Queensland Power and Gas Conference: Dr John Powell, Project Director, PNG Gas Project
25 May 2000, Brisbane
Good afternoon Ladies and Gentlemen,
It is a great pleasure to be here with you to discuss one of the most exciting resource
developments ever seen in this part of the world.
The PNG Gas Project is unique. It represents the first importation of energy to
Australia, a country which is envied around the world for its richness in resources,
particularly energy resources.
And while such a scenario for one of the world's leading exporters of energy products
might seem something of a contradiction - and may even concern some of the
"protectionists" within the energy sector in Australia - there is no doubt that the PNG
Gas Project is a case of "right time, right place".
As this audience well knows, energy resources, particularly oil and gas, are invariably
found in the most inaccessible places. But in this case, with the aid of the region's
first trans-national pipeline, the conjunction of supply and demand is fortuitous
indeed.
Papua New Guinea does not have the market required to develop its gas reserves.
Queensland, on the other hand, is hungry for versatile, cleaner burning fuels like
natural gas.
It is a coincidence of need that justifies a $US3.5 billion investment in the longest
pipeline in the southern hemisphere. So what does the PNG Gas Project look like?
In a nutshell, it involves:
A 3,250 kilometre pipeline from Papua New Guinea's Southern Highlands to
Brisbane with the capacity to carry 600 million cubic feet per day of gas
A large marine facility to extract LPGs and condensate for export markets and local use
New production infrastructure at the Kutubu fields and a pipeline joining the Hides gas field to the project
A construction time of two and a half years
An operating life of more than 40 years
An employer of thousands of Papua New Guineans and Australians.
It is the most significant resource development yet in Papua New Guinea and will
shape the economy of our near neighbour for decades to come. And there is no other
single project which comes close to the PNG Gas Project in terms of its direct
financial contribution to the economy and its potential to stimulate the development of
a broader industrial and commercial economy in PNG.
As consumers of PNG's natural gas, our first imported energy, what are the benefits
to Queensland? And how will it affect the businesses and markets represented by all of you here today?
The PNG Gas Project will:
Fuel a raft of projects adding value to our resource assets - refining or processing
nickel, alumina, zinc and magnesium to name a few,
Supply a slate of new or expanded electricity generators, producing power for
minerals processors and large industrial users,
Reduce Australia's greenhouse gas emissions through the provision of cleaner burning fuel, and
Create business and employment opportunities for people in indigenous communities along the pipeline route.
Before we delve further into these benefits and the implications of a large, new energy
source in Queensland, let me draw some historical parallels to make this project -
whichsome detractors have described as a "myth" - a little more tangible.
I place the PNG Gas Project in the same league as the North West Shelf Project for
its potential to influence the State's economic development - particularly in terms of
regional development.
The North West Shelf, as you are all aware, brought gas to Western Australia's south-west.
Along the way, investment and industrial development opportunities came to
light as a new source of energy became available. The presence of the pipeline was
the catalyst for this industrial growth which had been previously absent.
Electricity consumption, a barometer of the increased industrial development
associated with North West Shelf project, surged after first gas flowed in 1984.
Australian Bureau of Agricultural and Resource Economics (ABARE) data shows:
Annual growth rates in electricity consumption of around 3 per cent immediately
prior to North West Shelf project coming on-stream,
Annual growth rates topping 12 per cent in several subsequent years, and
An average annual growth rate of nearly 9 per cent for the 6 years to 1989-90.
(Source: ABARE's Australian Energy: Market Developments and Projections to
2014-15. Table E5, page 160-161. Published April 1999)
That is an interesting scenario to contemplate in relation to the potential of the PNG
Gas Project to boost Queensland's economy. It is even more interesting in light of the
fact that:
The University of Western Australia has estimated that, at full production, the
North West Shelf project is responsible for creating and maintaining more than
60,000 jobs Australia-wide through the "multiplier effect" of the direct investment in the project, and
There was relatively little industrial infrastructure and skills base in many parts of
WA through which the pipeline passed.
Such is not the case in Queensland where there is a highly developed infrastructure
and skills capability along the State's eastern seaboard, the route for this exciting
pipeline. That capability, matched with multi-million dollar investment proposals, is
simply awaiting a competitively priced supply of energy before translating into bricks
and mortar, electricity turbines and refinery furnaces.
