Darwin Seeks To Shed Frontier Image To Become World-Class LNG Export Hub

MELBOURNE/TOKYO, July 27 (Reuters) – Australia’s tropical city of Darwin wants to establish itself as a world-scale energy export hub, building on its closeness to demand centres in Asia and abundant nearby natural gas resources.

With the imminent start-up of Inpex Corp’s $40 billion Ichthys liquefied natural gas (LNG) project, the capital of the Northern Territory will be home to two LNG exporting facilities, with a total capacity of 12.6 million tonnes a year, including ConocoPhillips’ Darwin LNG plant that opened in 2006.

Darwin is poised to become the nucleus of the Northern Territory’s push to expand LNG exports by tapping 30 trillion cubic feet (Tcf) of gas offshore northern Australia. Perched at the top of the continent in a region known for saltwater crocodiles, Darwin is closer to Jakarta than Sydney.

The city will vie with projects from Alaska to Qatar that will beef up global LNG supply from 2022 onwards to meet growing demand in Asia, the world’s top consuming region.

“We have the gas, location and proximity to markets — whether it’s China, India, Japan or Indonesia,” said Paul Tyrrell, chairman of the Northern Territory Gas Taskforce, appointed to lead the region’s gas push.

Ichthys and Darwin LNG have the space to add five more LNG production units, know as trains, with a feasibility study at Darwin LNG suggesting another unit producing 4 million tonnes per year (tpy) of the fuel would be optimal.

Darwin LNG’s expansion would build off existing facilities, an advantage over the $200 billion of projects built from scratch in Australia over the past decade, said Graeme Bethune, chief executive of advisory firm EnergyQuest.

“There’s a reasonable chance an expansion decision could be made within the next five years,” Bethune said.

A second train at Darwin LNG would raise the Northern Territory’s LNG output to nearly 17 million tpy, equivalent to Indonesia, the world’s fifth-biggest exporter, according to data from the International Gas Union (IGU).

“We remain open to all options” for a potential expansion of Darwin LNG, a spokesman for ConocoPhillips Australia said, adding the company wanted to get the most out of the region’s reserves.

But first Conoco wants to secure gas to keep the original train filled when supply from its current source, the Bayu Undan field in the Timor Sea north of Darwin, runs out in 2023.

Infrastructure In Place

Conoco and its partners Santos and South Korea’s SK E&S have agreed to conduct preliminary design work to develop the Barossa field, 300 kilometres (188 miles) north of Darwin, to supply Darwin LNG.

“Darwin excites the heck out of me,” said Santos Chief Executive Kevin Gallagher at an industry conference in May.

Santos also has stakes in the Petrel Tern and Crown Lasseter fields that could also feed Darwin LNG.

Other reserves offshore Darwin are Evans Shoal, operated by Italy’s Eni, Greater Sunrise, operated by Woodside Petroleum, Cash Maple, operated by Thailand’s PTTEP , and ConocoPhillips’ Poseidon.

Inpex would only make a decision to expand exports after getting the initial Ichthys trains up and running after the project has missed several deadlines for first production.

“We have to produce 8.9 million tonnes first and then examine whether there is demand. At this stage, there is no concrete plan,” Inpex Chief Executive Officer Takayuki Ueda told Reuters earlier this month.

Still, Ueda said the infrastructure for an expansion is in place.

“We can develop new gas fields nearby and send gas through the current pipeline,” he said.

In addition to the offshore gas, the Northern Territory holds 200 Tcf of onshore shale gas resources that could fuel manufacturing around Darwin.

The territory lifted a ban on fracking in April and is developing strict environmental rule before exploration starts. However, environmental groups, farmers and indigenous communities are concerned about damage to water supplies.

“We don’t think the government here is up to the task of managing this high risk industry,” said Lauren Mellor, a spokeswoman for the Frack Free NT Alliance.

(Reporting by Sonali Paul and Osamu Tsukimori; Editing by Henning Gloystein and Christian Schmollinger)

 

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