by James Markham Hill, Executive Director of Corporate Strategy, EPIK
In recent years, Australia has made substantial progress in becoming one of the world’s largest liquefied natural gas (LNG) exporters, currently surpassed only by Qatar. In 2018 alone, Australia exported approximately 69.5 million tons of LNG, providing cleaner energy to countries around the world seeking practical solutions to their complex industrial and power needs. Executive Director of Corporate Strategy at EPIK, James Markham, outlines why the Newcastle GasDock Project is critical for Australia’s natural gas industry.
Recognising the important role that Australia plays in providing natural gas overseas, the idea that New South Wales could soon become an LNG importer has raised eyebrows, but in our increasingly connected world, it is easy to forget that Australia is a continent with vast distances and limited infrastructure separating production basins from demand centres – as is the case in New South Wales.
Historically, the majority of Australian LNG was produced using gas sourced from the basins in Western and North-Western Australia; however, with the start-up of LNG export facilities in Gladstone, Queensland in 2015, Australia’s North East has entered the global business.
At the same time, declining domestic gas production in Australia’s South East, compounded by existing pipeline capacity constraints, resulted in NSW facing increasing challenges securing long-term, competitive natural gas supplies, impacting residential users, manufacturers, industry, and power producers, among others.
The state of New South Wales
Currently, New South Wales imports approximately 95 per cent of its total annual gas consumption from other states via natural gas pipeline, and according to estimates from the Australian Energy Market Operator (AEMO), without further development, NSW will face increasing challenges securing adequate supply.
While heightened prices take a toll, the lack of stable, secure supply has resulted in dramatic price swings and market instability, making it increasingly difficult for businesses to plan for the future.
Complicating matters further, NSW relies on coal for approximately 80 per cent of its power generation capacity, and many of these existing facilities, including the 2000MW Liddell coal-fired power plant, are planned to come offline in the coming years, necessitating a shift in the existing energy mix.
While it is likely that a significant amount of new generational capacity will be provided via increased development in renewables, such as wind and solar, the state will need to find a balanced solution between adding renewable energy, which is typically intermittent, and maintaining baseload power and grid stability in the long-term.
For these reasons, natural gas, via LNG imports, provides a complementary solution to both NSW’s energy and environmental needs, while also presenting a lower-cost alternative to existing supply.
At EPIK, the objective is to provide the most competitive infrastructure solutions to help solve critical gas and power needs in markets around the world.
Through its wholly owned Australian subsidiary, Newcastle GasDock Company (NGDC), EPIK is developing the Newcastle GasDock LNG Floating Storage and Regasification Unit (FSRU) at the Port of Newcastle to provide long-term, lowest-cost natural gas.
In August 2019, the state of NSW declared the Newcastle GasDock project as Critical State Significant Infrastructure (CSSI), in part due to the project’s strong potential to address the long-term energy security of the state.
Compared to alternatives, EPIK believes that LNG imports through its proposed facility at the Port of Newcastle provides a lower-cost solution for the secure and competitive supply of natural gas on a long-term basis.
Utilising an FSRU, which is essentially an LNG carrier with vaporisation units on its topsides allowing for the import of natural gas directly into the market via a high-pressure gas arm, the Newcastle GasDock terminal will be capable of supplying more than two million tons per year (MTPA) of LNG, or the equivalent of over 80 per cent of NSW’s annual natural gas consumption.
As designed, the terminal will be capable of supplying up to approximately three times this volume – the actual volumes being driven by demand as opposed to operational infrastructure limitations.
Newcastle and Australian Advantage
Situated in an industrial hub, the Port of Newcastle – an economic engine for the region – is proximate to both NSW’s single largest natural gas user and its single largest power user, consuming more than ten per cent of NSW’s annual gas consumption and over 12 per cent of its power usage respectively.
Sitting near the end of the existing pipeline network, where prices are typically highest, Newcastle is an optimal entry point for new supply to be injected, placing downward pressure on prices locally, while still providing competitive access to the broader NSW market through the Sydney Short-Term Trading Market (STTM) via the existing Jemena pipeline located less than 2km away.
More broadly, with China, Japan and South Korea representing the three largest LNG importers in the world, seasonal global LNG pricing is dictated by northern-hemisphere demand, providing an opportunity for Newcastle GasDock to provide access to lowest-cost LNG during NSW’s highest demand periods.
As recently as August, spot-market LNG prices fell to as low as $US4/metric million British thermal unit, at which point the delivered cost of LNG represents a significantly more competitive alternative to existing and anticipated domestic natural gas.
While this price is unusually low, growing global LNG supply and limited access to liquid downstream markets help make LNG imports into NSW increasingly competitive against domestic alternatives and attractive to global LNG portfolio players and traders interested in gaining access to the NSW market.
The Newcastle GasDock project is distinguished from competing LNG import projects in Australia by providing LNG storage and regasification services to Australian and international players looking to bring competitively sourced LNG into Australia’s southeast gas market through its proposed terminal.
EPIK has engaged Australian EPC firm Watpac for the exclusive provision of design, engineering and construction services for the onshore infrastructure components of the project.
In addition, EPIK has a strategic partnership with Hyundai LNG Shipping and is supported by consultants including Arup and K&L Gates among others.
Pending approvals and a positive final investment decision, the construction of the terminal represents a potential, direct capital investment of up to $250 million in NSW, on top of the significant social, economic and environmental benefits the project would provide over the multi-decade lifespan of its operations.
EPIK anticipates taking FID on the Newcastle GasDock FSRU terminal in 2020 and initial operations beginning in 2021.