contentsIchthys Key To INPEX Global Upscale
In the 1999 James Bond Hollywood blockbuster The World Is Not Enough, the geopolitical minefield that the famous spy had to negotiate involved a fictionalised version of the Baku-Tbilisi-Ceyhan [BTC] pipeline.
In the real world, Perth-based INPEX executive Bill Townsend worked for BP on the BTC pipeline in Georgia and Azerbaijan, which is apt because the project he's now involved in also involves geopolitical realities: helping Japan, ravaged by the Fukushima nuclear disaster, with essential energy security.
The BTC pipeline was of critical importance to not only the US but the North Atlantic Treaty Organisation [NATO] to get hydrocarbons out of central Asia and the Caucasus into world markets via the Mediterranean without having to cross Russia or Iran.
Today, INPEX's US$34 B Ichthys LNG project will not only help give Japan energy and subsequently economic security, but is a vital cog in the Japanese company's plan to emerge as a 1 MM boe per day behemoth by 2020 by stepping out for the first time as an operator of such a massive project.
Townsend, who speaks Russian, started his oil and gas career as a business advisor to BP Russia then enjoyed commercial and external affairs roles with BP including the Shah Deniz gas project in Azerbaijan and other roles with BP in Azerbaijan and Georgia.
In 2006 – the year French super-major, FPSO and LNG specialist Total, farmed into Ichthys [24%] - Townsend was plucked from his role as the Joint Venture Coordination Manager for the North West Shelf at Woodside Energy to join INPEX as its JV Coordination Manager to oversee the relationship between INPEX and its Ichthys JV partner Total.
Of his time dealing with the Russia-NATO affair, Townsend, who has a BA in Political Science from Northwestern University, Illinois, said: "Those things are fun ... and the geopolitical intrigue is fun".
"This [Ichthys] project doesn't have that Cold War drama or anything, but it does have a major role to play in Japan's long-term energy security. In external affairs we deal with the community issues. Part of what I really enjoy about my job is the satisfaction that, with 40-plus years of project life and the size and scale of the project, we have opportunities to contribute back into society and to create multi-generational opportunities."
Ichthys is also a revolution – a globalisation – for the company. It will see INPEX moving for the first time from non-operatorship of major assets to operatorship of the $34 B Ichthys LNG project in Darwin – which will itself transform Australia's northern-most city into another Aberdeen [if the NT Government's dreams come true]. In addition, INPEX has taken on operatorship of the Abadi floating LNG project in Indonesia and also has a 7.56% interest it has in the Kashagan oil field, Kazakhstan, in the offshore North Caspian Sea.
In the process, INPEX will become a mid-tier integrated energy company. "It requires a different skill set and mindset to become operator. It's a real evolution for the company, a lot of fast learning by everyone on how to make it happen. It's a radical change for the company – that can't be understated", Townsend said.
Nor can it for Japan.
As the country reels from the Fukushima nuclear fallout and seeks a clean-burning fuel, INPEX is undergoing its own radical change in direction. INPEX is helping Japan make this adjustment with the construction of Naoetsu LNG Receiving Terminal scheduled to go online in 2014; INPEX's domestic natural gas pipeline network stretches about 1400 km connecting domestic and overseas gas assets to the Japanese market, and the Ichthys project will provide Japan with 15 years of gas at least.
INPEX also has expansion plans. "We have land available at Blaydin Point for up to four additional LNG trains, and we'd like to think we will have exploration success in our own right that would enable us to support that expansion, otherwise we'd be open to commercial arrangements with third parties if they were interested", Townsend said.
"The economics of the project work on the two-train case, but we would see a Brownfield expansion as being more attractive than a Greenfield. Federal Resources Minister Martin Ferguson was recently quoted in the press as saying there are probably enough LNG plant locations in Australia, now it could be a case of expanding what we've got rather than building new ones."
The 8.4 MM tpa from Ichthys' first two trains currently under development have been sold to Japan and, in a first for Australia, Taiwan. Japanese companies Osaka Gas [1.2%], Toho Gas [0.42%] and Tokyo Gas [1.575%] have also taken small stakes in the project. These deals helped facilitate the final investment decision that was taken on 13 January 2012.
INPEX has also announced its willingness to sell up to a 10% stake to equity buyers related to the gas sales, while Total has recently also been vocal in expressing a desire to take a larger stake in Ichthys - up to a 30% stake.
