Queensland releases more upstream blocks [NGW Magazine]
The Queensland government awarded significant exploration acreages to oil and gas explorers in late May-early June under its domestic gas acreage tender process. The domestic market is feeling the impact of a shortage. The state is also working on a tender where that gas will be supplied exclusively to a manufacturer.
Apart from factors such as rising east coast LNG exports and under-performing coalbed methane (CBM) resources, another major reason for the tight supply situation in the Australia east coast market is that some states have restricted onshore gas exploration.
Queensland is home to three LNG plants, fed by coalbed methane fields. The gas is sold mostly to Asian markets and exports last year reached a record 21mn metric tons.
“Queensland’s been doing the heavy lifting on gas supply for several years now, and we’re keeping up the pace. We want to see more petajoules of Queensland gas in pipes, more jobs in Queensland, and our gas driving jobs in Australian manufacturing. While other states close their doors, Queensland continues to rise to the challenge to keep our manufacturers in business. In that vein, I also soon expect to be able to announce the outcome of a national first tender where that gas will be supplied exclusively to a manufacturer. This will mean more Queensland gas fuelling more Australian manufacturing jobs,” Queensland’s mines minister Anthony Lynham said late May.
The state government has awarded 153 km2 of land near Miles to explore for gas for Australian-supply only to Senex Energy. The company has been awarded preferred tender status for natural gas acreage in the Surat Basin. The acreage is the second block awarded to Senex, following Project Atlas in September 2017.
Project Atlas was the first acreage awarded for domestic-only supply in Australia and is on track for first gas by the end of 2019.
In the past two years Senex has drilled 38 natural gas wells in the Surat Basin and is planning capital investments exceeding A$200mn (US$139mn), in addition to the A$140mn Jemena infrastructure agreement, to develop its Roma North and Project Atlas natural gas developments.
With the signing-up of glass-packaging manufacturer O-I Australia for a five-year supply of 1PJ/year (26.7mn m3/yr) starting January 1, 2021, and the option to more than double this to 2.1 PJ/year, it has covered a big portion of its planned output.
Gas will be supplied at the Wallumbilla Gas Hub in Queensland at a fixed price in line with current market levels, indexed annually.
Senex CEO Ian Davies said the deal was the third domestic gas contract for Project Atlas, bringing the total volume under contract to over 23 petajoules.
Davies said that with first gas from Project Atlas planned for late 2019, Senex expects to write additional new gas contracts with a range of gas buyers in the coming months.
Queensland has also awarded more than 2,600 km2 in total – divided between a joint venture of Santos and Shell and separately to Galilee Energy and to Sajawin – to explore for gas between Miles and the border town of Inglewood.
The Santos-Shell joint venture and Sajawin did not provide the details of the acreage awarded but Galilee said it has been awarded a 384 km2 Surat Basin exploration area within the overlapping Walloon CBM fairway and the oil-prone eastern flank of the Taroom Trough. This new acreage is less than 10 km from established CBM production facilities and adjacent to the south of the Ironbark asset which was recently acquired by Australia Pacific LNG (APLNG).
Early-June, Queensland government awarded exploration acreage, PL2018-1B, to a joint venture comprising Armour Energy and APLNG. PL2018‐1B is an 18km2 CBM exploration block 22km southwest of Chinchilla and adjoins APLNG’s Talinga project. The block was part of the first national tender where gas has been designated to be supplied locally.
Under the joint venture, Armour will have access to APLNG’s geological/sub‐surface knowledge of the tender area which will help to expedite development and deliver gas from the exploration block. Gas production will have direct access to the domestic gas market through APLNG’s existing gas processing and water management facilities and infrastructure, immediately adjacent in the Talinga field.
APLNG is a joint venture between Origin, ConocoPhillips and Chinese Sinopec. It is a large supplier of gas to the east coast domestic market, providing about 30% of the total volume of gas sold into the domestic market in 2018, according to Armour.
First gas from the block is expected by mid‐2021 and will be supplied to local manufacturers, Armour said.
A new round of bids has also been called to explore a further 3,700 km2 of land mainly near Springsure in central Queensland. More than a quarter of this land is only for domestic gas supply.
Queensland is the only east-coast state that has announced the opening up land to onshore exploration, but the South Australian government announced end May it would offer more blocks.
The government of South Australia May 27 announced the opening of bidding for five new petroleum exploration licences (PELs) in the Cooper Basin and three in the Otway Basin.
“The Marshall Liberal government is committed to the expansion of South Australia’s resources sector and the jobs and investment that will deliver for our state,” said minister for mining and energy Dan van Holst Pellekaan.
He said escalating world demand for gas and oil presents enormous potential for growth in the local resources sector and the role it plays in underpinning South Australia’s economic foundations. Van Holst Pellekaan said this is the first major release of multiple Cooper Basin blocks since 2013.
A total of 13,584.1 km2 is available for work programme bidding in the SA Cooper and Eromanga basins. The five blocks offer a diversity of play types and the opportunity to build a portfolio of prospects and leads across the Warburton, Cooper and Eromanga basins, the government said.
Following recent acreage relinquishments, three new licences in the Otway Basin are also being offered for work programme bidding. The release totals 6,950.8 km2 and offers conventional early and late Cretaceous oil and gas plays, the government stated.
