Originally posted on August 14th, 2018
Queensland, Australia is home to the world’s first energy plant conversion, from coal bed methane to liquefied natural gas. This project, named the Queensland Curtis LNG (QCLNG), has transformed Australia’s energy supply and expanded international relations. Steven Noske, Australian oil and gas executive with over 30 years of experience, is breaking this topic down and explaining the environmental and economic factors behind this conversion.
CBM to LNG
Coal bed methane (CBM), also known as coal seam gas (CSG), is an unconventional form of natural gas found in coal deposits or coal seams. It is referred to as an “unconventional gas” because it requires advanced production methods. Although CBM is a stable source of energy that has seen growing production rates every year since 1989, it also releases methane, a greenhouse gas, during the extraction process. On the other hand, Liquified Natural Gas (LNG) is natural gas that has been cooled making it safer and easier to store and transport. Steven Noske explains that LNG is the most environmentally friendly fossil fuel, with the lowest CO2 emissions of any natural gas. LNG has numerous uses, such as generating power, heat, hot water, cooking, and powering automobiles. Additionally, LNG is relatively inexpensive and takes up less space than other natural gases, thus is more economical to transport and store. Despite the benefits of switching from CBM to LNG, an issue remains: LNG is not a renewable energy source, such as solar and wind power. That being said, Noske and other individuals in the oil and gas industry believe LNG is a necessary step in the direction towards renewable energy.
The Queensland Curtis LNG (QCLNG) Project
The QCLNG project began in 2008, converting the QCLNG facility located on Curtis Island. This project was operated by BG Group’s Queensland Gas Company (QGC) until it was acquired by Shell in 2016. As a support engineer who occupied various roles in various locations for Shell, Steven Noske is extremely knowledgeable on Shell’s involvement with creating Queensland’s world-class onshore gas reserves. Noske explains that the goal of the QCLNG project was to bring more energy and cleaner fuel to Australia and international customers. In addition to the plant conversion, QCLNG included the expansion of pipelines, gas fields, shipping operations, and the development of CBM reserves in southern and central Queensland. In 2014, construction of the LNG plant, pipelines, and gas fields were completed. Since Shell acquired QGC in 2016, Shell has successfully increased production of LNG and expanded international buyers. As of 2018, Australia is on track to becoming the world’s largest exporter of LNG by 2020, replacing Qatar’s long-term standing.
Steven Noske on the Effects of LNG on Domestic Gas and Energy Prices
Unfortunately, Australia is experiencing high gas prices, which is drastically contrasted by the lower costs seen in their international export markets. Steven Noske explains that this has many causes, but one of the main issues is the high levels of LNG being exported overseas, which has reduced domestic supply drastically. As a result, in July 2017 the Australian government enforced the Australian Domestic Gas Security Mechanism (ADGSM), which limits exports in attempt to increase domestic gas supply. In September 2017, gas companies in Australia, including Shell, reached an agreement with the federal government, where LNG producers guarantee natural gas supply to domestic customers. This has allowed Shell and other producers to avoid restrictions on LNG exports.
Another cause of the high gas prices in Australia is a lack of market competition, something the US gas market has and is thriving because of. Maarten Wetselaar, Shell’s Integrated Gas & New Energies Director, states that Shell’s trading unit, Shell Energy Australia, is active to make the gas and electricity market “..more competitive and connect supply and demand in the most efficient way possible.”
In March 2017, McKinsey Australia released a report titled “Meeting east Australia’s gas supply challenge” which discusses necessary changes to ensure the market is meeting domestic and international needs by 2030. This report recommends the implementation of energy efficiency measures to reduce consumption, develop new pipeline infrastructure, and/ or the development of new projects with short lead times. Thankfully, as of April 2018, gas prices have improved, but many are calling for market transparency: citizens must be educated on how international gas prices affect domestic prices. The Australian Competition and Consumer Commission (ACCC) says market transparency will not only give peace of mind to citizens, it will also improve the competitive bargaining process. ACCC`s latest report released in July 2018 states that the risk of shortfall in 2019 is low, and gas prices in 2019 will be in the $8 to $11/GJ range, whereas early 2017 saw prices as high as $22/GJ. In conclusion, east Australia’s supply and price issues appear to be clearing up.
As Steven Noske has shown, the Queensland Curtis LNG (QCLNG) project has led to more environmentally friendly gas practices and greater international market connections, among many other positive impacts. However, it is time for LNG producers to focus on lowering domestic gas prices to make gas and energy more affordable to citizens throughout Australia.