Project operator Jemena has been forced to scale back the size of its planned A$800 million ($614 million) gas pipeline, which will connect fields in Australia's Northern Territory with markets on the country's east coast.
Jemena had originally committed to building either a 12-inch or 14-inch pipeline, depending on the demand for gas transportation services, but has had to opt for the smaller size in order to meet a tight construction deadline, a company spokeswoman said in a statement Monday.
The 622-km pipeline will connect Tennant Creek in the Northern Territory with Mount Isa in Queensland, a state which now hosts three coalseam gas-to-LNG export projects.
The pipeline must be completed and delivering gas by 2018 to meet its contractual obligations to the Northern Territory government's Power and Water Corp., which in turn has commitments to supply its gas to fertilizer producer Incitec Pivot, based near Mount Isa.
"To meet this deadline, Jemena [had] to order the steel for the pipeline by April 1, 2016," the spokeswoman said. "This is a very tight timeframe and, unfortunately, there are currently not enough Northern Territory gas producers who are ready to commit to delivering gas to customers to be able to economically justify a larger pipeline at this stage."
The remote and sparsely populated Northern Territory is estimated to have more than 200 Tcf of gas in six onshore basins and another 30 Tcf offshore.
The pipeline project had been expected to kick-start further development of those mostly stranded resources, although there has been some uncertainty cast over future exploration by a ban on fracking proposed by the opposition party to the current Northern Territory government.
"While we're disappointed we couldn't build a bigger pipeline from the start, we are confident about the prospects for Northern Territory gas in the longer term," the Jemena spokeswoman said. "The Northern Gas Pipeline is a scalable pipeline, and the capacity can be relatively quickly increased as demand for transportation services increases."
Jemena was chosen in November 2015 by the Northern Territory government to build the pipeline. The company is owned by State Grid Corporation of China and Singapore Power.
Jemena plans to build a link connecting Mount Isa to the Wallumbilla hub in Queensland as soon as sufficient gas is proven in the Northern Territory.
The link would reduce the east coast gas market's reliance on the Santos-operated Moomba hub in South Australia.
Australia's western, northern and eastern gas markets are currently served by three separate pipeline networks. New supplies of gas are particularly needed in the eastern state of New South Wales, which at present produces less than 5% of the gas it consumes.
New South Wales imports almost all of its gas from neighboring southern states South Australia and Victoria.
The state is facing tightening supplies due to the startup of the Queensland LNG plants, which together will produce 25.3 million mt/year, and delays to development of its indigenous coalseam gas reserves while the government responds to community concerns.
Historic domestic gas demand in eastern Australia of about 1.8 Bcf/d is set to triple to around 6 Bcf/d by 2017, when consumption by the Queensland LNG plants has fully ramped up.
