2012 PESA production and development review

Abstract

2012 was a pivotal year for Australian petroleum development and production, during a dynamic time in our region, and globally. Australian activity headlines are LNG, the continuing pace and scale of the development of major projects, and record national petroleum production. LNG development in Australia is proceeding apace, with seven sanctioned projects under construction in WA and Queensland. The scale of the major projects underway is being felt with competition for skills, materials and services driving cost inflationary pressures and, coupled with other factors—such as an historically high Australian dollar—has resulted in several announced budget increases and schedule slippages. In addition, the regulatory framework is evolving, as regulators adapt to new industry trends and technologies. Proponents of future developments and expansions will be seeking to sanction in a tougher, but potentially better-informed development environment.

Overall, national hydrocarbon production increased to a record high in 2012, attributable to a number of factors, but not least of which was the commissioning and successful start of commercial production of the Woodside-operated Pluto LNG development from the Pluto and Xena fields in the Carnarvon basin. Pluto was the first commissioned project since 2006, and may be viewed as the first of a number of developments that will be coming on-stream in the next few years, and will elevate Australia’s position in the ranking of world LNG production. Adding production from Pluto has allowed Woodside to take the lead position as the highest petroleum producer from BHP Billiton during 2012.

Activity is not limited to LNG. Other highlights for 2012 included the opening of the Devil Creek project on the North West Shelf, WA’s third domestic gas hub, with the potential to supply around 20% of the state’s needs. Cost increase and schedule delay is not limited to LNG either, with Yolla mid-life enhancement and the Kipper offshore development facing cost and schedule pressure.

In the broader global sphere, the highlight of 2012 is the extraordinary rise of unconventional oil in the US to the point of speculation about future US self-sufficiency. This parallels the rise of US unconventional gas in recent years, with gas supplies exceeding existing domestic demand and driving down the previously high domestic prices. Presently, only one US LNG project is approved for export; however, with an ongoing policy debate in the US about significant gas export verses retention to spur domestic growth, and favourable location of potential US access to the Asian market, the outcome is important for future competition to Australia’s cost-challenged LNG industry.

Among this the announcement by Santos of the connection of the first shale gas well in Australia to sales delivery—albeit as an appraisal well—is a notable occurrence as a potential forerunner of shale gas production in Australia.