Australia - the new LNG powerhouse: updates and lessons learned
Apr. 16, 2016
Andrew Smith, Shell Country Chair Australia and New Zealand talks about collaboration and innovation in Australia's LNG sector.
Thank you Graham. To my fellow panellists, ladies and gentlemen, thank you for the opportunity to speak here this afternoon.
I’d like to begin by acknowledging the traditional owners and custodians of the land on which we are meeting today. I would also like to pay my respects to the Elders past and present.
The final session of a week long conference is not the easiest time slot. In fact it reminds a great deal of a Friday afternoon at high school. So I have decided to start by channelling my wife, who is a school teacher, and use the time tested method to maintain the attention of teenagers - showing a video.
Rather than simply a form of electronic babysitting, this video has been prepared to showcase the theme that I would like to explore today - the theme of collaboration. And this is instance:
- collaboration in the project development of Shell’s Prelude floating LNG project; and also
- collaboration in reducing costs on the QCLNG project, the world’s first CSG to LNG venture.
I hope you enjoyed that, and I am sure you would agree that both were excellent examples of innovation in the LNG sector.
I will come back to those examples shortly, but first I would like to make some observations on the theme of Australia as an LNG powerhouse and the lessons we have learned on that road.
Firstly it is clear that we have, as an industry, achieved a great deal. From the humble beginnings of government subsidised exploration in Bass Strait during the Menzies era, to a world scale gas export industry boasting 80 million tonnes per annum of liquefaction capacity, we should all be proud as Australians of what we have achieved.
But neither should we forget our role in Australian society. As the developers of resources owned by the Australian people, our focus must be on sustainable resource development that delivers value to our most important stakeholders. And herein lies both the challenge we face today, and the most valuable lesson I have learned as a leader in this industry.
My personal journey to this stage saw me return to work in Australia after spending over a decade abroad in various roles for Shell. The nation I returned to in 2010 was a very different place to the one I grew up in. It was a nation transformed. From a small protected economy dependent on agriculture and manufacturing, Australia had blossomed into the twelfth largest economy on earth. An economy powered by a diversified industrial base, where booming industries like our own added to the seemingly inevitable wealth trajectories of her citizens.
It recently occurred to me that graduate recruits into my own company have no memories of anything other than a growing economy. The mining boom made everything appear easy. Twenty-two years of uninterrupted economic growth created complacency, and the view that good times were here to stay.
But recent economic head winds across all sectors of our economy have shown Australians that we need to stand up and compete for our place in the world. Because if we don’t, we simply won’t attract the investment that creates quality jobs for young Australians - particularly outside of our major capital cities.
And herein lies the greatest lesson for me in Australia’s growth to becoming an LNG powerhouse. For too long we believed that our success was assured by the size of natural resource deposits, and our proximity to growing Asian markets.
As an industry we must be relentless in seeking to be more efficient in our own operations. Efficiency, both in terms of labour and technological innovation, is something that must be sought at all levels of our businesses. This drive for efficiency is particularly important in our current high cost environment, as we strive to develop some of the most remote gas reserves on the planet.
If the LNG sector is to continue to make a sustainable contribution to Australia’s economic growth it must offer investors greater value, and under our rigid workplace framework and low inflation environment, this will only be achieved through efficiencies delivered by innovation.
But perhaps of greater significance, we must put collaboration ahead of our industry’s natural desire to immortalise our own activities in concrete and steel. Australia’s LNG industry will deliver greater economic value and better international competitiveness when we get better at the sharing of infrastructure on commercial terms.
As industry leaders we must come to terms with the fact that local opportunities exist in a world with constrained capital - particularly in a period of depressed commodity prices - and collaboration will be key to continued growth.
Example 1 - North West Shelf
Fortunately we do not have to look far for excellent examples of collaboration within our industry.
Recently I found myself musing about how far we have come as an industry. In a discussion with colleagues I recalled watching 60 minutes in my suburban Melbourne home in the 1980s and seeing the advertisements about the North West Shelf. I recall the phrase “the loneliest gas in the world”.
As participants in an increasingly mature Australian LNG industry, with cargoes sailing from Curtis Island and Gorgon ramping up production, it would be easy to overlook the contribution of six partners in the early 1980s who overcame seemingly insurmountable obstacles.
In the early 1980s the partners in the North West Shelf Venture were struggling to find an economic development model for the project. At that time the LNG plant design included water cooling and steam driven turbines. But this development option was prohibitively expensive - particularly in such a remote location.
It was in the face of these obstacles, as is so often the case, that collaboration became the essential ingredient to progress. Collaboration between Woodside as operator, Shell as a business with significant LNG design experience and four other partners with capital and vision.
Through its international network of LNG engineers, a Shell team was able to redesign the plant to include the world’s first air cooled gas turbine driven LNG plant. This innovation - achieved through the collaboration of an international design team - allowed the JV to reduce the capex required for construction by around 20 per cent.
A final investment decision was taken two years later, and the long term contribution of this project to Australian economy is still being felt.
