How to lose friends and alienate people (or, A very short history of the Australian gas industry): Part 2

This is the second post in a four-part series on the history of Australia’s gas industry.

2006: Starting a liquefied gas industry

The idea of selling gas overseas was not a new one. Russia had been exporting gas to Europe for decades via an extensive pipeline network. But Australia is an isolated island – an international pipeline was not possible. But commercial development of liquefied gas export facilities in the United States in the 1960s and 1970s pioneered another way of exporting gas.

Liquefied natural gas or LNG (not to be confused with LPG) is natural/mains gas that has been converted into a liquid (another example of very self-explanatory energy jargon!). This process occurs in liquefied gas export facilities, that use large amounts of energy to cool gas to negative 162 degrees Celsius. This enables it to be shipped in high density in special tankers, which transport the now-liquid gas to other countries. When the liquefied gas arrives at its destination, it is converted back into a gaseous form so it can be burnt.

Australia’s first liquefied gas export facility opened in Western Australia in 1989 supplied by gas from the offshore Carnarvon Basin in the north-west of the state. This huge project was one of the biggest resources projects of any kind in the world, developed by some of the world’s biggest energy companies: BHP, BP, Chevron, Shell, Woodside, Mitsubishi and Mitsui & Co.

A second export facility opened in 2006 in Darwin, aptly named Darwin LNG, supplied by the offshore Bayu-Undan gas field. This project was dominated by Santos, with Eni, Inpex, JERA and Tokyo Gas all taking smaller stakes. 

If the names of these companies sound familiar, it is because many of Australia’s most powerful gas companies were involved in one of these two early gas export projects – it made them very rich. Woodside pioneered gas discoveries in WA’s Carnarvon Basin, Santos were major producers in the Cooper Basin of South Australia and Queensland, and Victoria’s Gippsland Basin was dominated by ExxonMobil and BHP. Between them, these are still the major players in Australia’s gas industry today.

Back to the east coast.

With easy access to coal seam gas in Queensland, gas companies began to advocate for the development of gas export facilities in the state. To justify the tens of billions of dollars it would cost to build an export facility, gas companies needed a few things: a large supply of proven gas reserves, an even larger supply of prospective gas reserves to feed the facility for decades into the future, big customers to sign long-term contracts to guarantee revenue and regulatory approvals.

Gas companies had done a lot of exploration in the Surat Basin (southern Queensland) and the Bowen Basin (central Queensland) and believed there was more than enough gas here to power the export facilities long into the future, even if not all this gas was commercially viable to produce yet. The Queensland Government had been giving the gas companies free reign across the state and they expected this open access to continue. There was also substantial exploration going on in NSW – maybe one day its gas could be exported too.

Next, the companies went touring Asia to sign up customers with offtake agreements. These customers were primarily located in Japan, China and South Korea, with some of these companies’ buying stakes in the export facilities.

Finally, the gas companies turned to the Queensland and Federal Government to get approvals, which were swiftly granted. This included the Queensland Government rejecting a recommendation to require gas producers to set aside a portion of their gas for domestic supply, a decision that would have major repercussions in the future.

But what about Australia’s gas needs? No problem, the gas companies assured us. Australia was awash with gas and if anything, linking Australia to the export market would encourage more investment in domestic gas supply (so the argument went).

Rather than collaborating to build one or two facilities, each gas company wanted to develop their own facility, resulting in seven different export facility proposals! Four of these projects eventually fell over, with the three remaining competing groups all racing to get their facility built first. These groups were Queensland Curtis LNG (operated by Shell, formerly BG Group), Santos GLNG (operated by Santos with Petronas, Total, and Kogas) and Australia Pacific LNG (operated by Origin Energy with ConocoPhillips and Sinopec). The three facilities were all located immediately next to each other on Curtis Island – see the photo below.

So in the late 2000s and early 2010s, billions of dollars were invested into three new export facilities and new gas field developments across Queensland’s Surat and Bowen Basins to supply them. This vertical integration – whereby gas producers and exporters were often the same companies – would also have serious implications for competition down the track.

Everything was all set for Australia’s east coast gas export boom.

In 2014, the gas fields started to come online, marking the end of era: Victoria, for the first time since gas production began in 1968, was overtaken by Queensland as the east coast’s largest gas producer. Gas production in Queensland had increased from 8.5bcm to 12.5bcm in just one year. But this was just the beginning.

In January 2015, Shell’s Queensland Curtis LNG sent off its first shipment of liquefied gas.

In October, Santos’ GLNG followed with its first shipment.

And in January 2016, Origin’s Australia Pacific LNG sent its first shipment.

By 2016, Queensland gas production had exploded to 36.9bcm – a mind-blowing four-fold increase in just three years. Queensland was now responsible for 72% of the east coast’s entire gas production, producing three times more gas than Victoria.

The gas companies’ dreams had come true. Queensland was now a globally significant exporter of liquefied gas.

But for the rest of us, this was when the nightmare began.