DARWIN — Darwin, a city in northern Australia that faces Southeast Asia across the Timor Sea. Drive about 40 minutes from the city center to the edge of a mangrove forest, and a silver fortress that looks like a scene from a science-fiction film dominates the view. Pipes ring the roughly 70-hectare site, the size of 100 soccer fields, like a rampart, and enormous tanks rise like watchtowers between densely tangled pipelines. The pipes, baked by the sun since morning, radiate heat, but what happens inside is the opposite. Gas that has traveled 380 kilometers under the sea passes through layers of filtration and cooling and turns into liquid at minus 162 degrees Celsius. On dry ground where temperatures top 33 degrees Celsius, an ultra-cold fuel is born.
The Darwin LNG plant, or DLNG, visited on the 30th local time, is a gas fortress that converts natural gas from the Barossa offshore gas field into LNG and ships it around the world. The fruit of the Barossa project, which SK Innovation (096770) E&S has worked on for 14 years since 2012, also passes through here before setting sail for South Korea.
The Barossa gas field sits offshore about 380 kilometers north of Darwin. Australia's Santos, the operator with a 50% stake, SK Innovation E&S with 37.5% and Japan's JERA with 12.5% are taking part as a consortium. Of the $4.3 billion in development costs spent after the final investment decision in March 2021, SK Innovation E&S put in $1.6 billion, or about 2 trillion won.
The gas begins its journey 3 kilometers below the floor of the Timor Sea. Gas drawn from six underground production wells goes through initial processing at a floating production, storage and offloading unit, or FPSO, then pours into the Darwin plant through a 32-inch seabed pipeline. At the plant, carbon dioxide, moisture and mercury contained in the gas are filtered out, and the gas is liquefied through three stages of cooling that use propane, ethylene and methane as refrigerants. The finished LNG sits in storage tanks 50 meters tall and 90 meters in diameter before being loaded onto carriers.
The Darwin site is the product of SK's persistence in overseas resource development over 14 years. When the investment was made in 2012, many assessed it as a "mini LNG project at best." But by 2017, the company drilled five additional appraisal wells and nearly tripled estimated reserves. It saved on initial investment and shortened permitting periods by using a brownfield approach, refurbishing facilities from the depleted Bayu-Undan gas field. Kim Hyun-joon, a technical adviser at SK Innovation E&S's LNG business division, said, "It is rare for a private company to stick with a single project for 14 years and see it bear fruit."
The gas begins its journey 3 kilometers below the floor of the Timor Sea. Gas drawn from six underground production wells goes through initial processing at a floating production, storage and offloading unit, or FPSO, then pours into the Darwin plant through a 32-inch seabed pipeline. At the plant, carbon dioxide, moisture and mercury contained in the gas are filtered out, and the gas is liquefied through three stages of cooling that use propane, ethylene and methane as refrigerants. The finished LNG sits in storage tanks 50 meters tall and 90 meters in diameter before being loaded onto carriers.
The Darwin site is the product of SK's persistence in overseas resource development over 14 years. When the investment was made in 2012, many assessed it as a "mini LNG project at best." But by 2017, the company drilled five additional appraisal wells and nearly tripled estimated reserves. It saved on initial investment and shortened permitting periods by using a brownfield approach, refurbishing facilities from the depleted Bayu-Undan gas field. Kim Hyun-joon, a technical adviser at SK Innovation E&S's LNG business division, said, "It is rare for a private company to stick with a single project for 14 years and see it bear fruit."
Barossa began production last December and shipped its first cargo in January this year. In February, a volume carried by SK Innovation E&S's Prism Agility completed its first unloading at the Boryeong terminal in South Chungcheong Province. Of the field's annual production capacity of 3.5 million tons, SK Innovation E&S has secured 1.3 million tons a year, to be brought in over 20 years. That is about 3% of South Korea's annual LNG imports. A company official said it is also reviewing plans to add facilities on idle space within the site in preparation for the development of additional gas fields.
Barossa is also a key piece of the full LNG value chain that SK Innovation E&S has built over 20 years. The company took its first step in 2006 by directly importing LNG for its Gwangyang power plant, then linked together the Woodford shale gas field in the United States and Barossa on the production side, four LNG vessels and an LNG terminal for transport and storage, and power plants in Gwangyang, Paju and Yeoju for consumption. It amounts to the completion of vertical integration from gas development to power generation.
Kang Ryun-kwon, head of management planning at SK Innovation E&S, described the company's competitive edge this way: "What works in the LNG business is the economics of options. If you hold multiple options, the number of possible combinations grows exponentially, which raises your ability to respond to market conditions."
The value of early investment stands out more clearly amid the recent turmoil in global energy markets. The Strait of Hormuz has been blocked by the war between the United States and Iran, and Qatar has extended a force majeure declaration on LNG supply, but Australian cargoes reach South Korea in a little over 10 days without passing through the Middle East. Because these are long-term volumes backed by an equity stake held since the development stage, they can be brought in at stable costs even when spot prices surge. A gamble taken by a private company 14 years ago has come back as a breakwater for national energy security.
