Financial Times - Exxon: Deal bodes well for Papua New Guinea pipeline
By Stephen Wyatt in Sydney
Financial Times, April 22
A key $5.5bn natural gas pipeline, extending 2,655km
from Papua New Guinea to Queensland Australia, now
looks set for construction after Exxon agreed to
integrate its Hides gas field in Papua New Guinea with
Chevron's adjacent Kutubu field.
Both fields now provide adequate gas for the potential
execution of long-term contracts. Talks are under way
with potential customers such as Comalco, which is
considering the construction of a A$1.2bn ($US778m)
alumina refinery at the end of the pipeline in Gladstone,
as well as Queensland Alumina, nickel producer QNI,
and power generators Ergon and Energex.
If initial customers for about 130.2bn cu ft of gas a year
can now be signed, the project is set to proceed.
This gas project is part of a myriad of changes that have
occurred in Australia's energy markets since 1993.
Fundamental reforms to the domestic electricity and
natural gas markets under the programmes of
microeconomic and competition policy reform, are now
beginning to have an impact.
They are forecast to trigger increased efficiencies in
energy use, according to a recent report released by the
Australian Bureau of Agricultural and Resource
Economics (ABARE), the Australian government's
independent research agency.
ABARE forecasts that total Australian energy
consumption will grow at an average rate of 1.4 per cent
a year between 1997-98 and 2014-15. This rate of
growth compares with that enjoyed over the past 25
years of 2.6 per cent a year.
Efficiency gains are expected in the electricity
generation sector "where a substantial increase in
natural gas-fired electricity generation and a large
increase in co-generation are likely to result in
significant improvements in average thermal
efficiencies", said the report.
Natural gas consumption is expected to grow at an
average annual rate of almost 4.3 per cent a year up to
2014-15.
However, this will be at the expense of domestic coal
consumption. Black coal consumption is expected to
decline at an average annual rate of 0.1 per cent a year
and brown coal consumption by 0.4 per cent over the
forecast period 1997-98 to 2014-15.
The boom in natural gas consumption is expected by
ABARE because of extensions to Australia's natural gas
pipeline grid, especially in Queensland and Western
Australia. Integral to this is the gas pipeline from Papua
New Guinea to Queensland.
Also behind the rise in natural gas usage is an expected
acceleration in reforms of the gas market in Australia
and the maturing of reforms already under way in
Australia's national electricity market.
Reforms in the gas market should lead to reductions in
the real price of natural gas delivered to customers,
improve the competitiveness of gas compared with
electricity and open up industry as users of natural gas,
particularly the mining, manufacturing and electricity
generation sectors, said the ABARE report.
Interestingly, the initial impact of electricity deregulation
was to increase the use of coal-fired electricity
generation. The initial beneficiaries of change were the
incumbent coal-based electricity generators as a result
of vesting contracts that set prices to smooth the
process of reform. The vesting contract prices were at
higher prices than the newer competitive wholesale
electricity price.
These power generators have been able to aggressively
offer electricity and, as a result, operate at increasingly
higher levels of capacity.
Now though, as these early vesting contracts begin to
expire and the gas market reforms reduce the price of
gas, new electricity generating capacity is likely to be
gas-fired.
"Gas-fired electricity generators are smaller, cheaper to
establish and more environmentally friendly," said
Andrew Dickson, senior economist with ABARE.
Also contributing to the slower rate of energy
consumption in Australia is the possibility that future
environmental policies will aim to reduce energy
consumption and greenhouse gas emissions, said Tom
Waring, ABARE's manager of Minerals and Energy
Research.
Total energy production in Australia is projected to be
18,951 petajoules in 2014-15, some 55 per cent above
the 1997-98 level, according to ABARE. This will result
in a rising exportable surplus, as this growth rate of 2.6
per cent a year is higher than the projected 1.4 per cent
a year increase in consumption.
In energy terms, black coal and uranium are forecast to
dominate energy production and trade but natural gas
production will also increase at a substantial 6.9 per
cent a year through to 2015 on the back of rising
domestic consumption and increased exports of
liquefied natural gas (LNG).
The ABARE study is based mainly on a survey of
Australia's mining, manufacturing and electricity and gas
production sectors.
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