Santos’ general manager WA and NT Joe Ariyaratnam. Image courtesy Santos

Santos’ general manager WA and NT Joe Ariyaratnam. Image courtesy Santos

By Sarah Byrne

BROWNFIELD expansion is a key component in Australia becoming cost competitive and meeting increasing Asian liquefied natural gas (LNG) demand, according to Santos’ general manager WA and NT, Joe Ariyaratnam.

Speaking to Oil & Gas Australia in August on the sidelines of SEAAOC, Mr Ariyaratnam said there was no reason why brownfield expansion across Northern Australia could not compete to supply growing Asian LNG demand.

“We are unlikely to see onshore greenfield LNG projects for some time to come. A lot of growth will flow from brownfield expansion because it is so much more cost competitive.”

Asia Pacific LNG demand is forecast to increase at a compound annual growth rate of four per cent, with a supply-demand gap of 50 million tonnes per annum (Mtpa) by 2025, increasing to 120 Mtpa by 2013 and 200 Mtpa by 2035.

“Asian demand is going to continue to grow, and the risk is that without the investment and foresight that we would normally see in the industry, that demand is going to be met by opportunities outside of Australia,” he said.

Creating a cost competitive edge, driving innovation and implementing collaboration in both upstream and downstream are fundamental to Australia securing the next wave of investment, Mr Ariyaratnam said. “If we can get cost competitive again, there is no reason why we [Australian LNG] can’t meet the demand,” he said.

Expansion of the ConocoPhillips-operated Darwin LNG project was noted as a leading brownfield opportunity for Santos, with backfill of the INPEX Ichthys project and Shell’s Prelude also mentioned as areas of potential opportunity.

Mr Ariyaratnam said the existing utilities and infrastructure at Darwin LNG make it a great opportunity and one that is cost competitive.

“Expansion is almost a greenfield project – but with the benefit of all the utilities, services and supporting infrastructure already in place.”

Collaboration in the upstream is essential to the successful delivery of a cost competitive brownfield project, but it brings challenges Mr Ariyaratnam said.

“Upstream collaboration is important and with any brownfield expansion there is always the challenge of how it will align with existing infrastructure.”

Mr Ariyaratnam said working in an environment with a live functioning train brings new challenges to the project.

“Having that seamless interface and working together [with the operator] to make sure it is a win-win [situation] and that you are not causing disruptions to the existing operations is important,” he said.

“We must work together in the upstream, and work together in the downstream to become competitive again.”

Reliable safe supply, close proximity to Asia and a long history with loyal customers puts Australia’s LNG industry in a good position to meet Asia Pacific LNG demand, Mr Ariyaratnam said.

“It would be a real shame if we were to lose that [investment] because we weren’t collaborating and cost competitive,” he added.

In late August Santos reported a half-year net profit of $37 million after tax, 82 per cent lower than the previous first half.

A slump in net profit was a reflection of significantly lower oil prices and higher exploration expense, the company said.

However, strong operational performance was reported, particularly from Darwin LNG and PNG LNG, where Santos recorded production growth of 13% compared to last year.

Santos managing director David Knox said that the company has responded both effectively and quickly to the lower oil price environment, delivering significant reductions in costs across the business and improving its productivity.

“We have again delivered strong operational performance including higher production and sales volumes thanks to good performance from our LNG assets and stronger Cooper basin gas production,” Mr Knox said.

Commissioned in January 2006, the Darwin LNG project sends gas via a 502 kilometre pipeline from the Bayu-Undan field to the plant at Wickham Point, where it is converted into LNG for sale to Tokyo Electric and Tokyo Gas in Japan.

Santos holds 11.5% interest in the ConocoPhillips-operated Darwin LNG project.