Collaboration is key for LNG: Santos

A senior Santos executive has warned rising development costs could hamstring the LNG industry unless Australian oil and gas companies work together to process gas.

John Anderson, the head of Santos's operations in Western Australia and the Northern Territory, said demand for LNG would remain strong, but warned that increasing high costs in Australia could arrest the development of gas.

While seven LNG projects worth an estimated $200 billion in investment are being built in Australia, several other projects remain in doubt as competition from projects worldwide increase.

"There's an enormous prize for the gas industry in Australia, but it's no slam dunk that we're going to get those projects sanctioned," Anderson said.

"We've seen liquefaction costs in Australia more than double from what we call $1000 per tonne to now in excess of $2000 per tonne. So costs are a huge challenge."

Anderson said companies need to work closely and share existing facilities, The Australian reported

"We need to start seeing more gas going through existing facilities," he said.

"That means there needs to be conversations around what are fair and reasonable commercial terms. But I think there's an enormous opportunity for Australia if it captures that issue of collaboration."

It is estimated that the LNG boom in Australia will lift Australia from the fourth largest LNG producer to the first, knocking Qatar off its perch.

In Queensland the three projects under construction are expected to produce 28.8 Mtpa of LNG, with the first shipment expected late next year.

This is not the first warning by LNG industry insiders that the sector is facing mounting challenges.

In early May, a gas conference heard tens of thousands of jobs could be lost along with billions in potential revenue if the LNG industry did not become more competitive.

"While the industry, partners and governments have together delivered more than $160 billion in committed LNG investment in Australia, another $100 billion- plus in projects hangs in the balance," Chevron Australia's managing director Roy Krzywosinski said.

"Governments and industry must make changes now to capture this second wave of investment.

"There is an 18 to 24-month window in which to do so and it will require a significant structural change in Australia's costs."

Last year Chevron reported a cost blowout of $9 billion at its Gorgon Project, taking development costs to $52 billion.

While earlier this year Woodside scrapped its $45 billion planned development at James Price Point in favour of floating using a floating LNG plant.

Other projects hanging in the balance include Shell and PetroChina’s Arrow project in Queensland and BHP Exxonmobil’s Scarborough floating plant.

Outgoing Shell country chief Anna Pickard said something needed to be done quickly to address Australia’s high-cost environment.

“The window for LNG plants is open for about 18 months,” she said.

WA Premier Colin Barnett painted a bullish picture of the outlook for Australian LNG after returning from meetings in Japan and China.

"For the first time in maybe 100 years, the US is now heading towards self-sufficiency in energy. I don't think any US president is going to compromise or give that up and, yes, there will be some LNG export out of the US, but it will be comparatively modest and my fear for Japan is that it's just sitting there on a wing and a prayer hoping that will come through," said Barnett.

"I don't think it will."

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