annum before 2020 to overtake current World No. 1 Qatar, which has an export capacity of 77 MTPA.
However, Inpex has faced sharp increases in the cost of the project from its original estimate of $20 billion.
But all major hurdles to the FID were being overcome, spurred by Japan’s growing need for LNG exports over the longer term as it seeks to cut the cost of spot cargoes and short-term supplies.
Lessons
While, the delayed Pluto LNG project in Western Australia is losing some of its shine for Woodside Petroleum because of cost over-runs and high expenses caused by delays before its scheduled entry into commercial operation at the end of the first quarter of 2012, Ichthys is starting out with a sense of optimism and mission from management.
The complexity and scale of the Gorgon LNG venture led by Chevron Corp. is unprecedented and technically and environmentally challenging, with the plant being built on Barrow Island, which is a Class A nature reserve because of its rare fauna and flora.
Gorgon will also position Australia as a world leader in commercial-scale CO2-injection technology as it is planned to inject and permanently store about 2 trillion cubic feet of CO2 more than 8,200 feet (2,500m) beneath Barrow’s surface, four times more CO2 than any previous project.
Compared to Gorgon LNG, the Ichthys LNG project is less complex but still a challenge, as is any venture bringing hydrocarbons from deep-sea to an onshore processing plant.
Ichthys received environmental approval from Australia's federal government in June 2011 and Inpex and Total are confident they have everything in place.
Capacity
Recent go-aheads for several rival developments in Australia are pushing up demand for skilled engineers and project workforces, raising concerns about potential delays and cost overruns amid the over-riding gloom in global financial markets.
Inpex and Total have been targeting 2016 as the date for the first cargo to be shipped from Darwin, which already hosts the ConocoPhillips-run Darwin LNG plant, in which Total also has a stake.
Toshiaki Kitamura, President and Chief Executive of Inpex, said the company’s LNG activities have taken on greater significance.
“Since the earthquake, I have become even more aware of the importance of our company’s role in providing a stable and efficient supply of energy.
“During the oil crisis in the 1970s in Japan, I witnessed the disturbance to the lives of people caused by the energy shortage.
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Engineering plan agreed by Inpex, Total and the contractors to bring feed-gas ashore for the Ichthys LNG project |
Optimal
“Looking back on my first-hand experiences during that oil crisis and the recent earthquake, it is my belief that in achieving an optimal mix of energy sources, the most important factor is security, followed by supply stability, economic rationality and environmental considerations,” said Kitamura.
“In reviewing the optimal mix of energy sources after the impact of the earthquake, it is clear that the comparative importance of renewable energy sources such as solar power will increase in the long term, but in the short to medium term fossil fuels, such as oil, coal and natural gas, will continue to play a major role, in particular, natural gas due to environmental considerations,” he added.
“Demand for natural gas and LNG, in particular, is expected to grow broadly due to its superiority over oil and coal in terms of price and environment,” he said.
Feed-gas from the Ichthys Field will undergo preliminary processing offshore to remove water and raw liquids, including condensate.
The gas will then be exported to the onshore processing facilities in the Darwin subsea pipeline.
Expansion?
The Ichthys project will initially produce more than 8 million tonnes of LNG per annum, about 1.6 million tonnes of LPG per annum and up to 100,000 barrels of condensate per day at peak.
The Blaydin Point site has the capacity to support two initial LNG Trains, with an opportunity for additional Trains to accommodate future expansion. The construction checklist is:
- The two liquefaction Trains
- LPG and condensate processing plants
- Storage tanks for LNG, LPG and condensate
- Administration facilities
- Utilities and services
- Power generation infrastructure
- Product offloading jetty.
The Offshore FEED will involve engineering work for the semi-submersible Central Processing Facility (CPF); the Floating Production Storage and Offloading (FPSO) unit for condensate treatment and storage; umbilicals, risers and flowlines; the pipeline to the liquefaction plant at Darwin.
