A time for tie-ins: the possibility for infrastructure sharing and infrastructure access in Australia’s LNG sector

Abstract

The development of LNG project infrastructure for exclusive use in relation to LNG projects in Australia has placed an enormous strain and demand on human and manufactured resources. It has undoubtedly contributed to project delay and cost blow outs, and these have had an effect, along with the falling price of oil and LNG, of putting in jeopardy the development of further LNG projects in Australia.

Tie-ins and joint development may be one way to de-risk and enhance the economic viability of developing future oil and gas resources through the following means:

1. reducing project delays by using existing developed facilities without the need for extensive pre-FEED and FEED work;

2. reducing the number of government approvals required by using existing facilities that already have relevant government approvals;

3. reducing the unit cost of production by using underused facilities or expanding existing facilities at a marginal additional cost to cater for the additional demand and use; and,

4. reducing exposure to workforce-related issues which have adversely affected the LNG projects in Australia, including unionised workforces, skill shortages and occupational health and safety risks.

There are some key issues, however, that need to be considered before embracing this approach, which includes:

1. Capacity—the availability of capacity in existing infrastructure which is constructed with an individual project in mind will need to be assessed.

2. Distance—the geographical location of projects can be prohibitive, unlike in other jurisdictions such as the UK North Sea.

3. Loss of control—operators and the majority of participants may no longer be able to dictate development programs and project schedules.

4. Pre-FID work—the access agreements need to be finalised and agreed pre-FID and will need to be front-ended at a time when not all issues are foreseeable.

5. Tolling price—the price needs to be reasonable, yet reflective of the risk taken by the asset owner in allowing third party access and relinquishing some control.

The author will explore these considerations and how some of these issues can be addressed in legal matters, as well as the way other jurisdictions have sought to use infrastructure sharing arrangements and the different ways government has influenced infrastructure sharing.