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Inpex closes gap on final investment decision

INPEX is getting ready to press the green light on plans to develop one of Australia’s largest gas fields. A Final Investment Decision on the Ichthys LNG Project is expected by the end of the year, and according to INPEX General Manager Darwin, Sean Kildare, it’ll be the game-changer for the Northern Territory and the company.

Ask anyone in the know, and they’ll tell you Ichthys is no ordinary LNG project. It’s enormous in its gas-producing potential, delivering enough LNG to power up to 10 per cent of Japan’s annual energy needs. It will raise the bar in terms of technology in the oil and gas industry. Significantly for the Northern Territory, Ichthys is likely to turbo-charge the economy for decades to come and advance Darwin’s dream of becoming an international oil and gas hub. There’s no doubt it is an exciting time to be a Territorian, and an exciting time to be part of the INPEX team.

The Ichthys gas development is the biggest project ever undertaken in the Territory, and will be among the largest LNG projects in the world. The project is a joint venture between INPEX (76 per cent) and French oil and gas company Total E&P Australia (24 per cent), and has a capital value of more than US$20 billion.

The Ichthys gas development brings together the technology required to extract approximately 12 trillion cubic feet (tcf) of natural gas from an enormous field offshore Western Australia, which will eventually be used to fuel a significant proportion of Japan’s energy needs over the 40-year lifespan of the project. To give some perspective, 1 tcf is enough to supply Australia’s energy needs for one whole year, so, we’re talking about a lot of gas. Ichthys is also home to the largest discovery of condensate in Australia in 30 years, and is expected to produce more than 500 million barrels of the high-value product for export.

The gas will undergo initial processing on an offshore semi-submersible Central Processing Facility (CPF), nearly as big as the Melbourne Cricket Ground before being delivered to Darwin via an 885 kilometre pipeline, the longest subsea pipeline in the southern hemisphere. To give you an idea of how large this component of the project is alone, I’ll compare it to another major piece of Australian infrastructure – the Ichthys pipeline will be built using 15 times the amount of steel used in the Sydney Harbour Bridge. Once piped to Darwin, the gas will be fully processed at an onshore LNG plant on Middle Arm Peninsula in Darwin Harbour. The onshore facilities include:

  • Two LNG trains with a capacity of 8.4 million tonnes per annum
  • LPG and condensate processing plants
  • Storage tanks for LNG, LPG and condensate
  • Power generation infrastructure
  • Product offloading jetty

Darwin gives INPEX the certainty required to deliver the Ichthys LNG Project. Territorians have embraced the project from the very beginning and it has been very comforting to see such an enormous level of support from the community. INPEX chose Darwin as the preferred location for its onshore processing facilities in September 2008, following extensive feasibility studies into the Northern Territory and Western Australian options.

The Northern Territory Government has played a key role in securing this project, offering land for the development at Blaydin Point early on in negotiations and actively pursuing the joint venture to build in Darwin. It also has an efficient major project approvals process in place, which will help us meet our obligation to the Australian Government to develop the Ichthys gas field as quickly as possible. Darwin also has the advantage of necessary infrastructure such as an international airport, a railway connection and deep-water port facilities. In fact, it remains the only “gas ready” location available to the joint venture in Northern Australia.

The joint venture has entered into a Project Development Agreement (PDA) with the NT Government, and the NT Parliament unanimously enacted a Bill underpinning the certainty of land tenure and project support. We are now on the homeward stretch to a final investment decision (FID) in Q4 this year, and I’m excited to be a part of this unique project as it prepares to make its benchmark in the oil and gas industry.

Territorians are eagerly anticipating the substantial economic impact that will be felt for decades to come. It is clear when I speak to the Darwin business community that this is a development they would like to build their families’ futures around. But if you want to know what’s really driving this project, we must look to Japan’s massive and growing demand for cleaner energy. The Japanese government has a 18.2 per cent share in INPEX; we are Japan’s flagship oil and gas company. As a result, INPEX has a key role in progressing plans by the Japanese government to own 50 per cent of its energy sources by 2020. The company has set itself the goal of producing 800,000 to 1 million barrels of oil equivalent a day by 2020. With the capacity to produce 8.4 million tonnes of LNG a year and supply a significant proportion of Japan’s electricity needs, Ichthys is critical in funding Japan’s ongoing energy security. It is indeed the “Crown Jewel” in INPEX’s global petroleum assets portfolio of resource projects.