Workforce
More than 2,000 people will be required in Darwin during the peak of the project’s construction phase, and a full-time workforce of around 300 will be needed to maintain and operate the onshore facilities, over the 40-year life of the project.
Inpex has also worked with the Northern Territory Government to prepare an Australian Industry Participation Plan, including opportunities for Indigenous employment and training.
Australian engineering companies are among the world leaders anyway in LNG and offshore hydrocarbon project development.
A case in point is Australia’s Clough Ltd. It is receiving an offshore contract valued in excess of A$250 million along with French company DORIS.
The Clough-DORIS joint venture, or CDJV, will provide offshore integrated project management support services, or IPMS, for Ichthys.
Integrated
That contract includes overseeing, in an integrated team with Inpex, the detailed engineering design, procurement, fabrication, at-shore commissioning, tow to site, and offshore hook-up of the CPF and the FPSO for the project.
It is anticipated that the CDJV team will grow to around 300 personnel during the fabrication phase of the project.
Offshore FEED work is additionally being undertaken by Amec Engineering, based in the UK, as the lead contractor, with support from sub-contractors Aker Solutions and JP Kenny.
Australia currently has existing LNG export capacity of 19.8 MTPA and another 52.6 MTPA of capacity under construction, and more planned.
“The safety of all those associated with our business and protection of the environment remain our primary focus in designing Ichthys LNG,” Inpex said.
Measures
“In responding to submissions received on the Draft EIS, we have revisited key elements of the project to ensure we have committed to the best outcomes for the community,” the company added.
Changes made as a result of this process include:
- Plans to remove the ridge of hard rock blocking the proposed shipping channel in the East Arm of Darwin Harbour using new dredging technology that eliminates the need for marine blasting.
- Reducing the overall dredge volume by 1 million cubic metres. Dredging will be undertaken over a longer time period, combined with techniques that reduce potential sedimentation in sensitive areas.
Support role
Inpex also said the project planned to support savannah fire-management projects in the Northern Territory, designed to partially offset greenhouse gas emissions.
“Fire management has been identified by the Northern Territory Government as a real opportunity for emission reductions and biodiversity protection,” the company said. “By working with the traditional owners, fire management initiatives also offer significant opportunities for Aboriginal economic development.”
The project has also committed to a number of long-term research programmes, including into understanding better the numbers and habits of coastal dolphins, extensive water-quality monitoring, and further investigations into harbour ecosystems.
New studies of the impact of sediment loads on barramundi and mud crabs show no impacts are expected on recreational fisheries in Darwin Harbour and Shoal Bay, Inpex said.
“We will continue to work hard to ensure the Ichthys LNG project delivers substantial economic and social benefits to the Northern Territory and Australia without compromising excellence in environmental stewardship,” the Japanese company stated.
Patience
Inpex has already demonstrated its patience with a project that sprung from its initial entry into the Australian market in an open bid conducted by the Federal Government for the WA- 285-P block, located off the coast of Western Australia about 200km from the Kimberley region.
“In August 1998 we acquired the exploration permit for this block. In the first drilling campaign, three exploratory wells were drilled and discovered the presence of gas and condensate from March 2000.
“We then conducted a 3-D seismic survey. A second drilling campaign began in 2003, and three exploratory wells were drilled that resulted in confirmation of the extent of gas and condensate.
“Further wells were drilled beginning in 2007. Through these endeavours we confirmed sufficient recoverable reserves of gas and condensate for commercial development.
“We are now beginning detailed engineering work on both the onshore and offshore facilities, and equipment procurement and the construction of the LNG plant and other facilities.
“The target date for production start-up is still the fourth quarter of 2016,” it said.
The Ichthys venture has already been granted Major Project Facilitation status by the federal government. This status recognizes the fact that the project would contribute to the long-term economic development of Australia.
LNG Journal, Asia-Pacific Editor
