LNG: Energy of the Future

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1 LNG: Energy of the Future Your guide to Gladstone s proposed Liquified Natural Gas Industry PROPOSED LNG INDUSTRYWITHIN GLADSTONE The Gladstone Economic and Industry Development Board trust you find this publication a useful reference resource on the LNG industry. In particular the establishment of the world first coal seam gas to LNG export industry in Queensland. Gladstone is the preferred location for a number of proposed LNG plants and is the logical choice as the port of export due to the ready access to the strategic natural asset of Gladstone Harbour. In light of the recent industry downturn in Gladstone the proposed LNG projects have been identified as providing the best option for future regional recovery. LNG is the energy of the future inmany ways including economically and environmentally. There are currently seven LNG project proposals at various stages of the planning and approval process listed in this publication. LNG plant construction could start as early as 2010 with the first production as early as and could total in excess of 10M tonne per annum of LNG exports. The evolution of the Global Financial crisis and the progress of the planning and approvals process during 2009/10 may see some changes in the LNG landscape for Gladstone but Ihave no doubt Gladstone will be the home of the world first coal-seam-gas to LNG export industry. To keep track on project developments please visit our project review at Garry Scanlan -Chief Executive, Gladstone Economic and Industry Development Board Long History of LNG in Australia Australia is awell-established producer of liquefied natural gas which, until now, has been sourced from conventional natural gas. The proposed projects for Gladstone will be the first large-scale projects in the world to convert coal seam gas to LNG. Since 1989, Australia s LNG industry has grown, and the country is now the third largest LNG producer in the Asia-Pacific region and the fifth largest LNG producer in the world, exporting more than 13 million tonnes in Project and Proponents LOCATION: CURTIS ISLAND Queensland Curtis LNG Proponents: BG Group GLNG Proponents: Santos and Petronas Current Reserve Base* Believed to be more than 3000Pj (2P) and 9000Pj (3P) 3246PJ (2P) and 6000Pj (3P) Proposed Development and Current Status Initial two-train development producing total of 7.5mtpa. Seeking approval for up to 12 mtpa capacity. Status: Plans to submit EIS by mid 2009 and Financial Investment Decision by 2010 Initial 3.5mtpa development. Design will contemplate expansion to 10mtpa. Status: Submitted Draft EIS in late March. Targeting Financial Investment Decision by late 2009 First Production First production in late 2013 or early 2014 First gas shipment due in 2014 Australia has a strong track record as a competitive, reliable and stable LNG supplier, as well as an enviable record for safety and reliability. More than 1700 LNG shipments have been dispatched without incident. Current LNG exports from Western Australia and the Northern Territory are worth more than $3.2 billion per year. Australia Pacific LNG Proponents: Origin Energy and ConocoPhillips Pj (2P) and 11,288PJ (3P) Four train development producing a total of 14 16mtpa. Status: Plans to submit EIS in late Financial Investment Decision on first train by late 2010 First train expected by 2014, remaining trains to be added incrementally by 2020 Southern Cross LNG Initial 3 train development producing 1.3mtpa Proponents: LNG Impel Royal Dutch Shell and Arrow Energy Proponents: Royal Dutch Shell and Arrow Energy Announcement in February 2009 deal with Arrow Energy regarding CSG acreage and also a deal with Gladstone Ports Corp to investigate Curtis Island for a possible LNG plant. Feasibility studies have commenced and currently working on Initial Advice Statement. LOCATION: FISHERMAN S LANDING Gladstone LNG Pty Ltd Proponents: LNG Ltd and Arrow Energy SUN LNG Proponents: Sojitz Producing 1.5mtpa. Status: EIS approved by Qld Govt in April Aiming for Financial Investment Decision by end 2009 Initial 2 train development producing 1 mtpa First shipment in late 2012 * 2P=proved and probable 3P =proved, probable and possible This lift out was coordinated by the Gladstone Economic Industry Development Board (GEIDB)

2 This is an absolute prize for central Queensland if it happens, says Mr Zussino, Gladstone Ports Corporations Chief Executive WHAT ISLNG? Liquefied natural gas (LNG) is natural gas which has been processed into liquid form. To liquefy natural gas, the gas is cooled to -162oC. The gas becomes a clear, colourless, odourless liquid significantly reduced in volume, which can then be stored and transported at atmospheric pressure. Natural gas is primarily methane, with low concentrations of other hydrocarbons, water, carbon dioxide, nitrogen and some sulphur compounds. Why do we process Natural Gas into LNG? Processing natural gas into liquid reduces the volume of the product (so that it is 1/600th of its original size). The reduced volume takes up less space and makes it more economical to transport across large distances and store in larger quantities. How is LNG used? Before LNG can be used, it must be converted back into agas. This is done by heating it in a vaporizer (the process is called regasification or vaporization). After regasification, the natural gas can be supplied to households, power stations and other industrial consumers. LNG can also be kept as aliquid to be used as an alternative transportation fuel. LNG and the Environment LNG is the cleanest burning fossil fuel. The LNG production lifecycle produces half of the CO2 emissions when compared to current coal technologies. LNG is non-toxic