Wheatstone Project Gets Green Light
This week, Chevron announced the final investment decision (FID) for its Wheatstone project in Western Australia. The initial $29 billion project involves the construction of two Liquefied Natural Gas (LNG) processing trains with a combined annual capacity of 8.9 million tonnes. The project received federal approval last week for an annual capacity of up to 25 million tonnes, so future expansion is possible. The initial 8.9mtpa capacity terminal will be fed with natural gas from the Wheatstone and Iago fields, operated by a Chevron/Shell JV. First gas from the terminal is expected in 2016, and it is 73.6% owned by Chevron. (Other participants: Apache 13%, KUFPEC 7%, Royal Dutch Shell 6.4% – Kyushu Electric are also in negotiations to acquire a 1.83% stake from Chevron)
The FID on the project is a huge milestone for both Chevron and Australia. Chevron is now committed to building two Western Australia LNG terminals at a total net investment of $38.5 billion. Its first Western Australian project, Gorgon LNG, with an even bigger initial annual capacity of 15 million tonnes, has now been under construction for over 12 months, and is 47% owned by Chevron. It is set to come onstream in 2014. The other participants are Royal Dutch Shell and ExxonMobil, owning 25% each, with the difference being made up by three Japanese power companies. The two projects place Chevron and its partners in an ideal position, both in terms of size of export capability and location, to capitalise on the highly lucrative Asian Pacific market, where LNG demand has been on the perpetual increase in recent times.
The eventual completion of the Wheatstone project will place Australia as the second biggest LNG exporting country in the world behind Qatar. With the multiple coal-bed methane fed Gladstone LNG projects in Queensland and Shell’s pioneering Prelude LNG in the Timor Sea also scheduled to come onstream within the next 5-10 years, the largest island in the world is set overtake its middle-eastern counterpart by 2016. The Australian LNG sector has seen major investments in the past decade as it looked to capitalise on its ideal position to serve the energy hungry Asian market. One factor that threatens the longer term success from these investments is whether or not China remains a net importer of gas as it makes a determined drive to develop its vast shale gas resources.
China Considers Opening its Doors for Shale Development
Chinese officials this week revealed that the country may be willing to open its shale sector to foreign companies in a landmark policy shift, aimed at speeding up development of its vast shale resources. China has for a long time been known to hold a huge amount of shale gas resources, which PetroChina recently estimated at 45 trillion cubic metres. Despite this, the first shale licensing round only took place earlier this year and was only open to domestic companies. In the next round to be held later this year, it has been indicated that foreign companies will be welcome to bid as long as they hold “strong financial standing and technology.”
One company that may profit from the policy is Royal Dutch Shell, who has already partnered with PetroChina in the drilling of the Sichuan and Ordos basins and is already co-operator in the producing Changbei field. Given the entry requirements, only the larger cap shale companies are likely to be considered, such as ExxonMobil who gained shale extraction technologies from its acquisition of XTO and who has already collaborated in a shale gas assessment in China with China Petroleum Corp.
Algeria to Kick-Off Shale Gas Exploration
In other global shale news, Sonatrach announced that it plans to start shale gas exploration in Algeria in 2012, and the first region to be targeted will be the south-west of the country. ENI, who agreed a deal in February with Sonatrach to undertake shale exploration, will be involved in this project. This is more good news for ENI, whose North African operations have been further boosted this week with the restarting of production at the Abu-Attifel field in Libya, as the country continues its rehabilitation. Libya is very important to ENI; production from the country contributed 14% of the Italian company’s total oil and gas production in 2010.
3Legs Resources Making Strides in Poland
AIM-listed 3Legs Resources also gave an encouraging shale gas update to its shareholders this week. The company provided an update on the successful flow-testing of the Lebien LE-2H well in its Baltic basin shale gas acreage. The test of the multi-stage hydraulic fracture stimulation completed with the well flowing at a net rate of 450-520 mcf/d, with the aid of a nitrogen lift. The company is quick to call this its ‘first attempt,’ and having achieved both of the well’s objectives, shareholders can only be optimistic. The goals for the well were to establish a sustained natural gas production rate, and to gather critical data for future wells.
ConocoPhillips has been partnering 3Legs in the basin, funding the operations on the Lebien LE-2H well. This is part of a farm-in agreement signed in August 2009, whereby ConocoPhillips acquired the right to gain a 70% interest in 3Legs’ approx. 1 million acre position in the Baltic basin for funding exploration activities. With the American company having until March 2012 to exercise its right to acquire, 3Legs only has a few months left as operator to convince its partner that the money is being well spent, and these tests should provide encouragement on that score. A similar test programme will be carried out on the progressing Warblino LE-1H well later this year, the results of which will be eagerly anticipated.
This news is just part of a busy and promising period for the fledging Polish shale gas industry. Last week, state-owned PGNiG became the first Polish company to have started technological production of shale gas in the country, flaring gas from its Lubocino-1 well in the Wejherowo licence area. ExxonMobil also announced plans to start hydraulic fracturing operations on a second well this week, the Siennica-1, having recently finished the process on the Krupe-1 well. San Leon Energy also began its Talisman-funded, three well program in the Baltic basin this week by spudding the Lewino 1G2 well on the Gdansk-W concession.
KNOC Suffers Kurdistan Blow
Korea National Oil Company (KNOC) disclosed this week that it had spent $400 million in Kurdistan for non-economic assets. This represents another blow to the South Korean company’s strategic plan known as “Great Korea 3020”. The aim of the plan is to have a daily production capacity of 300 thousand barrels and reserves of 2 billion barrels by 2012.
The Kurdistan project was agreed in February 2008 between the then Korean president-elect Lee Myung-Bak and Prime Minister of the autonomous regional government of Kurdistan, Nechirvan Barzani. The deal was signed in June of the same year, upon which KNOC paid $211 million. At the time, KNOC reported that it had secured 1.9 billion barrels of oil. Drilling, costing a further $189 million, was undertaken on five fields: Bazian, Sangaw North, Sangaw South, Qush Tappa and Hawler. The wells were either dry, water bearing, gas bearing or had uneconomic oil shows. Grand National Party lawmaker Lee Hak-Jae of the National Assembly Knowledge Economy Committee, who reviewed the data provided by KNOC, declared that the lack of a proper feasibility study was at fault for the poor results.
Evaluate Energy tracks the E&P, Refinery and LNG assets of oil and gas companies, country by country, as well as global licensing rounds and M&A deals. For more information, visit www.evaluateenergy.com