As Woodside has noted, the experience in WA was that "over 95 per cent of the
State's industries with the capacity to use natural gas have chosen to do so."
(Source: Woodside web site)
So what is the outlook in Queensland both in terms of direct consumers of PNG gas or
as customers of new and expanded electricity generators? Let's look at Townsville as
a case study in regional development.
Projects proposed or under way in Townsville which will be direct or indirect consumers of PNG gas include:
Stanwell's base load power station: $300 million
Queensland Nickel Industries' expansion: $200 million
Two peaking power stations (Transfield and AES Mt Stuart) which will convert to natural gas.
Stanwell will supply power to the Sun Metals zinc refinery that was officially opened
last week. Depending on world markets and the success of Stage One, Sun Metals
could double its output from the current level of 170,000 tonnes of zinc metal per year.
Speaking at the opening, the Premier Peter Beattie highlighted the tangible benefits of
a major development like the Sun Metals refinery. Of the $650 million outlaid by the
project to date, Mr Beattie said:
"Half was actually spent on site in Townsville,
Almost a quarter was spent in Queensland on design and project management,
start-up and commissioning, working capital and the cost of finance,
Just over a quarter was spent on specialised equipment which was not available in Queensland."
(Source: Media statement, 16 May)
As a result, the Premier said about $475 million had been injected into the
Queensland economy with 1,670 new, long term jobs being created in North Queensland.
Let me remind you that we are talking of a single large project at this point - the PNG
Gas Project would be the catalyst for a number of such projects.
Indeed, Mr Beattie earlier reiterated his strong support for the PNG Gas Project
saying it "will transform the economy of northern Australia and create thousands of jobs."
The impact of the project on regional areas is confirmed by the list of "Projects under
Study in Queensland" published by the Department of State Development. The list
includes a dozen potential PNG gas buyers and represents a major boost to the
Queensland economy in the early decades of the twenty first century.
Let me nominate just a few to justify my previous statement. They include:
Stanwell's base load power station (Townsville)
Comalco's alumina refinery (Gladstone)
Yieh Loong Enterprise Company's steel works (Gladstone)
Monto Mineral's Goondicum illemite mine (south of Gladstone)
Stuart oil shale project (north west of Gladstone)
Australian Magnesium Corporation's magnesium metal plant (Stanwell)
Gibson Island co-generation plant (Brisbane)
Swanbank co-generation park development (Ipswich)
Tarong Power Station expansion (Nanango)
Queensland Fertiliser's fertiliser and ammonium nitrate plant (Wallumbilla)
QSMELT copper smelter (north west Queensland)
Westgold Resources' Undilla lime and cement project (north west of Mount Isa)
The combined cost of that list alone is $8.5 billion - and that doesn't include our
$US1.4 billion ($2.3 billion) pipeline project. It's an imposing list of potential
projects for this State and the PNG Gas Project stands ready to become an energy
supplier to as many of these ventures as possible.
That's an exciting development outlook but what does it mean for the audience here
today? What's on, and over, the horizon for the electricity industry? And where does
the PNG Gas Project fit into the electricity generation equation?
I don't have a crystal ball but one of the country's most authoritative resource
industry forecasters, ABARE, made some observations last year with the release of its
analysis Australian Energy: Market Developments and Projections to 2014-15.
ABARE said the PNG Gas Project pipeline "is expected to have a significant positive
effect on economic development along its route, providing impetus to the
development of energy intensive industries and gas fired electricity generation
capacity in Queensland." (source: page 44)
Indeed, ABARE forecast an instrumental role for natural gas in future electricity
generation in the State. ABARE projected a hike in natural gas as a fuel for
generation in Queensland from 3.6 petajoules in 1997-98 to 110.2 petajoules in 2009-
10 and 114.4 petajoules in 2014-15. (source: page 52)
ABARE also commented on the outlook for a national market in electricity noting
that linking the New South Wales and Queensland grids would initially see electricity
flowing north to meet demand in Queensland.