and does not linger in the environment. When spilled on water or land, LNG does not mix with water or soil or leave a residue. There is no environmental cleanup needed for a LNG spill on water. LNG carriers can be more environmentally cleaner than other shipping vessels as they are able to consume the LNG for the carriers propulsion. The drilling and construction work, combined with the mountain of surveys, environmental assessments, and native title clearances, is already creating hundreds of new jobs. WHAT ISCOAL SEAM METHANE AND WHY USE IT? Coal seam gas is natural gas extracted from underground coal seams which can be used for domestic or industrial purposes. Conventional natural gas, which is found in sandstone, comprises primarily methane, ethane, propane and butane whereas coal seam gas is predominantly methane. Coal seam gas reserves which are being utilized for these projects are considered to be almost pure methane (97%). Coal seam gas is formed through the same natural processes that produce coal over millions of years. It is held in coal by pressure and water. Importantly, water extracted during coal seam gas production comes from within the coal seams and has the potential to be harnessed for wide community benefit. When used for electricity generation, gas produces about half the greenhouse gas emissions of coal-fired generation and uses a minute fraction of the water that coal-fired electricity requires. The further environmental advantage of coal seam gas is that it is generally lower in carbon dioxide than conventional natural gas. In may cases, coal seam gas can be extracted without major disruption to surface activities. The exploration and production of coal seam gas does not require traditional mining activity so it has much less impact though land disturbance and transportation of the product to processing and distribution facilities.

3 2007 Gladstone LNG Site Study In 2007 the Department of Infrastructure and Planning commissioned Connell Wagner to identify and rank sites within the Port of Gladstone that could support plant and associated infrastructure to form a liquefied natural gas (LNG) precinct. The scope of this study included: review of existing information determination of critical requirements of a conceptual LNG plant and infrastructure allowing for future growth determination of criteria to assess all possible sites determination of a list of possible sites within the Gladstone region establish ashort list of sites and conduct a thorough assessment and ranking. Design criteria for LNG facility operations were established in relation to LNG carrier size and operations, port configuration, load out wharf facilities, LNG processing plant and associated infrastructure, cryogenic pipeline, and safety and security clearance zones. The environment and community, gas delivery capacity and transport and infrastructure considerations for both construction and operation phases were also assessed. Site assessment criteria were developed and grouped to assist with consideration and ranking of the sites. The study initially identified a total of 13 sites for high level assessment. Port Alma was included in the comprehensive site selection study undertaken by Connell Wagner and was also included in the site selection studies undertaken by the individual LNG proponents. In each case, Port Alma harbour was dismissed as an inappropriate location for amajor LNG industry for significant technical reasons. Firstly the topography and stability of the terrain did not provide satisfactory weightbearing capacity or stability for a LNG facility. Secondly, Port Alma holds the largest single cargo license for ammonium nitrate and class 1explosives on the east coast of Australia and the loading of these products requires considerable exclusion zones. These zones, in addition to the exclusion zones required by LNG, would severely limit access to the inner harbour and port operations. Thirdly, the tight geometry of the inner harbour and a limited capacity would not allow for the accommodation of LNG ships which can be over 300 metres long and have abeam of 43 metres. Afirst cut review was undertaken resulting in along list of nine sites, of which six were located on Curtis Island. These nine sites were assessed against pre-determined criteria. Afatal flaw analysis was undertaken in conjunction with asite inspection. The site inspection confirmed access issues relating to shipping, land side access, services, land form and the environment. This approach allowed a short listing of two sites; namely North China Bay and Hamilton Point West. Coincidentally, both sites are adjacent and are on Curtis Island. A more detailed assessment of these two sites was then undertaken involving site layout drawings, a product loading jetty and barge landing sites. Further consideration was given to the suitability of each site through a high level cost comparison and the suitability of the Even if only one of these projects comes off in that time frame some companies are talking about $12 billion to $14 billion over the next five tosix years that is amassive investment into both central Queensland and south-west Queensland. Ms Anna Bligh MP, Premier of Queensland site for future expansion. This process was used to prepare a final ranking of each site. The study conclusions resulted in the North China Bay site being ranked as the preferred development site for a LNG processing precinct. This site ranked only marginally better than the Hamilton Point West site, however, it is noted that the North China Bay site has the attraction of additional adjacent areas suitable for further expansion of LNG operations. Although the North China Bay and Hamilton Point West sites are adjacent, they are