LNG in Western Australia

Western Australia (WA) is big. With a land mass of over 2.5 million km², there is no shortage of space in WA. The distance from the state’s capital city Perth, to the resort town of Broome in the distant north, is more than 2000 km. Not only is WA big, it is also sparsely populated – the state’s population density is equivalent to one person every square kilometre.

What does this mean for WA’s resources industry, particularly for its immense reserves of natural gas? It presents considerable challenges, as well as significant opportunities for development and innovation.

Origins

In 2013, WA’s Department of Mines and Petroleum (DMP) celebrated its 120^th anniversary. While WA’s first petroleum wells were drilled in 1902, it was not until the 1950s that petroleum exploration gathered pace and experienced some measures of success. It was another decade until a commercially viable oilfield was discovered on Barrow Island off the state’s North West coast. Fifty years later, the island is once again playing a pivotal role in the development of WA’s petroleum industry. This time it is gas that is the driving force behind development on the island. The Gorgon LNG project will use Barrow Island as its base to process the immense gas reserves found below the waters northwest of the island.

It was also in the 1960s that oil and gas was first found in commercially viable fields onshore WA. However, it was the North West Shelf (NWS) oil and gas discoveries in the 1970s that cemented WA’s potential as a globally significant petroleum producer. It was during this time that discoveries such as North Rankin, Goodwyn, Gorgon, Scott Reef, and Scarborough were made. However, it would be some time before these discoveries could be commercially developed.

In the 1990s, the introduction of innovative technologies opened the door for development in WA. The introduction of floating technology, subsea manifolds, multi-lateral wells and horizontal drilling were particularly important in developing the NWS’s oil and gas reserves. Another key innovation was the introduction of floating production storage and offloading (FPSO) facilities. These allowed previously unviable oilfields to be brought into production.

The DMP was heavily involved in the regulation of these new technologies. It also included the construction and management of high-pressure, high volume gas production wells in deep water. Ultimately, the aim then, as it is now, was to ensure the safe, environmentally responsible development of the gas industry in WA.

Innovation

The last three decades have been focused on large scale offshore developments in WA. However, in the coming decades it will be smaller scale onshore and offshore developments that will drive the next wave of exploration and production in WA. Just as technological innovations, such as FPSOs and horizontal drilling, were instrumental to developments in the 1990s, so too will innovation drive future development.

WA has long been at the forefront of utilising innovation in developing its natural resources – from the development of the Goldfields Water Pipeline that opened up the state’s gold mining industry at the start of the 20th century, to the construction of the NWS project, which was the largest engineering project in the world in the 1980s.This link continues with the planned use of floating LNG (FLNG) technology to develop the Prelude gas field. However, in the coming years, the link between innovation and development will become even more important, as companies look to exploit WA’s onshore petroleum resources. Small and medium scale LNG production plants, including ‘LNG in a box’, have the potential to fundamentally change the economics of resource development in WA.

As previously highlighted, WA is a substantial land mass. Due to its size and low population density, there are limitations on the amount of infrastructure available, particularly pipelines. This is why small scale LNG has the potential to become an attractive option for onshore development in WA. This technology is inherently flexible, due to its modular design and construction, but also requires little pipeline infrastructure. It also has the potential to supplement other fuel sources traditionally used for energy generation across WA’s remote mine sites (e.g. expensive fuel sources such as diesel). Having been trialled and proven in the US and Europe, small and medium scale LNG plants provide a wide range of facility sizes and production capacities.

WA is home to an estimated 425 trillion ft³, or more than 63%, of Australia’s considerable gas resources, and this technology offers yet another option for LNG development in WA. While the use of this technology to meet the state’s growing domestic gas needs in the future could be a particularly attractive option for investors, the commitment to innovation in WA extends beyond utilising technology developed elsewhere.

WA is home to world-class institutes focused on oil and gas R&D. Examples in the oil and gas sector can be found in the WA Energy Research Alliance and Chevron’s Global Technology Centre. Research being conducted through these institutes is of global significance and can be exported around the world. However, it is not just industry that needs to commit to innovation; it also needs commitment from government and regulators. This is why innovation has been an important part of the DMP’s reform programme.

In March 2014, the Australian government’s Productivity Commission recognised the DMP’s online approval systems. The commission called the department’s IT system ‘leading practice’, a term it also used to describe the DMP’s online approval performance reports, which it encouraged other states in Australia to adopt. The reports provide quarterly data on approval timelines and tracking, giving the department an accurate picture of its performance.

This allows the department to identify areas that are working and areas that may need investigation and improvement.

Shale and tight gas

Much has been said about the potential resources of natural gas in shale and tight rocks in WA, and this is seen as a potential replacement of the NWS domestic gas supply, which is due to decline in 2020. This industry is in its infancy in WA, with only a few exploration wells drilled and no commercially viable fields discovered as yet.

The US industry is harnessing technologies that have advanced considerably since they were first used onshore, specifically horizontal drilling and hydraulic fracture stimulation. The DMP has been regulating horizontal drilling in offshore areas since the 1990s, and this type of hydraulic fracturing since early 2000s.

As part of the DMP’s regulatory role, it reviews other jurisdictions’ regulation of the industry, both nationally and internationally, and compares this to its own. The development of shale and tight rocks has been in existence in the US since the 1980s, and officers of the DMP have watched its development with keen interest. DMP had an independent review of its legislation in 2011, which concluded that the current regulation of the industry was robust. However, a number of recommendations were made to further improve the DMP’s regulatory processes, which have since been implemented.

The DMP, together with other government agencies, treats the shale and tight rock industry with the same due diligence as the rest of the petroleum industry to ensure operations are conducted in a safe, environmentally responsible manner. DMP manages this through a rigorous assessment and approvals system, followed up by compliance auditing of the operations. As a regulator, the department will continue to monitor the development of the onshore and offshore petroleum industry in WA, to ensure best practices are adhered to.

Conclusion

WA has a proven track record when it comes to the safe, sustainable development of its resources. Recent oil and gas discoveries found off WA’s coastline are also a good reason to be optimistic about the future of the sector.

In 2013, Apache claimed it had made the largest Australian oil discovery in 30 years in the offshore Canning Basin, while Santos has had considerable success with its Lasseter well in the Browse Basin. It is likely that similar success will be seen in WA’s onshore basins as exploration expands in the coming years. While there are challenges, WA has the skills, experience and resolve to address them, and make the most of the opportunities presented by its oil and gas sector.

Written by the Department of Mines and Petroleum.

Edited by Callum O'Reilly

Read the article online at: https://www.lngindustry.com/special-reports/05022015/lng-in-western-australia-185/