The three LNG plants on Curtis Island near Gladstone in Queensland are unlikely to ever fulfill their combined nameplate capacity of 25.3 million tonnes/year, according to a new study by Adelaide-based energy analyst EnergyQuest.
The problem is a shortage of coal seam gas (CSG) reserves on which they rely. The consultancy’s report indicates that the supply concerns come from an emerging reliance on feedstock based on gas reserve estimates that could fall well below delivery expectations.
The three plants, each with two LNG trains, are the world’s first LNG producers to use CSG rather than gas from conventional sources. The CSG is sourced from the Surat and Bowen basins in southeast Queensland, however the wells supplying the gas have been less productive than expected.
Consequently the three plants have been running below capacity, operating at an average of 82% during 2018.
Queensland Curtis LNG (QCLNG) operated by Royal Dutch Shell PLC, averaged 87% capacity last year, while Gladstone LNG (GLNG) operated by Santos Ltd., only averaged 65% according to EnergyQuest Chief Executive Officer Graeme Bethune.
“The emerging and critical shortages are resulting from the fact that the CSG-LNG projects were sanctioned on ambitious estimates of 2P reserves, not proven (1P) reserves that underpin conventional LNG projects,” Bethune said. “Building six LNG trains in Queensland using CSG was bold and visionary, but ultimately a bridge too far,” he said.
The consultancy has made a detailed study of government and company drilling and production data and reserves booked for CSG prospects and permits. It found that only 56% of booked proved and probable reserves have shown commercial productivity.
Bethune forecasts that by 2025 at least two trains will have to be shut down to keep four trains running at full capacity. This will reduce medium-term exports to about 17 million tpy, down from 21 million tpy in 2018. About 70% of the LNG exports go to China, 16% to South Korea, and 9% to Japan.
Bethune said the supply problem has been exacerbated by the pressure on the producers to increase gas sales into the Eastern Australian domestic market to shore up falling supply from aging conventional gas fields, particularly offshore. Not helping the shortage is the attitude of some states, notably New South Wales and Victoria, which restrict onshore exploration drilling. The three CSG projects in Queensland supplied about 25% of Australia’s eastern demand last calendar year.
EnergyQuest’s full 130-page report will be released next week.
