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Editorial comment

Drilling demand in Australia.A new gas pipeline in Australia is to be built connecting the Northern Territory (NT) and the east coast. Jemena has won the contract to construct the 623 km pipeline, which will run from Tennant Creek, NT to Mt Isa in Queensland. Proposed routing of the pipeline followed two distinct camps: the northern route won over a potentially more costly and time-consuming southern route. The southern option would have sent the pipeline on a longer journey from Alice Springs to Moomba and would have incurred extra costs of up to AUS$1.3 billion.

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So, with the northern route decided upon and Jemena (jointly owned by the State Grid Corporation of China and Singapore Power) signed up to construct, gas flow is expected to begin in 2018.

Dubbed the North East Gas Interconnector (NEGI), the AUS$800 million pipeline has been designed to spur development of the NT gas sector, which brings to mind a certain ‘which comes first, the chicken or the egg?’ question. By building NEGI, it is hoped that untapped gas reserves in NT will be exploited and will move the territory into a new phase of economic strength. The theory holds that the pipeline will be a conduit for giant untapped offshore NT gas fields, delivering NT gas to customers in the southeast. Critics argue that any gas extracted from these fields will go to export markets from Darwin in the form of LNG (more on that later) and that the pipeline will probably transport gas from closer-to-shore fields and existing onshore fields near Alice Springs.

The NT is estimated to have over 200 trillion ft3 of gas, which the government has been heralding as sufficient to power Australia for more than 200 years. Jemena has pledged to build a further pipeline link, between Mt Isa and the Wallumbilla hub in Queensland, once the NT gas reserves have been proven and established. At the moment, Moomba is the main hub for gas supply: the northern route decision could mean extra costs for building up processing infrastructure at the new end-point of the pipeline. The east coast of Australia’s gas market is changing significantly, with LNG exports on the increase, rising gas prices and declining future gas demand expected from industrial users.

It is hoped that NEGI will fill a gap in the national grid and revitalise the east coast market.

A final thought on NEGI: it will be built at no cost to taxpayers, due to commercial contracts already in place that secure the volumes required to support the project. The foundation customer is Incitec Pivot, which has committed to buying 30 TJ/d of gas (as part of a 10 year contract), which amounts to a quarter of the pipeline’s capacity. Incitec is Australia’s biggest manufacturer of fertiliser and will use the gas at its Mt Isa plant. For the last few years, gas supply has been a problem for the company, as well as rising gas costs.

In other Australia news, Inpex has completed its subsea pipeline that forms part of the Ichthys LNG project. The pipeline connects the offshore Ichthys gas condensate field to an LNG processing facility near Darwin, NT and has been labelled a record breaker, as it is the longest subsea pipeline in the southern hemisphere (889 km) and the third longest in the world, albeit a fair way behind the holders of first and second position, Nord Stream (1224 km) and Langeled (1166 km) respectively. The Ichthys project is expected to have an operational life of 40 years, during which it will produce 8.9 million tpy of LNG and 1.6 million tpy of LPG, plus 100 000 bpd of condensate. Operations are now underway to connect up the pipeline to the onshore plant, and to establish and moor offshore facilities at the field (which sits in the Timor Sea off the northern coast of Western Australia).

These mega projects aren’t without risk: how will the global fall in LNG prices affect Ichthys? Will gas reserves in the NT stand up to the scale of NEGI and will the financing structure on NEGI pipeline mean higher tariffs? We shall see whether Ichthys, and the untapped NT gas reserves, can come good for Australia.

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