Example 2 – Prelude
As proud partners in the North West Shelf JV, Shell fully understands the project’s remote location, about 135 kilometres north west of Karratha. But if that is “the world’s loneliest gas”, I am not sure how I would describe Prelude and the challenges Shell faced in developing these fields.
The field that will see the world’s first FLNG project are located in the Browse Basin, and the nearest port is approximately 475 kilometres away in Broome. Development of gas in this truly isolated location called on the same ‘can do’ Australian attitude as the North West Venture showed in the 1980s - and more than a little innovation.
The Prelude development model is predicated on the realisation that construction of a pipeline across more than 450 kilometres of sea bed was cost prohibitive. So if the pipeline was too expensive to build - why build it all? Rather than pipe the gas to an onshore liquefaction facility, why not apply an innovative development model. Rather than take the gas to a processing facility, why not take the processing facility to the gas.
Much more than attitude and innovation, Prelude once again called on our industry to undertake meaningful collaboration. Collaboration that not only involved several companies in our sector, but collaboration across the globe.
The Prelude FLNG facility is currently under construction in South Korea – in one of the only yards in the world big enough to build a facility of this size. Shell teams in both Korea and Australia worked closely with:
- A team in the Dubai Dry Docks, where construction of the Turret Mooring Systems took place before it was transported to Geoje, where it was installed into the hull before it was floated.
- A team in Malaysia where Prelude’s subsea infrastructure was designed and tested.
- Teams in Singapore, where work continues on the vital control systems that will manage all the processes on the floater.
- In France where Shell conducted design and testing on the loading arms.
- And in Spain where fabrication continues on the huge chain links for the mooring chains.
Prelude is not the first international project Australians will participate in, but is a great example of what we can achieve through collaboration in the global economy. Prelude is a good story for Shell and a great project for Australia. Against the backdrop of our economy in transition, the development of this national resource should reinforce our desire to both innovate and collaborate.
Example 3 – QCLNG
The final example I would like to discuss involves using innovative collaboration during the operations phase to bring down costs.
At Shell we are very proud of what our new colleagues at QGC and QCLNG have been able to achieve in bringing the world’s first LNG from coal seam gas to market. They have delivered a project that worked through a raft of technical and non-technical challenges, in such an efficient manner that by February this year when they joined Shell, they had already delivered 100 export cargoes of LNG to customers.
This is an incredible achievement, when one considers this project received a positive FID decision several months after competing Australian projects that remain in the construction phase.
One of the unique challenges with a CSG to LNG project, is the higher ongoing capital cost required to develop and maintain upstream infrastructure. By way of example, while Shell’s Prelude project will require seven wells to produce the necessary hydrocarbons, QCLNG will require more than four thousand wells to produce roughly twice as much gas.
And of course there is the added dimension of location. Most of QCLNG’s wells are located on farm land in Queensland’s Surat Basin. Now as all Australians would know, a farm is more than simply a business, it is a family’s backyard. So the business has faced the challenge of covering huge distances to maintain wells and associated infrastructure – all while trying to reduce disruption on predominantly family owned properties.
In order to reduce costs and impact on communities, since 2014 QGC has successfully trialled the use of remotely piloted small-scale aircraft to inspect wells, pipelines and processing facilities - by using drone technology to take still images and video. Prior to applying this innovative thinking, QGC’s operations staff conducted these inspections after travelling huge distances by truck or by using expensive piloted aircraft. QGC commenced using the remotely piloted aircraft in March this year as part of normal operations.
In an example of collaboration across industry service providers, these unmanned aircraft are owned and operated by a specialist subsidiary of the Boeing Group, Insitu Pacific Pty Limited, under contract to QGC.
As one would expect, this was not a simple process. Insitu Pacific needed to work closely with QGC to navigate the process of receiving Civil Aviation Safety Authority approvals that enabled the drones to be used permanently in QGC operations. A process that was complicated by the fact that the use of beyond-visual-line-of-sight control systems by QGC is a first for drones in Australia.
This innovative solution will improve safety by reducing the need for driving and use of helicopters and fixed-wing aircraft. Over time and as we progressively introduce this technology, it will reduce inconvenience to landowners by cutting the number of land access requests, and the cost to QGC, associated with regular on-the-ground visual inspections.
QGC has a comprehensive stakeholder management plan in place to mitigate risks associated with community privacy and maximise efficiency opportunities. Insitu Pacific is negotiating for an Advance Queensland grant to support continued R&D amid hopes that Queensland could lead the world in industrial applications of this technology.
As we move towards the close of this conference, and a week of celebrating how far our industry has come, I can’t help but feel the greatest lessons are in fact the challenges of tomorrow. If we are to move from a construction boom in LNG, to a sustainable and successful industry, we must be clever in how we collaborate across the industry – all while driving greater innovation.
The most important challenge we face today is to reduce costs and increase the efficiency of our operations. And only then, once we are successful, will we be able to maintain our licence to operate and attract the capital to create a truly successful industry.