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Australia's Northern Territory appoints contractor for gas pipeline

The state government of Australia's Northern Territory has appointed Jemena Northern Gas Pipeline to build and operate a gas pipeline to the east coast.20 Nov 2015

The North East Gas Interconnector (NEGI) pipeline will cost AU$800 million (US$568 million) to build and will run for 622 kilometres between Tennant Creek in the Northern Territory and Mount Isa in Queensland, the state government said.

The pipeline connects the "ever-increasing energy needs of the east coast with the vast gas reserves in the Territory", the government said. The Territory is estimated to have more than 200 trillion cubic feet of gas, which is potentially enough to power Australia for more than 200 years, it said.

Jemena, which is jointly owned by the State Grid Corporation of China and Singapore Power, expects construction of the 14 inch pipeline to be completed by 2018, the company said in a statement.

Jemena managing director Paul Adams said the pipeline would fast-track development of the NT’s gas industry.

"Building the NEGI will drive commercial exploration and development of currently untapped gas reserves, unlocking the next phase of economic growth for the Territory and helping build a stronger Northern Australia," Mr Adams said.

"The pipeline is cost-effective and relatively quick to build, so it will support a strong gas industry for the Territory by getting gas to market at a competitive price, accelerating development of NT gas fields and helping create jobs and opportunities in the gas industry."

"As further reserves in the NT are proved up, we can expand our scalable pipeline to meet strong demand from east coast customers," he said.

Jemena’s proposal is believed to have been chosen because it guaranteed the lowest tariff for gas shippers, IJ Global said.

Jemena's proposed route took a cheaper, more northerly route to reach the national grid, IJ Global said, whereas other bidders proposed a more expensive route from Alice Springs to Moomba that would have allowed gas to reach New South Wales.

Adams said: "The much longer route south via Moomba would have been far more expensive, is technically and environmentally complex to build and would require much larger volumes of gas to be contracted to support the pipeline – gas which is not yet commercially proven."

"As soon as sufficient gas is proven in the NT, Jemena will seek to build a further link connecting Mt Isa to the Wallumbilla hub in Queensland. This will vastly improve the reliability of the gas transmission network by reducing sole reliance on Moomba as the hub for supplies. It will also introduce some much-needed competition into the east coast market, while accelerating the growth of the NT gas sector," he said.

South Australian resources minister Tom Koutsantonis told the Sydney Morning Herald (SMH) that choosing the cheaper option is "silly".  More gas processing infrastructure will be needed to handle gas from the NT, and the additional cost could be as much as $1 billion, he said.

Adams told the SMH that this cost has already been accounted for.

Infrastructure expert Kate Terry of Pinsent Masons, the law firm behind Out-Law.com said: "This is another example of a successful bid by Asian investors willing to take on higher risk at lower cost. Jemena is not a newcomer to the Australian market, with a track record of building and operating similar assets across Eastern Australia. That will be an important factor in determining whether it can successfully deliver the project in manner that is sensitive to market and local stakeholder concerns."

The Northern Territory government's Power and Water Corporation (PWC) will supply gas to the NEGI from its contracted suppliers. PWC will use a gas sales agreement with Incitec Pivot to lock in a guaranteed gas supply for approximately 10 years from the completion of the NEGI to 2028, the government said.

All royalties from the onshore oil and gas industry will go towards the vocational education and training and other areas of the education sector, the government said.

Adams said Jemena has been working with communities and businesses along the proposed route "to harness as much local and Indigenous participation as possible in the delivery and ongoing management of the pipeline".