Ichthys is the cornerstone of INPEX's global growth strategy. With current proved reserves at 400,000 boed, it wants to ramp it up to 1 MM boed by 2020, with Ichthys to provide a third of this growth. The Abadi field in the Masela Block in Indonesia's Arafura Sea has about 300 MM t in reserves. The first phase of the Abadi project will produce 2.5 MM tpa for 30 years.
Part of Abadi's output may be sold to Indonesia to meet its domestic energy demand, but it will also have sufficient supply for Japan, whose overall LNG demand was estimated by the Institute of Energy Economics to rise by over 10 MM t in 2011 – about 15% – due to lost nuclear power.
Just as Total farmed into Ichthys to give critical LNG and offhshore technology expertise to INPEX, a company that is developing and learning LNG processes as it goes as a new operator, so too did INPEX acknowledge its need for FLNG
At the 2011 announcement, INPEX acknowledged that Shell has extensive expertise in offshore production, gas liquefaction, LNG shipping and FLNG, after Shell had reached FID for its Prelude FLNG project, the first globally to reach development level.
For its own part, Ichthys has already broken records. The central processing facility will be the first semi-submersible platform in Australia which, if built today, would be the largest in the world. It's being built in Korea by Samsung Heavy Industries and will last the life of the project – 40 years.
The FPSO will carry 1.2 MM barrels, while the Ichthys field itself has around 500 MM bbl of condensate as the reserve estimate, which Townsend said makes it "quite unique" from other LNG projects. It's the largest liquids discovery in Australia since Bass Strait in 1969. "So it's significant in its own right as a liquids project, let alone as an LNG project", he added.
Most of the processing will be done offshore. At peak, it will pump, at peak rate, 85,000 bpd through the FPSO then an additional 15,000 bpd through the LNG plant in Darwin. Not everything in the gas will be stripped, which is likely due to the amount of technical equipment that would be required offshore.
The LPG that is stripped in the LNG process is also significant – 1.6 MM tpa, which, according to Townsend's calculations, works out to 180 MM 9 kg barbecue containers. Most of that is likely to be exported.
There is no requirement for domestic gas, as Darwin and the NT have a very small energy and gas requirement that is being met by the Blacktip field in the southern Bonaparte Basin, and Darwin LNG, while not supplying the domestic market, has an arrangement in place for emergency gas. INPEX is in discussions with the NT Government for a similar arrangement.
INPEX has exploration acreage in the Browse Basin, and other acreage in JV with Total, which also has some of its own acreage.
It's all part of a growing realisation in the upper echelons of INPEX that, while remaining a Japanese company, to become a truly global player it needs to go beyond "just being Japanese, and Ichthys is a big part of that", Townsend said.
"The skills that we have and are developing here in Australia are different than what will exist in Japan, and maybe over time people working on Ichthys will work elsewhere so that expertise learned on Ichthys will be deployed elsewhere", he added.
The relationship with Japanese buyers is also critical as INPEX seeks to expand its global growth as an LNG player.
"If things go well – if Ichthys is one of many LNG projects – the Japanese buyers are the premium buyers in the world that you want to have, then if they're happy and we establish a good relationship with them it paves the way for future projects", Townsend said. "At the end of the day we're a customer-focused business, and if they can help us understand customer needs and educate us for future customers and relationships that go beyond a buyer-seller relationship, it becomes a partnership."
Due to the fact that Ichthys represents such an expansion for INPEX, in many ways the company is starting from scratch – hence the major backing of Total on Ichthys and Shell on Abadi for technical knowhow that will educate them for the future.
INPEX has some secondees from Total in key positions, including that of the Managing Director of the project, Antoine Serceau, who was the Total Senior Vice President of all projects globally. "He's sort of an Admiral who said 'I want to go back and be a captain one last time to run the ship'", Townsend related.
"There are parts of this project that are different from what Chevron up the street is doing on a similar sized project – Gorgon or Wheatstone. But they're not in the same space either in terms of where the company is being repositioned. For INPEX, which has traditionally been a non-operator of projects, to take on Ichthys as the first one out of the starting gates, is pretty bold and it means we've had to really start with a clean sheet. This is where having a strong JV partner helps, and Total is certainly given enough confidence to make an FID", he said.
"As an employee it's exciting to have the chance to start from scratch, as there isn't that level of management in Tokyo saying this is the way it's been done and this is how it always will be done. I'm sure in San Ramon, executives will say 'this is the Chevron way', they're very strong about that, and likewise at Shell or BP, whereas we've had to look around and invent it from nothing.
"There are certain things in place that are the 'INPEX way', but in terms of systems and processes, there aren't. I've been here five and a half years and it's been interesting and exciting to see how the company has evolved and to play an active role in that transformation."
