Market Overview

Green Light For $175 Million Gas Import Terminal

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Green Light For $175 Million Gas Import Terminal

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Government approval has been given for the construction of a $250 million (US$175 million) liquefied natural gas import terminal at Port Kembla, 44 miles to the south-south-west of Sydney, Australia.

It's somewhat ironic that Australia is in the middle of an LNG import terminal building boom as the country is one of the world's largest producers and exporters of liquefied natural gas.

In 2018 Australia exported about 68.6 million tons of LNG, according to the International Gas Union, in second place only to the Middle Eastern country of Qatar, which exported 78.7 million tons. A metric ton is equivalent to 2,204.6 U.S. pounds.

Australia may well top the world's largest exporter of gas, Qatar, as new LNG projects come online boosting earnings to more than A$50 billion (US$35 billion) and volumes to more than 82 million tons. Australia's federal Department of Industry expects Qatar's LNG export volumes to peak and stay unchanged for the next few years at the 77 million to 80 million tons a year mark.

That means Australia either now is, or shortly will be, the world's largest exporter of LNG by volume for at least the next five or six years.

According to the Department of Industry, Australia's major customers are Japan, which accounts for 45 percent of all of Australia's LNG export earnings; China at 33 percent; South Korea at 13 percent; and the rest of the world at nine percent.

Huge export volumes, mostly sold on the contract market, may be the reason for a shortage of gas for domestic Australian consumption. There have been widespread fears that export volumes have led to gas for consumption by domestic industry to become real expensive.

Australia's Energy Market Operator, a government body, commented in a recently released analysis of the Q4 2018 market that Q4 quarterly average spot gas prices were the highest on record in the state of Victoria and the city of Adelaide. They were the second-highest on record in Brisbane and Sydney.

"The increase in gas prices in AEMO-operated markets has been influenced by… record high daily pipeline deliveries to Curtis Island for LNG export (3,583 terajoules /day)", the AEMO said in its Quarterly Energy Dynamics report Q4-2018.

Australia's Federal Government has had to put in place a variety of measures to ensure there is no domestic gas shortfall.

Apart from export volumes causing a shortfall, there are a couple of other factors that could create a supply-demand gap. Although gas fields are being opened up around the country, and especially offshore, reserves in other parts of Australia, such as in Victoria, are drying up. Australia is also going to need more gas for domestic consumption as its ancient coal-fired power stations are starting to shutdown. The energy market operator has forecast that there will be a shortfall of gas by 2024 if there isn't a boost in supply for domestic consumption. It even raises the possibility that the domestic gas security mechanism could be triggered. That could result in restrictions on exports. If so, that could have implications for the international shipping markets.

The market operator has accordingly called for the creation of gas import terminals to prevent a gas shortage, which is exactly what's happening with terminal plans now afoot by Epik at Newcastle in New South Wales and by AGL at Crib Point in Victoria.

And now there will be another, this time by Australian Industrial Energy at Port Kembla.

The Port Kembla Gas Terminal has the ability to deliver up to 100 petajoules of gas a year.  A joule is a measurement of energy. One joule is the amount of energy it would take to raise a chocolate bar (assuming it weighs 3.53 ounces) directly upwards by 3.28 feet. If those numbers seem a bit random, it's because they're converted from round metric numbers (100 grams lifted one meter).

One petajoule is a huge amount of energy. It's the number "1" and 15 zeros i.e.  1,000,000,000,000,000 joules. And so 100 petajoules is the number one with 17 zeros. Now that's a lot of chocolate bars.

According to the federal Department of Energy's 2018 Australian Energy Statistics, the state of New South Wales consumes about 139.3 petajoules of gas each year. That means the proposed LNG import terminal can handle just under 72 percent of the state's gas requirements. The project proponent says that the terminal will also provide about ten to twelve days of natural gas storage.

Import gas will be sourced from suppliers worldwide, which incidentally raises the ironic possibility of Australian gas being sold back to Australia - the world's biggest gas exporter, and will be transported by liquefied natural gas carriers to Port Kembla. The project proponent envisages that there would be an LNG shipment every two to three weeks – so that's an extra 17 to 26 voyages that will be added to the world's annual LNG freight task.

The project will require sub-marine excavations, a new floating storage and re-gasification unit, new wharf facilities and new gas pipelines.

The terminal will be built within the existing industrial setting of a commercial port. Port Kembla today is primarily a coal export port. But it also handles the import of cars, grain exports, general cargo, break bulk and bulk liquids.

It's proposed by the company that the existing "Berth 101" will used for the LNG import terminal. That berth is at one end of what is essentially a large peninsula that shelters the inner harbor from the sea.  Berth 101 does not currently have a specific use and was last used for offloading material-handling equipment. Land nearby is used for sewerage treatment, heavy industry, port usage and coal exports. Residential properties are located about 1.25 miles distant.

The project will require a "floating storage and re-gasification unit" (a specialist ship, essentially) that will be moored at the berth. There are about 30 such units in operation around the world with another 70 or so on order, the project proponent says.

Typically, at an LNG export facility, the compound gas methane is progressively cooled under pressure to minus 260 Fahrenheit (minus 161 Celsius). At that point it liquefies and, provided it stays at the same temperature, it will stay liquid when the pressure is returned to normal. Liquefying the gas reduces its volume to one six hundredth of the original and that's why LNG is profitable to transport despite the huge upfront capital needed to build liquefaction facilities.

When the LNG carrier arrives at the import terminal, it pumps the LNG into the floating storage and re-gasification unit. When demand calls forth supply, the re-gasification unit uses seawater to warm the LNG, which changes state back into a gas which can be pumped into the local pipe network.

Sub-marine works will require the excavation and dredging of about 620,000 cubic meters of material to deepen and expand the existing berth pocket for the re-gasification unit and to create a new berth pocket for the LNG ships that will be moored alongside. The berth depths will be set at minus 14 meters (minus 46 feet). As space in Port Kembla's Inner Harbor is limited, part of the existing land occupied by the wharf will have to be excavated to keep and maintain about 50 meters (164 feet) of separation between the Inner Harbor underwater turning circle and any moored LNG-carrying ships.

The wharf will be 40 meters (131 feet) wide and approximately five meters (16 feet) above sea level. It is possible, however, that an island berth may be considered but that is subject to advice from the port leaseholder and operator, NSW Ports. Steel pilings of 1,500 diameter will be sunk into the bedrock to at least minus 22 meters and the depth of the rock sockets is yet to be determined.

On-wharf works will include quick release hooks, dolphin moorings, fenders and pavements as may be expected for a project of this nature. Port infrastructure will include high pressure gas interconnectors and ancillary facilities. A new gas transmission network will be built extending from the berth and connecting to the local spur of the Eastern Gas Pipeline. According to local gas company Jemena the pipeline is a "key supply artery" between the gas fields in the state of Victoria and towns and cities of New South Wales. The pipeline connects to the cities of Sydney and Canberra, and to the towns of Wollongong, Bairnsdale, Cooma, Nowra and Bomaderry.

The Port Kembla project is forecast to create 130 to 150 jobs during construction and a further 40 to 50 roles. The first gas to market is expected in late 2020.

Image sourced from Pixabay

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