RE: "kicking the tyres" supply deals from the BeetalooNot so fast there, RC, here's the April update:
Jemena forced to reduce NT gas pipeline size amid drilling opposition
Pipeline owner Jemena has been forced to reduce the size of a new $800 million pipeline it will build to join the Northern Territory into the national gas grid by about a quarter after resource developers were deterred by the lack of bipartisan support for onshore drilling.
The North East Gas Interconnector (NEGI) line will be able to carry just 90 terajoules a day of gas through a 12-inch-diameter pipe, instead of the 120TJ/day through a 14-inch pipe that was anticipated when Chinese-controlled Jemena won the contract from the NT government in November.
Northern Territory Chief Minister Adam Giles (left) and Jemena managing director Paul Adams. Jemena's pipeline will be smaller than envisaged when the company won the contract. Photo: Glenn Campbell
"There just isn't enough gas to justify anything bigger than a 12-inch pipeline at this stage," Jemena head of business development Antoon Booey said.
"When we were awarded the business in November last year we had an expectation there would be more gas available to be transported, but since late last year there's been a real lack of interest to contract with us for gas transportation agreements."
Jemena beat larger rival APA Group and two other consortiums for the contract from the NT government to build NEGI, which will run from Tennant Creek in the NT to Mt Isa in Queensland. APA has committed to building a 14-inch line on the same route, and two other consortiums had proposed to build the link using a different route to the south that linked down to Moomba in South Australia's north.
The project was portrayed by NT Chief Minister Adam Giles and Jemena MD Paul Adams as a "nation-building" one that would drive the development of the gas industry in the territory, but critics say the smaller the pipeline is, the less it can be seen in that capacity.
Mr Booey said Jemena was "very excited still" to have won the contract to build NEGI and very confident it will be a good project in the longer term.
"It's the first step of what we hope will be a much larger pipeline eventually, and one that connects the Northern Territory right through to the east coast."
He said the pipeline could be scaled up "quickly" by duplicating it or adding compression to add capacity.
"In terms of development for northern Australia, the bottleneck won't be the size of this pipeline, the bottleneck will be the rate at which upstream developers can produce gas."
The NT government provided a foundation supply of gas for the project, making gas available from the territory utility Power and Water Corporation's contract with ENI from the Blacktip field. Fertilisers maker Incitec Pivot is the foundation customer, and its Queensland plant is due to receive gas from Power and Water through the pipeline starting in 2018.
No other contracts have since been signed to use NEGI, leaving the pipeline capacity still two-thirds empty, but Mr Booey said negotiations were under way with potential shippers. He said the obligation to start delivering the Power and Water gas in 2018 meant Jemena, which is controlled by State Grid Corporation of China, couldn't delay the ordering of the steel for the pipeline and so had to decide on the pipeline size.
Jemena also explored the possibility of securing funding from the federal government's Northern Australia Infrastructure Facility to allow a larger initial pipeline to be built, but with that program not operating until about the third quarter, the timing again was too late
"We really can't wait any longer to make a decision about sizing so we've gone ahead on that basis," Mr Booey said, adding it was "hard to say" how much NT Labor's support for a moratorium on fracking had played into the reluctance of gas developers to commit to use the new pipeline.
The main factors were probably certainty around production, the regulatory environment and the cost of doing business, including labour, he said. The weak oil price was less of a factor because the domestic gas market is relatively unaffected by global crude prices.
The small size of the initial line looks set to push back Jemena's ambitions for an early extension of the new pipeline down to the Wallumbilla gas hub west of Brisbane, which would allow NT gas to reach industrial users further south in NSW.
Mr Booey said gas developers would "need to get their act together and start producing enough gas" for the pipeline to be expanded.
"If we look forward a few years we hope there's going to be a lot more gas to be produced that we can transport to he east coast and fill the supply hole that's looming large there."
The order for the pipeline was made with suppliers on April 1.