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BHP’s plan to turn shipping green

It often amazes how long it can take big business to translate a quality intangible like a very good idea into practical, money-making reality.

It is coming up to three years now since Woodside Petroleum boss Peter Coleman revealed that Australia’s regional gas champion wanted to kick-start efforts to promote a domestic liquid natural gas market by committing to a break-bulk facility at its Pluto project in Karratha in Western Australia’s north-west.

This was a Field of Dreams moment. Woodside would build in the hope that a new generation of LNG-fuelled mining transport would come. So far, it hasn’t, and that is good because the bunkering facility at Pluto is not expected to be ready until some time early next year.

But broader fulfilment of Coleman’s vision might be at hand.

In July, Sheffield Resource, whose minerals sands project in the Kimberley has earned the backing of the federal government’s Northern Australian Infrastructure Facility, became the foundation customer of Woodside’s venture in transport fuel bunkering.

Also in July, BHP put out the world’s first tender for LNG-powered shipping, enough to carry 27 million tonnes of iron ore from Port Hedland to the miner’s regional markets.

That tender is said to have earned a strong set of responses that are now wending their way through the grinder of BHP process.

The Green corridor
The tender was a world first, as will be the contract, which is expected to be awarded in three to six months.

The first thing to appreciate here is that 27mt is a whole lot of iron ore, equivalent to just less than 10 per cent of BHP’s annual shipments. The second is that BHP’s initiative is the most meaningful product so far of The Green Corridor joint venture that has seen Woodside, BHP, Rio Tinto and Fortescue Metals working in partnership to develop a design for LNG-fuelled bulk carriers capable of running iron ore to Asia.

Green Corridor is an initiative in emissions mitigation made compelling by the International Maritime Organisation’s decision in 2016 to set a January 2020 date for a requirement that global shipping either move to lower-sulphur fuels or invest a bigger fortune in scrubbing technologies to contain exhaust fumes.

On Monday, BHP’s head of procurement, Sandeep Singh, reminded an audience at the IMARC conference in Melbourne of the weight of shipping’s contribution to global greenhouse emissions.

“If shipping were a country it would be the sixth largest emitter of CO2 in the world, with more emissions than Germany or Canada,” he said, reiterating BHP’s commitment to find LNG-powered ships enough to carry 27mt per annum of iron ore northwards.

With a detail that only a procurement guru might acquire, Singh captured the quality of shipping’s contribution to BHP’s emissions dilemma.

“Ocean freight is one area at the very end of our industry’s supply chain that hasn’t traditionally been a focus from a sustainability perspective that is vital to our success as a reliable global supplier,” he said.

“BHP is one of the largest dry bulk charterers in the world. The Commercial Maritime team procure freight for a quarter of a billion tonnes of iron ore, coal and copper and over 1500 voyages each year. The combined distance these ships travel is the equivalent of 29 trips to the moon!”

Singh said LNG-fuelled boats eliminate the nitrogen and sulphur emissions released by burning traditional bunker fuels and would significantly reduce carbon dioxide emissions.

Presently, those emissions land in BHP’s scope 3 account. Needless to say then, this tender was a practical anticipation of the commitments that chief executive Andrew Mackenzie made in August to actively assist customers seeking solutions to the greenhouse emissions release when they use BHP’s products.

Blindingly obvious
Back in July, just after news of BHP’s tender, Woodside’s chief operating officer, Meg O’Neill, quantified what the ultimate success of the Green Corridor initiative might look like, proclaiming the potential of LNG as a transport fuel was vast, while assessing it “blindingly obvious” this was a new market that ought be owned by Western Australia.

“If all shipping from the Pilbara transitioned to LNG, it would be around 4 million tonnes [annually] of LNG fuelling,” O’Neill said.

To put that into context, that is equal to the low end of the targeted production for the new LNG train that Woodside has planned to add to its Pluto project.

“I have been asked recently if our Burrup Hub growth strategy is contingent on the market for LNG fuels taking off,” O’Neill continued. “It is not,” she assured, before nominating a material future in transport fuel as a “cherry on top”.

“And it’s a blindingly obvious market for WA to try to capture with the potential for a whole new industry and the jobs and investment that brings. And now is the time to be going after that opportunity.”

AIE delivers as promised
Mind you, the geography of that opportunity is not limited to the west. The future needs of LNG-powered bulk carriers is one of the add-on opportunities identified by proposed east coast LNG importer, Australian Industrial Energy (AIE).

AIE is, of course, half-owned by Fortescue’s founder, major owner and chairman, Andrew Forrest. I make that point only because, for the moment, AIE seems more interested in the potential of LNG ships than its owner.

In response to a question at Tuesday’s Fortescue annual general meeting on whether LNG was a fuel of choice for a cleaner bulk carrier future, the great man said: “If we had a choice it would be low sulphur fuel, then gas. But ultimately we want to get to hydrogen fuel.”

Just on the subject of AIE, it has made good on a report carried first in The Australian Financial Review that it wanted to nearly double the capacity of the LNG regasification facility it wants to park in Port Kembla’s inner harbour.

The wannabe gas importers have lodged an application with the NSW government seeking to lift the ceiling in shipments from 26 shipments annually to 46. According to my calculator, that implies an increase in annualised capacity from 100 petajoules to nearly 180/PJ.

Thankfully, it appears that AIE’s request for modification of the consent offered earlier this year will again avoid the maze-turned-quagmire that is the state’s Independent Planning Commission.

Because AIE’s project was deemed Critical State Significant Infrastructure (CSSI), a decision on its progress can only be made by the Minister for Planning. And that means requests for modifications to a consent already made must also be approved by the minister.

Australia’s grumpiest gas customer
Now, we cannot leave the subject of gas without observing that Incitec Pivot and Central Petroleum have pushed the accelerator in plans to turn Australia’s grumpiest gas customer into a producer.

In March last year the pair, who already have a long history of productive symbiosis in gas, were gifted an unreleased sweet spot in the heartland of Queensland’s coal seam gas by a state government determined to invite competition and new supply to the east coast gas market.

A four-well drill program conducted in July and August delivered a contingent gas resource of 270/PJ, and Central confirmed on Tuesday that the joint venture would proceed immediately to an appraisal pilot program and that they were working to accelerate their way to a final investment decision.

That acceleration could see early orders made for long-lead time items ahead of FID and in parallel with pre-FID work, which includes securing approvals and completing environmental studies.

Central says it is now targeting first gas in 2022. As things stand, half of any production is available for contest by east coast gas consumers, while the balance will be directed to Incitec at a price equivalent to the project’s cost of production.

And that prospect should come as an enormous relief to a gas sector that would gladly never again have to entertain a contract negotiation with Incitec’s hard-charging boss, Jeanne Johns.
Source: Australian Financial Review

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