The state has 10-year moratorium on hydraulic fracture stimulation operations in the Limestone Coast region enacted by the South Australian government in September 2018. “However, it is business as usual for conventional petroleum operations in the region,” van Holst Pellekaan said. The grant of a PEL does not enable regulated activities within those tenements.
Local businesses under pressure
High gas prices remain a critical issue for domestic gas users and could see more businesses move or close in the east coast, according to the Gas Inquiry 2017‑20 Interim Report released by the Australian Competition and Consumer Commission (ACCC) May 30.
The report shows that most commercial and industrial Australian gas users will pay more than $9/gigajoules (GJ) for gas this year, and some more than $11/GJ.
Speaking at the Australian Petroleum Production & Exploration Association (Appea) conference May 30, ACCC chair Rod Sims said the fact wholesale gas prices remain so high means many Australian manufacturers are struggling to compete internationally.
“Commercial and industrial gas users have been telling us for some time that at those gas prices, their operations are not sustainable in the medium to longer term,” Sims said. “Businesses that rely heavily on gas are increasingly likely to relocate from the east coast or wind up their operations.”
The ACCC’s report notes that, after increasing over the course of 2018, expected LNG netback prices have fallen significantly over the past six months. An LNG netback price is a measure of an export parity price that a gas supplier would expect to receive for exports.
“We expect that those same suppliers have revised their prices down this year to reflect these latest expectations as quickly as they escalated them last year,” Sims said. "So far we are not seeing this."
The interim report notes the Australian Energy Market Operator’s launch in March of a capacity-trading platform to allow unused pipeline capacity to be traded or acquired through auctions. Initial data obtained by the ACCC suggests some market participants are making use of this new auction platform and transporting material quantities of gas from Queensland to New South Wales and Victoria.
However, Sims emphasised that the level of future domestic prices in the southern states would depend on supply in the southern states.
“I urge producers to carry out the investment in gas production they planned,” Sims said. “Also, as I have done for some time now, I urge state governments to play their role in providing access to gas resources by adopting policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions.”
The upstream is working on it: Appea
Commenting on the ACCC report, upstream body Appea said the Gas Market Inquiry 2017-2020 report confirms the oil and gas industry has ensured adequate domestic gas supplies until at least 2023.
Appea CEO Andrew McConville said the ACCC report showed the industry has increased substantially the flow of gas to the east coast domestic market and this will continue into the future.
“The ACCC finds that prices have eased since early 2017, with most price offers now in the range of A$9‑11/GJ [US$6.75/GJ midpoint). Producers – particularly LNG producers – have made significant volumes of additional gas available to the local market,” McConville said.
In the past two and a half years, there have been significant announcements from Arrow Energy, Shell Australia, Senex, Cooper Energy, Strike Energy, GLNG, Australia Pacific LNG, Origin Energy and Santos to bring on new supply in various parts of eastern Australia.
“This means the industry continues to meet in full the commitments provided to the Australian government in 2017 and reaffirmed in 2018,” McConville said. “The report also restated the ACCC’s concern that customers in New South Wales and Victoria will continue to pay more for gas because of state government restrictions on developing local gas resources.”
State governments need to play their role in providing access to gas resources by adopting policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions, he said.
“The real answer to getting gas prices down is to support safe and responsible development of resources,” McConville said. “Working together to make this happen should be the focus of government and industry – to support all Australian businesses that rely on sustainable gas supply.”
Tax rise no deterrent so far
The Queensland government's announcement that it will hike the petroleum royalty rate by a quarter threatens ongoing investment in one of the very sectors which can underpin the state budget over the coming decades, the upstream lobby group Australian Petroleum Production & Exploration Association (Appea) said June 11.
Queensland finance minister Jackie Trad announced an across the board retrospective increase in the petroleum royalty rate from 10% to 12.5%, effective July 1, on all gas produced in Queensland.
However, investment upstream continues apace, as Blue Energy announced two days later it had completed a A$4.2mn ($2.9mn) placement to advance its CBM projects and activities primarily in the North Bowen Basin and to develop and connect this large basin-wide gas resource to the east coast gas network. This will “alleviate the persistent supply shortages for industrial gas users, which federal and state governments, together with the ACCC, are seeking to resolve,” CEO John Phillips said.
Blue Energy’s exploration permit, ATP814P, consists of seven disconnected blocks in the Bowen Basin in an area ranging from south of Moranbah up to Newlands in the Northern Bowen Basin. According to the company's website, there is established CBM production in the vicinity of ATP814P, most notably the Moranbah gas project, operated by Arrow Energy.
Drilling undertaken by Blue Energy in the permit over the last year has focused on the Sapphire Block, flanked by Arrow’s licences.
But Appea CEO Andrew McConville said there was "no justification for the arbitrary decision to penalise an industry that had invested over A$70bn ($48bn) in Queensland, employs thousands of Queenslanders and has underpinned the state’s domestic gas needs."
The budget papers forecast that the industry will deliver at least A$2.5bn in royalties to the people of Queensland over the next four years. While the industry welcomes the decision to conduct a review of the operation of the present royalty regime, the announcement of a significant increase in the royalty was made without any consultation with industry and undermined the long-term stability.
Raising the rates will limit the gas available to the domestic gas market, at a time when that market is already under pressure from falling output from Bass Strait and political barriers to resource development in southern states, he said. Victoria, for example, has imposed a moratorium on hydraulic fracturing.
McConville said the industry would seek to work with the government "in what must be a genuinely independent policy and operational review of the existing royalty provisions."