separated by a ridge and therefore may not be easily merged. Notwithstanding this, site layouts may be revisited in terms of optimisation, development opportunities and sharing of common user infrastructure. Such opportunities will only become evident following definition of particular proponent requirements and further detailed analyses of the sites and development requirements. During the course of the study it became evident that further detailed consideration was required for channel widths and LNG carrier access arrangements, beyond the scope of this study. The Gladstone Ports Corporation and Maritime Safety Queensland are undertaking studies to assess safe vessel movement requirements in the Port of Gladstone. This additional work will highlight the need for increased dredging of the harbour. The assessment is critical so that decisions can be made relating to overall project costs and potential common user infrastructure access requirements.

4 LNG AND SAFETY The LNG industry has an excellent safety record thanks to the safe properties of LNG and the stringent enforcement of standards, codes and guidelines applying to LNG. LNG facilities, storage systems and LNG carriers are all equipped with various safety and security systems and are required to adhere to strict international criteria regarding their construction and operation. The impressive safety record of the LNG industry stretches over many decades. LNG terminals (export and import) are located all over the world including Asia, Europe, Australia, Canada, United States of America and the United Kingdom. There are currently 51 LNG reception terminals and 32 LNG liquefaction plants in operation across the world. There are over 70 planned new and expanded LNG terminals, and more than 30 planned liquefaction plants and expansions. LNG facilities have been operating near urban areas for many decades, some for more than 40 years, without asingle serious safety incident. Safety facts: LNG is aclear, odourless, non-toxic, noncorrosive liquid As a liquid, LNG cannot explode. Unlike LPG, or liquid petroleum gas that is used in barbecues, LNG is NOT stored or transported under pressure LNG vapour is only flammable if it is within the range of 5 15% natural gas in air. Ifit is less than 5% natural gas in air, there isnot enough natural gas concentration in the air to burn. If it is more than 15% natural gas concentration in air, there is too much gas in the air and not enough oxygen for it to burn. The lower flammable limit of LNG is about two to three times that of other common hydrocarbon fuels, which means that it takes more vapours to accumulate to pose afire hazard. Methane is lighter than air and will disperse more rapidly than most other hydrocarbon fuels. There has never been a major release of LNG from aship. What this offers is a significant LNG export industry for Queensland. That includes a massive development in the gas fields, pipeline development to the coast and LNG facilities at Gladstone. Mr Zussino, Gladstone Ports Corporation Chief Executive Glossary of Terms LNG SHIPPING LNG tankers are double-hulled ships specially designed and insulated to prevent leakage or rupture in an accident. The LNG is stored in a special containment system within the inner hull where itiskept at atmospheric pressure and -161oC. Conventional LNG carriers are up to approximately 290m long, 43 metres in width and 11 metres in water draft and are constructed to very stringent specifications. The typical LNG carrier can transport about 90, ,000 cubic metres of LNG, which will provide about million cubic metres of natural gas. The ship size is similar to that of alarge coal ship. LNG tankers are generally more environmentally friendly than other shipping vessels because they burn natural gas in addition to fuel oil as fuel source for propulsion. During loading of LNG ships there will be a safety zone around the ship in the berth. When there are no ships at the LNG facility, this may be relaxed. Moving ship safety zones may be required and will be assessed through arisk assessment process. Australia s Maritime Security is well established under the Maritime Transport Security Act 2003, which requires security risk assessments for ships and ports. CSG: Coal Seam Gas. Joule: The work done to produce the power of one Watt continuously for one second. LNG: Liquefied Natural Gas anodourless, colourless, non-corrosive and non-toxic product of natural gas that is in liquid form. Liquefaction plant: Facility which converts natural gas at ambient temperature and pressure to liquefied natural gas. Petajoules (PJ): One million billion joules. Proven reserves (1P): Are reserves that, to a high degree of certainty (90% confidence), are recoverable. There isrelatively little risk associated with these reserves. Proven plus probable reserves (2P): Are reserves that analysis of geological and engineering data suggests are more likely than not to be recoverable. There isatleast a50% probability that reserves recovered will exceed proven plus probable reserves. Proven, probable plus possible reserves (3P): Are those reserves that, to alow degree of certainty (10% confidence), are recoverable. There is relatively high risk associated with these reserves. Regasification plant: Aplant that accepts deliveries of LNG and vapourises it back to its gaseous form by applying heat so that the gas can be delivered into apipeline system. Train (liquefaction):an LNG train is the term used to describe an independent unit for gas liquefaction. An LNG plant may comprise one or more trains. Wellhead: The equipment installed at the surface of the wellbore. Awellhead includes such equipment as the casinghead, tubing hanger, and various valves to control flow from the well.