As we approach FID, the Ichthys Project is rapidly gaining momentum and we are now one step away from gaining environmental approvals. We recently reached the major milestone of delivering the final Environmental Impact Statement (EIS) to the Northern Territory and Australian governments. The final EIS includes a Supplement in which the Project responds to all 130 public submissions received during the eight week public review period for the Draft EIS, held from July to September 2010.

The Supplement also provides a wide range of additional technical studies undertaken – more than $3 million in addition to the $20 million already spent – to ensure our understanding of the environment and to confirm many of the conclusions in the Draft EIS regarding the Project’s anticipated environmental impact.

The final EIS was developed through a comprehensive program of technical research and modeling, as well as extensive consultation with relevant government agencies, non-government organisations, and with the broader community.

By listening to the community, we have continued to expand our knowledge of the Darwin Harbour environment and progress the design of the project, further minimising the potential impacts associated with the development and its ongoing operation. For example, we plan now to remove hard rock blocking the proposed shipping channel in Darwin Harbour without the use of marine blasting. We will instead achieve this through advanced technologies, including a cutter suction dredge and other mechanical techniques with blasting only to be used as a last resort. We have managed to reduce the dredge volume by around one million cubic metres and we were pleased to find that mud crab and barramundi in the harbour and Shoal Bay are expected to remain unaffected by the development.

INPEX has also committed to a range of voluntary environmental offset programs, including coastal dolphin research and the Darwin Harbour Integrated Research and Monitoring project. We have conducted a rigorous consultation process with the community and stakeholders throughout the EIS process and we are continuing to do so. A survey conducted after we released the Draft EIS showed 74 per cent of Territorians broadly accepted the project, and this gives us confidence to continue to move forward. Every time we engage with representatives from the community and business, we learn something new about Territorians, including their social and business aspirations, and expectations for environmental management. Ultimately this process gives us further clarity and better guidance on how to shape this project to fit as seamlessly as possible into plans for the future of the Northern Territory and the community tapestry of Darwin.

Front End Engineering and Design (FEED) of the onshore facilities, is just about complete. FEED is also nearly complete for the offshore facilities, including one of the world’s largest Central Processing Facility (CPF), a Floating Production, Storage and Offloading (FPSO) facility and the subsea pipeline. We have completed the sub-sea surveys, studies and engineering layout plans to finalise the preferred pipeline route from the Browse Basin through to Darwin Harbour.

On the business front, we are also making steady progress. We have spent more than $65 million in the Darwin community since coming to Darwin, and that spend is increasing every day. Companies all over the world are busily tendering for more than $20 billion (US) worth of contracts associated with the project. Importantly, INPEX CORPORATION President Toshiaki Kitamura recently confirmed that a long-term sales agreement for Ichthys gas could be signed within months. In the meantime, INPEX continues high-level talks with financiers and banks to secure the additional funds necessary for the project. Once the financiers, insurers and gas buyers complete due diligence on the Ichthys Project and we obtain critical government approvals, it will be full steam ahead with construction scheduled to begin next year.

Ichthys is a world-class project requiring world-class personnel, and attracting the best of the oil and gas industry will be a key challenge as INPEX progresses towards FID. An army of construction personnel will be needed to build the gas plant. More than 2000 jobs will be created at the peak of construction, including electricians, plumbers, welders, boilermakers, carpenters and specialised staff, such as engineers and health and safety advisors.

Following construction, the operational phase of the project presents unique, long-term career opportunities for those skilled and trained in the oil and gas industry, and will create about 300 permanent jobs on the project. With access to cutting-edge technology, a wide range of project managers, engineers and technical oil and gas specialists will be required to operate and run the offshore facilities. Hospitality, catering and other service workers will also be needed to ensure accommodation on the offshore facilities is comfortable.

