Expert Risk Articles

Australia steps on the gas

Australia is set to become an energy superpower: huge gas reserves are being developed off the northwest coast of the fifth continent, which could elevate Australia to the position of the world’s largest gas producer in a few years’ time. One such site is Woodside’s Pluto gas field, which will start production in 2011.

Allianz Global Corporate & Specialty is one of the insurers of the multibillion-dollar project.


It’s one of the biggest development projects in the Australian energy sector: the Pluto LNG project (Liquid Natural Gas) off the north coast of Western Australia is expected to cost Woodside around A$12 billion (€ 9 billion). The company, the second-biggest oil and gas producer in the country after BHP Billiton, is banking on the energy appetite of Asian newcomers China and India, as well as that of industrial nations such as Korea and Japan, and the boom is set to continue for many years to come. Even the financial and economic crisis that has shaken the West these past two years has had little impact on demand. Experts predict that by 2020 Australia will topple Qatar from its leading position among gas producers and rise to number one from its present ranking of fifth.


Workers in front of the Pluto LNG plant

Pluto is an important part of this calculation. The gas field where 129 billion cubic meters of natural gas lie at water depths of between 400 and 1000 meters, was discovered in April 2005 some 190 kilometers northwest of Dampier (see map). 15-year supply contracts have been signed with the Japanese companies Tokyo Gas and Kansai Electric, each of which holds a five percent share in Pluto, with an option to extend the agreements for another five years.

Pluto goes easy on the environment

The first “train” or processing plant is scheduled to start production in 2011 and is expected to deliver 4.3 million metric tons of liquid natural gas (LNG) a year. The crude gas is cleaned and compressed at minus 161°C into LNG, which is 600 times less voluminous than the natural form. A loading terminal and a shipping channel 10 kilometers long and up to 275 meters wide had to be dredged for the tankers that transport the gas to the importers. To offset the dredging work, which involved the removal of 12 million cubic meters of seabed, a marine observation program to minimize the environmental impact on marine flora and fauna in the shipping channel was undertaken. The monitoring program provided information on any impact to the coral reef communities in the area.

Woodside also set up an environmental program costing A$100 million (€70 million). The program comprises large-scale planting of eucalyptus trees in New South Wales and Western Australia. According to the company, Pluto will become one of the most environmentally friendly natural gas ventures in the world.

With the help of AGCS experts in London, the Australian branch of Allianz Corporate & Specialty (AGCS) secured its role as lead insurer for the onshore production facilities, gas tanks and jetty. “That was a real milestone for us,” says Ronan Gallagher, who heads the AGCS team in Sydney. A milestone that is also paying off: so far, there have been no major accidents or damages since the project got underway – despite the daunting technical and geological challenges.


Huge reserves: the Pluto gas field

The specific conditions in the Carnarvon Basin off the north coast of Western Australia required extensiveexploration of the seabed to develop a safe anchorage at a depth of 85 meters for the offshore platform on which the gas is collected from the five drilling wells.

Engineers also had to carefully consider the course of the 180-kilometer long pipeline to the onshore LNG plant and how best to stabilize it. The gas field is exposed not only to strong tidal and sediment movements but also to unpredictable oceanic currents.

Production forecasts appear to justify the outlay. Experts are predicting a threefold increase in global demand for LNG by 2025. Asia’s energy appetite in particular is driving prospects, and Australia’s geographical location puts it in an excellent position. If fully exploited, Pluto could yield a good 12 million metric tons of LNG a year in future: The 200 hectare LNG Park on Burrup Peninsula, which is insured by AGCS, can easily accommodate a further four processing plants. “Australia's ‘dash for gas’ presents us with some great opportunities and challenges,“ says Gallagher. “The stakes are high with a very high concentration of values.”

But Pluto is not the only source that Australia is staking its hopes on: the Gorgon gas field to its south, is set to come on stream in 2014, and will trump everything that has come before. Containing over 1,100 billion cubic meters of gas, almost ten times as much as the Pluto field, it would be sufficient to power a city of a million inhabitants for 800 years. Chevron, ExxonMobil and Shell are jointly investing A$43 billion (€ 30 billion) in the development work. A floating LNG plant will be tested here for the first time. PetroChina has recently agreed to purchase 2.25 million metric tons a year. This agreement alone will earn the Gorgon operators A$50 billion (€ 35 billion) over a period of 20 years.