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Pipelines Vs. LNG

Introduction
The Northwest Shelf
The Tradeoff
Costs

 

 

"Gas pipelines are capital intensive and incur relatively low operating costs."
"State of the Australian Energy Market 2008,"
Australian Energy Regulator

 

"It is clear that new Australian LNG developments will face an additional hurdle in achieving final investment decision, due to the costs of the Carbon Pollution Reduction Scheme."
"The CPRS and the LNG industry: An assessment of the impacts,"
ACIL Tasman,
2008

"The Carbon Pollution Reduction Scheme introduces considerable carbon price uncertainty, which will compound other uncertainties relating to LNG prices, capital expenditure and field
performance."
"The CPRS and the LNG industry: An assessment of the impacts,"
ACIL Tasman,
2008

 

"We need world-class infrastructure to move Australia to a more diverse, competitive and sustainable economy that creates social, economic and environmental benefits in the long term."
Kevin Rudd
Prime Minister,
Australia

 

"We now have the opportunity of getting investments of up to A$100 billion in the LNG sector."
Martin Ferguson,
Energy Minister,
Australia

"In the absence of foul play, LNG is quite safe."
"Liquefied Natural Gas: A
Potential Terrorist Target?"US Council on Foreign Relations,
2006

 

"Use of existing natural gas pipelines for the delivery of pure hydrogen or mixtures up to 20-30% hydrogen is a possibility, particularly in the transitive stages of a hydrogen economy"
National Hydrogen Study,
Australia

 

"Domestic gas prices can be expected to rise rapidly towards export parity and remain at that level over the longer term."
Garnaut Climate Reivew

 

Natural Gas Pipelines vs. LNG

Natural gas is the near term low-emission fuel of choice. Massive investment is now flowing into the industry. However, hasty thinking could lead to suboptimal investment.

That's because Liquefied Natural Gas (LNG) may not be the greenest way to get Australia's natural gas to consumers in Asia. This matters because tens of billions of dollars worth of LNG projects are slated for Northern Australia, Papua New Guinea and even, possibly, East Timor.

Almost a dozen LNG projects are planned for northern Australia, PNG and Indonesia	It's the largest number of planned LNG plants anywhere in the world
	Source: Global LNG Info
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Even in today's gloablsed markets, natural gas remains a very regional commodity, with dramatic price differences occurring in different regions. In a well-functioning market, arbitrage would remove this. But lack of frictionless trade in natural gas between markets is causing supply and demand distortions reflected in a widely varying global prices. This is an inefficiency that costs money.

Prices around the world vary hugely, a sign of fundamental market distortion due to lack of inter-regional trading	At present, Asia is primarily served by LNG
Source: EnergyQuest	Source: EnergyQuest/BP
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Removing these distortions at a time when a large amount of new capacity is coming on line from places like Australia is in the interests of all market players. Given that Austraila's natural gas resources are spread over a wide area, this complicates decisions regarding where to put critical infrastructure such as LNG plants.

A pipeline infrastructure running through the region and enabling projects to 'tap into' may be the most sensible, long-term way to develop this resource.

Australia has huge natural gas resources off its Northwest coast	These are clustered between Port Hedland and Darwin. Infrastructure is rudimentary at best with the exceptoin of a peiplie from Darwin to the Surnise field
Source: Santos
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The current plan is for gas from these fields to be pumped to land based LNG plants	and then shipped by special tanker to Asian markets by ship
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DESERTEC argues that pipelines would be a more efficient route to market...	..particularly if HVDC cables are laid alongside

Once put in place, infrastructure lasts 35-45 years. Rather than building project specific infrastructure with a specialised purpose and limited flexibility, flexible infrastructure that can be repurposed will lower costs, reduce investment risk and run less chance of becoming 'stranded infrastructure.'

Already, problems associated with the inflexibility of LNG infrastructure are surfacing,

Regarding the Browse field in Australia's Northwest Shelf, 50%-shareholder Woodside wants to build and LNG train at nearby James Price Point, but the venture's other partners want to build the LNG plant further south at Karratha so it has the flexibility to take Northwest Shelf gas as well, depending on how long those wells last.

Either decision leaves a hostage to fortune. A pipeline infrastructure running through the region will allow interconnection whenever projects are ready reducing forecast risk.

Government assistance creates another problem. Woodside has been vocal about the need for the LNG industry to be excused from carbon trading, since natural gas is a clean-burning fuel. But that's disengenuous. Compressing natural gas into LNG consumes huge amounts of energy which adds to greenhouse gas emissions -- reducing LNG's environmental benefits.

Shielding the natural gas industry from carbon emission marketplace discipline may result in distorted price signals leading to suboptimal investment -- such as individual LNG plants rather than regional pipelines.

In a worst case scenario, industry lobbying could result in the LNG industry excusal from carbon trading today so it can make environmentally-detrimental LNG investments that will create industrial constituencies crying out for government 'transition assistance' when carbon pricing renders the initial investments uneconomic.

Given the above, the economic question regarding LNG is whether Asia's energy system should be optimised for the benefit of economic efficiency or optimised for the benefit of rent-seeking industries.

A pipeline system eliminates this potential 'stranded infrastructure' problem by through creating a network reconfigurable to the changing geography of productive natural gas fields as well as adaptable to carrying future fuels like hydrogen.

Asia's economy is growing rapidly. China is becoming a major industrial power. Accurately forecasting Asia's energy needs 10, 20 or 30 years hence is little more than guesswork. Present forecasts estimate China's natural gas consumption will triple by 2020 to 200 billion cubic meters (bcm) from its current level of around 75 bcm.

A flexible infrastructure enables market forces to respond to changing supply/demand dynamics. It means fewer overall resources need to be developed. That's good for the environment.

A natural gas pipeline system stretching from Australia to China would not only create a reliable, multi-path route to market for Australian natural gas, but also become part of a permanent regional energy backbone if coupled with High Voltage Direct Current power lines carrying electricity.

A pipeline could combine Australian Northwest Shelf and Queensland gas with Southeast Asian supplies for China

 

A pipeline stretching from Darwin to Guangdong would traverse about 6,000 kilometers.

Along the way, it could also allow carry Indonesia and Brunei natural gas supplies to Northeast Asia. It could also spur creation of a feeder system of regional and municipal pipelines. These could deepen the penetration of natural gas into Asian markets.

This would reduce dependence on coal-fired power. It would increase supplies of rapid-response, load-balancing natural gas to local electricity grids. It would broaden the use of a cleaner fuel than petrol for vehicles. And it would create a future-proof infrastructure adaptable to carrying other energy commodities as the technology develops, like hydrogen.

The Templates

Europe provides a ready template for a Pan-Asian natural gas pipeline. Keen to diversify its natural gas supplies and prevent overdependence on Russia, the European Union encouraging development of natural gas pipelines carrying Central Asian natural gas supplies to Europe.

More on this can be read at Comparable Projects.

White Stream is being built to connect Europe to supplies equal to roughly half those of Russia	A Pan Asian Energy System would connect China, Japan and South Korea to supplies equal to roughly one-third of Russia's
Source: "The White Stream gas transportation project," White Stream	Source: Santos
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Additional Reading:

BASF, Perma-Pipe collaborate on world's deepest subsea insulated flowline
Na Kika Oil and Gas Fields, Gulf of Mexico, USA
Australia NW shelf Gas find boosts case for ocean platform
Woodside: Australia carbon plan may double costs
Gorgon is just the start of a new flow of revenue
Gorgon, 20 burning questions