Michael Richardson, Straits Times 14 Sep 09;
THREE of the world's biggest energy companies are expected to give the go-ahead this week for a giant natural gas project off the north-western coast of Australia that will meet Asian demand for the fuel for decades to come.
The formal decision by Chevron, ExxonMobil and Royal Dutch Shell to invest in the Gorgon field and convert the gas into liquefied form for export in tankers will follow the announcement last week of long-term sales contracts worth around US$60 billion (S$86 billion) with Japanese and South Korean customers.
Earlier, the joint venture signed agreements to sell liquefied natural gas (LNG) to China and India. Those deals were worth more than US$60 billion. The four consuming countries combined have committed to buy well over half of the 15 million tons a year of LNG that Gorgon will produce by 2016. Under the contracts, buyers have agreed to take large quantities of gas for periods of 20 years or more to underpin the high development costs of the Gorgon project, estimated to be around US$42 billion. In return, they are assured of reliable supplies.
Asia is already the mainspring of international trade in LNG. Market leaders Japan, South Korea and Taiwan are now being joined by China and India. All want greater energy security and a cleaner burning fuel than coal.
Gorgon's proven and probable reserves are estimated to be 17.2 billion cubic feet. But if other fields in the vicinity were brought into production, it would nearly treble the amount of gas available to 46.2 billion cubic feet.
As more gas in the Asia-Pacific region becomes available for export, local users can reduce their energy reliance on the politically volatile Middle East. This will also strengthen the web of economic interdependence in Asia.
The web is being reinforced by trade and investment. This has geopolitical implications. It will buttress stability and underpin community-building in the region.
At present, the top three LNG exporters are Qatar, Malaysia and Indonesia. Energy consultants Wood Mackenzie are forecasting that as Gorgon and other large gas reserves are tapped in Australia, it will become the world's second largest supplier by 2014, and possibly overtake Qatar by 2020. In 2014, Australia - currently the world's number six exporter of LNG - will be producing nearly 30 million tons a year.
After announcing the deals with Japan and South Korea last week, Chevron said it would sign further sales agreements for Gorgon LNG in coming months. Will Singapore be among the buyers?
Construction of the country's first LNG terminal, on Jurong Island, is due to start in January. The aim is to diversify gas supplies, now piped from Indonesia and Malaysia. When completed in 2013, the terminal will have a capacity of 3 million tons of LNG per annum. There is provision for expansion to 6 million tons a year.
The BG group based in London was appointed last year as sole buyer of Singapore's LNG. It has indicated that the Australian state of Queensland will be a key source of supply.
Queensland, in north-eastern Australia, has big reserves of underground coal seam gas that can be converted to LNG. The BG Group, Shell, ConocoPhillips and Malaysia's Petronas are all involved in major projects in the state to tap coal seam gas for export as LNG.
In the United States, where new technology has led to the discovery of extensive onshore gas reserves, prices of the fuel have plummeted in the past year.
But gas prices in Asia are higher than in the US because demand is stronger and sales contracts are usually tied to the price of oil, which is substantially higher than the price of gas in America.
Those who worry about the link between fossil fuels and climate change are in two minds about Asia's swing to gas.
On the one hand, natural gas emits about half as much carbon dioxide as coal. It emits even less of other pollutants, such as sulphur and nitrous oxides, soot and dust.
As a result, gas is often seen as 'bridge' fuel, providing a lower-carbon alternative to coal while zero-carbon technologies, chiefly wind and solar power, are scaling up capacity and, hopefully, reducing their costs. Nuclear and hydro power are also zero-carbon technologies. All these alternative sources currently provide electricity that is significantly more expensive on a total-cost basis than coal-fired power.
If utilities and other big consumers in Asia and North America decide to switch from coal to gas, where will it leave renewable energy, which is nearly always more expensive than gas, especially without subsidies?
And how will it affect already faltering international negotiations to curb global warming emissions and prevent potentially dangerous climate change?
There are no easy answers, just tough choices, facing policymakers.
The writer is a visiting senior research fellow at the Institute of Southeast Asian Studies.