5 CONSTRUCTION IN SIGHT FOR FISHERMAN S LANDING The reclaimed land at Fisherman s Landing is the proposed site of the mid-scale LNG facility for Gladstone LNG Pty Ltd s -Fisherman s Landing Project. Gladstone s first liquefied natural gas (LNG) facility is on track to begin early works later this year with the construction of Gladstone LNG Pty Ltd s Fisherman s Landing Project. Gladstone LNG is a wholly owned subsidiary of LNG Ltd. We intend to load the first shipment of LNG during 2012, so I m quite excited by the progress to-date positioning us well to meet our first significant construction-related milestone with early works in October, said Mr Maurice Brand, Managing Director of LNG Ltd. In preparation for constructing potentially the world s first export facility that turns coal seam gas into LNG, we ve examined a variety of technologies throughout the world and selected a design that matches LNG Ltd sbusiness model. The project s mid-scale size influenced the location of the site, which also SCOPE allows the facility to utilise existing infrastructure. Mr Brand expected these factors to create considerable savings and ashorter construction programme. Located on reclaimed land at Fisherman s Landing, approximately 10km northwest of Gladstone, the midsized facility proposes to access the existing Wharf No. 5, which is amultipurpose wharf used for transporting bulk liquids. It is intended that the wharf will be upgraded to accommodate LNG ships. The gas for the LNG facility will be sourced from Arrow Energy s gas reserves located in the Surat Basin. At peak construction we expect to employ up to 300 people, which is great news for the local economy. Employment and retaining a highly skilled workforce is akey community issue. Construction of this facility provides job prospects for a lot of locals. Approximately 30 permanent employees will also be required once the facilitybecomes operational. The scope for the project can be broken into three areas. Port modifications (Gladstone Ports Corporation) responsible for extending the Targinie channel infrastructure, as well as extensions to Wharf No. 5 LNG facility (Gladstone LNG Pty Ltd) responsible for liquefaction facility, on-site LNG storage and wharf pipework Gasfield development and Surat gas pipeline (Arrow Energy Ltd ) Built in two stages, the LNG facility will initially produce 1.5 million tonnes of LNG per annum, with output doubling to 3million tonnes of LNG each year, upon completion of the second stage. In April the proposed facility received a final Assessment Report, completing the EnvironmentalImpactStatementprocess under the Environmental Protection Act The LNG project then proceeded to the next stage of the approvalprocess the development approvals stage. Gladstone LNG Pty Ltd is currently finalising its approvals process strategy for extending the Targinie shipping channel and infrastructure in conjunction with the relevant State Government agencies. The schedule suggests that the development approvals stage will be complete towards the end of this calendar year. Recently the Gladstone Ports Corporation agreed to the strategic placement of dredge material on the proposed location of the first LNG train at Fisherman slanding. This agreement will significantly assist to reduce future capital costs, shorten the overall construction schedule and facilitate the planned early site works in October. For more information about Gladstone LNG Pty Ltd s -Fisherman s Landing Project, visit or call us on (08) FAST FACTS LNG Ltd Listed on ASX September 2004 (LNG) Mid-scale facility on reclaimed land at Fisherman s Landing Coal seam gas supply from Arrow Energy LNG Off-taker is Golar LNG First LNG train with 1.5 mtpa capacity Preferred contractors are SKEC and Laing O Rourke EIS signed off on 14 April 2009 Early works anticipated to start 1October 2009 Final Investment Decision expected in fourth quarter 2009 First LNG to be exported by fourth quarter 2012