But ABARE added: "After the development of the natural gas pipeline from Papua
New Guinea in 2002-03 and the concomitant development of additional natural gas
fired electricity generation capacity in Queensland, electricity flows are assumed to
predominantly flow south." (source: page 52)
On the market front let me say we are obviously looking for substantial sales to the
electricity industry with around half our target sales - nearly 300 million cubic feet a day -
to electricity generators in the long term.
The extent to which the project reaches such goals will be determined, in part, by the
policy environment in which it operates - at the State and Commonwealth levels.
The Queensland Government has just delivered its Cleaner Energy Strategy which
sets the State's future energy priorities. In that document, released yesterday, the
Government has made a substantial and emphatic commitment to increasing the role
played by natural gas in the State's energy supply equation.
The Cleaner Energy Strategy says the Queensland Government's objectives are to:
"Diversify the State's energy mix towards the greater use of gas and renewables,
Facilitate the supply of abundant and competitively priced gas in Queensland,
Facilitate the development of gas fired power stations, particularly a base load power station in Townsville, and
Reduce the growth in greenhouse gases."
(source: "A Cleaner Energy Strategy" executive summary)
As you may have read, key initiatives in the Strategy include:
A requirement for electricity retailers to source 15 per cent of their electricity sold
in Queensland from gas-fired or renewable generation from 1 January 2005,
Consideration of a financial commitment by the State Government to "accelerate"
construction of the Townsville-Gladstone section of the PNG Gas Project pipeline, and
Construction by the Government of a gas-fired base load power station in
Townsville or negotiation of the conversion of one or more of the existing peaking
power stations in Townsville to gas and base load operation.
The PNG Gas Project applauds the Government's energy strategy. We think the
policy statement by the Beattie Government will be recorded in history as the major
plank in Queensland's economic and environmental resurgence in the new millennium.
The combination of this policy and the introduction of competitive energy into
Northern Queensland via the PNG Gas Project will create a level of regional
development not previously experienced. It will be the most significant economic and
regional development seen in Eastern Australia since the Snowy Mountains scheme of the 1950s.
The State Government estimates that its Cleaner Energy Strategy will reduce
greenhouse gas emissions by 30 million tonnes over ten years - equivalent to
reducing the greenhouse gas emissions of around one million cars.
One of the most important policy areas at a national level is the issue of greenhouse
gases and the manner in which they might be reduced. As a cleaner burning fuel than
its fossil fuel counterparts - producing around half the greenhouse emissions of coal -natural
gas can make a significant contribution.
An analysis by ACIL Consulting suggests the PNG Gas Project will contribute to
carbon dioxide savings of 88 million tonnes in its first decade of operation with
savings of 11 million tonnes annually by 2012. To put a sharper focus on that figure -
it's equivalent to eliminating the emissions of 600,000 households.
So, on a number of fronts we have a winner in the PNG Gas Project. It will:
Boost the economies of two countries,
Be a catalyst for regional development throughout the State,
Influence the future course of electricity supplies in Queensland and beyond, and
Contribute to a major reduction in greenhouse gas emissions.
Where does the project currently stand? We have recently seen two important pieces of the jigsaw fall into place.
The first was the decision by Comalco to choose Gladstone as the preferred site for its
$1.4 billion alumina refinery. A decision on that investment will be made after the
results of Comalco's final feasibility study are known.
However, we were very encouraged to hear the company's chief executive, Terry
Palmer, say recently that Comalco "is basically committed to PNG Gas - there are
absolutely tremendous benefits for this state and our country if we can get that gas through."
The other pivotal decision of recent weeks was the integration of natural gas reserves
from the Hides field into the project. The inclusion of the Hides gas with the Kutubu /
Gobe / Moran reserves provides the basis for sales gas volumes of up to 600 million
cubic feet per day for 30 years.
But we still have some balls in the air. We need action on a number of fronts, in a
number of places, before this project gets the green light. They include finalising:
Sales contracts with our customers,
Landowner arrangements both here and in PNG,
Environmental management plans,
Appropriate fiscal and taxation arrangements in both countries,
Engineering and technical design work, and
Financing.
It's a big agenda but we are confident of completing these tasks over the next 18
months. Having done so, we expect smooth sailing as we head into a new energy future.
Thank you.
.pdf-version of this speech:
pnggas.com |
