Tomas: The points that you made about recent progress are positive signs that the project is indeed moving forward.
The confidence of the Chevron project manager in an autumn contract date is good news. The fact that there is a specific target implies that they see light at the end of the tedious gas project development tunnel. The fact that the pipeline project is one of Chevron's 5 global top priority projects is also important since it will take great efforts and constant oversight by a full-time team to break through the enormous inertia that always seems to surround the signing of a long-term gas supply contract. The fact that there is an active tendering process ongoing for the pipeline is even more of an indication of real progress.
Please remember, however, that there are typically many different stages in an engineering and construction tender process. It would be useful to know what phase of the bidding process Chevron is in right now? For example:
a) Feasibility Study Phase -- the very beginning of the engineering phase, purely scoping work, fixed price engineering contract, no commitment from the operator to proceed with construction.
b) Budgetary Pricing Phase -- still very early, with no commitment to proceed on the part of the operator.
c) Pre-qualification Phase -- a little closer to a real live project, but still no commitment to proceed.
d) Contract Tender Phase -- now we're gettin down to serious business, but timing will depend on the nature of the contract terms, i.e., a fixed price contract will require lots of clarifications spanning potentially several months, after which the operator may decide to re-bid the entire contract (if unsatisfied with initial bids) or simply cancel the tender (if gas marketing plans haven't progressed).
If you can find out how much flexibility Chevron has reserved for themselves during and after the tendering process, then you can shed some light on the potential timing of the pipeline contract award. IMHO, I would be very surprised if Chevron had committed themselves to awarding a pipeline construction contract before their marketing team actually nailed down a firm gas purchase agreement.
FWIW, IPC's annual report states quite clearly that one of the main hurdles of the project is the market size in Queensland, which is not quite large enough to justify the pipeline costs. Hence the need for the agreement with Chevron. Chevron is pursuing the development of the pipeline on a basis of open access to the gas market in Queensland. Principles of open access will be applied to all gas transportation through the system. IPC's plans are based upon the belief that combining the gas resources of the PNG Highlands with those of the Pandora field will enlarge the gas market in Queensland.
I personally have a hard time buying the concept that increasing the gas supply will somehow create more gas demand in the marketplace. Gas demand is not typically very elastic (i.e., it does not respond dramatically to price fluctuations). The exception to the rule might possibly be if the customers (i.e., industrial or power station users) have the ability to switch between natural gas and liquid fuels (e.g., No. 6 fuel oil). If the potential natural gas market in Queensland is currently being supplied by fuel oil, then there may be good reason to combine gas supply sources though one pipeline. The idea would be to take advantage of pipeline economies of scale, thereby reducing the amount of fixed costs allocated to each unit of throughput, lowering the total cost/mscf and making it more commercially attractive vis a vis No. 6 fuel oil. But if Queensland is simply a captive market for natural gas, with little or no serious competition from alternative supply sources, and market demand is presently insufficient to justify the pipeline costs, then simply increasing the supply of gas available will be ineffective IMO. Picture trying to get a dog to move forward by pushing a leash, and I think you'll understand my concern. (The leash goes limp, but the dog never moves.)
My other concern would be if the IPC/Chevron gas is intended to supply an existing developed market. If this is the case, then there will be other entrenched gas suppliers that will not want to allow further competition in their own backyard. Chevron's plans to pursue open access potentially places this project in a political sensitive light, subject to the whims of local politicians beholden to vested interests from long-time financial supporters. This could very well drag out the negotiations for the gas supply contract.
Hopefully things will go as planned, the gas contract will get signed in autumn, and construction will commence soon thereafter by one of the eager construction companies currently bidding the outstanding pipeline tender. But I have worked on enough of these gas development contracts to know that things do not typically go as planned, and one must be realistic when assessing project development schedules. To be specific, I worked on one gas development project in Malaysia in 1995, and another in Australia in the same year, both of which showed similar signs of progress and both of which harbored lights at the end of the their own respective development tunnels, but both projects have still not reached financial closure, despite a world of good intentions and continual focus by eager project personnel.
So to summarize a rather lengthy, rambling post, there are some visible signs of recent progress, and some positive vibes coming from other important participants (i.e., Chevron, who is actually in the driver's seat at the moment). However, IMO, one would be prudent not to ignore the still formidable hurdles ahead.
You might want to run some of these thoughts past IPC management (or even the Chevron project manager) to get an informed reaction. I may be all wet not knowing the specifics of this particular project or its target market in Queensland. I would be very interested to hear their reaction.
Hope this was more helpful than confusing.
Razor |