During both the construction and operational phases, INPEX will be keeping locals at the forefront of employment and business opportunities. We’ve signed up to an Industry Participation Plan (IPP) with the Northern Territory and Australian Governments. The IPP commits INPEX to sourcing goods and services from local business when bids are technically and commercially competitive and to provide full, fair and reasonable opportunity for local companies to compete.

We recently celebrated the official opening of the Larrakia Trade Training Centre in Darwin, with INPEX and its Ichthys joint venture participant Total E&P Australia donating $3 million to its construction. An initiative of the Larrakia People (Darwin’s traditional owners), this purpose-built facility will generate a pipeline of skilled workers to help address the Territory’s skilled labour shortages and also prepare for the suite of major projects anticipated for Darwin’s future. It offers an extensive range of practical courses, including metal fabrication, welding programs, civil construction, general construction, metalliferous mining, electrician, refrigeration and air-conditioning and automotive training.

A project on as grand a scale as the Ichthys Project is going to need many more workers than the Northern Territory and the rest of Australia can provide. That’s why we will also be looking further afield, to attract experienced oil and gas professionals from across the world. We recognise the importance of striking a balance between local input, and protecting local business from staff shortages that can occur at the peak of major projects. We will soon be launching a global recruitment campaign to target the world’s best oil and gas workers, using social media and sponsoring key international events in oil and gas hubs.

Location is a big draw card for international oil and gas workers. Australia is well known for its relaxed lifestyle, beautiful landscapes, quality of life, strong economy and political stability. Living in Darwin is going to be an attractive opportunity for many people. Who wouldn’t want to cast a line and catch a barra after a hard day’s work? The Ichthys technology is among the world’s best, and INPEX will provide significant career opportunities for oil and gas workers.

Ichthys also presents a wealth of opportunities for business. Building a major project such as this is an international effort. The Australian economy is not able to deliver on every scope of work that we need, so we will have to look offshore for some of that capability. However, we are very serious about wanting to see Northern Territory and other Australian businesses lining up and participating in the Ichthys Project where possible. We are working closely with the Northern Territory business community to raise awareness about the prequalification process, to ensure as many local companies as possible are eligible to win contracts. For instance, those seeking contracts with the onshore component of the project need to undergo evaluation by the Engineering Procurement Construction (EPC) contractor, who will be appointed mid year.

The Ichthys LNG Project will be another step forward in Australia’s relationship with Japan. Japan is Australia’s number two trading partner after China and well ahead of the United States. Essentially, the Japanese economy has underwritten the development of Australia’s LNG industry and they are always there as a premium customer that makes the business case for LNG projects possible. Australia is now the third-largest LNG producer in the Asia Pacific region and the seventh largest in the world. We are climbing the ladder quickly. In fact, Australia meets around 40 per cent of Japan’s demand for LNG, with our gas exports tripling over the last decade. Economic modeling shows the Ichthys Project will inject $3.5 billion into the Australian economy every year over its 40 year life, and federal government taxation receipts and revenues are forecast to be upwards of $23 billion. Early estimates show the Northern Territory’s Gross State Product will rise by more than 17 per cent annually, and the flow-on effects to businesses and the overall economy will be substantial. It’s not a bad outlook for a place that’s already been described as Australia’s new economic powerhouse. Ichthys will be the catalyst for significant economic growth in the Northern Territory, and will help realise Darwin’s ambition of becoming a global oil and gas hub.

Sean Kildare – General Manager Darwin, Ichthys Project
Sean Kildare has been a member of the INPEX Australian management team since 2002, establishing the approvals and External Affairs management programs for the Ichthys LNG Project.

As the General Manager Darwin, Sean represents INPEX’s business interests in the Northern Territory.

Sean graduated from the University of Adelaide with a degree in environmental management and has been operating in the resources industry for more than 20 years.

With extensive experience in major project development and managing regulatory approval processes, Sean has worked for mining and petroleum projects throughout Australia as well as on a broad range of international projects.

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