The hand-wringing over ballooning costs of Australia’s LNG projects is not shared Down Under, says KPMG’s Perth-based partner.

“A lot of the clients I’m dealing with are still very bullish,” Jonathan Smith, the global accounting firm’s oil and gas sector leader for Australia, told Midstream Business. “I think I’m already seeing some downward pressure on the costs and that’s moving all through the industry. There’s so much focus on that.”

Smith calls 2014 the “tipping point” in the LNG timeline, with output expected to shoot up 35% as projects come online. Unconventional gas development, however, will have to wait. While the U.S. EIA ranks Australia as seventh in the world in technically recoverable shale gas resources with 437 trillion cubic feet, the country isn’t yet ready to take advantage of its bounty.

“At the moment, I’m just seeing a lot of rhetoric, and I think we have a lot of conventional gas in the first instance, so I do think it’s going to lag,” Smith said. “I think there’s still some way to go before we would go to commercialization of the shale gas, but Australia has enormous shale gas deposits. I sense from my clients I deal with in Australia, they’ve been concentrating on getting first gas and getting those projects up.”

The KPMG Global Energy Institute’s recently published “Outlook 2014” acknowledges that Australia has a ways to go in its unconventional development, but notes that the country “seems ideally positioned to be a major gas exporter to serve the growing demand of the Asia-Pacific market.” The report notes numerous challenges, including:

  • Establishing infrastructure in remote frontier locations;
  • Understanding the geology of those locations;
  • Securing water resources; and
  • Keeping operating costs low.

The industry game-changer is Shell’s floating LNG (FLNG) Prelude project. The world’s largest floating production facility, under construction in South Korea, will displace more than 600,000 tons and boast storage tanks with capacity equal to 175 Olympic-sized swimming pools.

“Shell’s project really is a phenomenal innovation when you consider the size of the floating LNG,” Smith said, adding that the project is intended to lower costs associated with onshore plants. “Certainly Shell wants to push that technology and is looking for further opportunities. That’s probably the biggest game-changer that I’m seeing in this region.”

A section of Shell's Prelude hull is moved during construction at the Samsung Heavy Industries yard in Geoje, South Korea. Source: Shell

Another commonly cited threat to Australia’s ascension to the global LNG export throne is competition for market share in Asia Pacific. No worries from KPMG’s expert, though.

“There’s been a lot of talk about downward pressure on LNG prices in the region and, again, we’ve had a lot of press recently in the region about pushing down US$20 per Btu down to US$11 per Btu. That has to be put into context as well,” Smith said. “During cold winters, the price of LNG rises significantly because of the demand from Japan. When I’m talking to oil and gas executives in Australia in LNG projects, they do assert that Australia is very close to links with China’s growth. They’re saying to me that even though there may be competition from Canada and Indonesia, they still see that demand is going to outstrip supply in the region and they’re fairly bullish.”

Can LNG production, on track to jump from 24 million tonnes per year (mtpa) in 2013 to 33 mtpa in 2014 and nearly double to almost 65 mtpa in 2015, keep up with this aggressive schedule? Smith is confident that it will.

“The gas is already 80% forward sold,” he said. “They’re still seeing demand. Whether we’ll see expansion of the projects that was originally talked about maybe three years ago, I’m not sure. But it’s a pretty exciting time to be in the industry in Australia.”