Coal-seam gas shortfall hits forecasts
Queensland’s big gas exporters continue to downgrade their coal-seam gas resources, with Origin Energy’s Australia Pacific LNG plant declaring a field previously expected to house more than 2000 wells is now unlikely to be profitably developed.
The $109 million writedown of the Gilbert Gully field in the Surat Basin has added to concerns Queensland’s vast coal-seam gas fields will not produce as much gas as had been assumed when $70 billion of liquefied natural gas export projects were approved at Gladstone.
It has also highlighted the frailty of the Australian Energy Market Operator’s controversial June declaration that there is no near or long-term east coast gas shortage looming.
Origin said a technical review had found Gilbert Gully, west of Toowoomba, was not adequate.
“APLNG determined that this acreage has lower permeability and gas saturation than in other parts of the Surat Basin, making commercial development in this area unlikely, particularly due to the distance from existing production infrastructure,” Origin said. Low permeability refers to gas not flowing well through coal.
As a result, APLNG, in which Origin has a 37.5 per cent stake, has removed Gilbert Gully from its contingent gas resources, reducing them by 18 per cent, or 573 petajoules.
The field was part of a 2016 downgrade to APLNG’s proven, probable and possible (3P) reserves, showing the gradual drop in confidence that gas could be produced.
The field was not slated for development to meet LNG export or domestic contracts and there has been no further downgrade to APLNG’s reserves.
Unlike the big LNG export plants in Western Australia, which were approved on proven (1P) reserves that have a 90 per cent confidence level they can be viably developed, Gladstone’s plants have been built on proven and probable (2P) reserves which have a 50 per cent level of confidence.
The Gilbert Gully downgrade follows Origin’s recent $514m writedown of the domestically focused Ironbark coal-seam gas field in February because of a reserves cut, a $390m writedown last year of QGC LNG project ground Shell acquired when it bought BG group and a 1000 petajoule drop in reserves at the Santos-led GLNG project the year before.
Graeme Bethune, chief executive of leading energy consultant EnergyQuest, has previously warned that there is a big reserve risk for Queensland’s coal-seam gas operators, with fields off known sweet spots having the potential not to perform.
“Origin points out it only had a small amount of contingent resources booked, so of itself it’s probably not a major thing, but it’s a bad omen, particularly after they had to write down Ironbark,” Mr Bethune said.
In its June Gas Statement of Opportunities, AEMO did an about-face on previous predictions of an east coast gas shortage, partly after it took into account producer statements of future production based on resources, not reserves.
Yesterday’s Origin announcement shows how unreliable contingent resources can be.
“The GSOO relies on the successful commercial development of not only contingent resources but also (less reliable) prospective resources,” Mr Bethune said.
According to EY’s Oceania oil & gas leader Russell Curtin, east coast gas users face a precarious supply situation with large amounts of new production needed to meet increasing demand. This could keep gas prices elevated, he warned.
“It looks pretty tight already and will only get tighter,” Mr Curtin told The Australian. “Unless significant gas resources are opened up, we’re not going to see gas price soften at all.”
If that new supply fails to come online large industrial users of gas will be among the most at risk with potentially significant repercussions for Australian businesses facing price pressure.
“Gas pricing above $10 a gigajoule is going to have dire consequences for various parts of our industrial business base,” he added.
When Origin and its APLNG partner ConocoPhillips originally flagged up to four LNG export trains at Gladstone, Gilbert Gully had been earmarked for 2025 production through the development of 2250 coal-seam gas wells.
But a subsequent decision to just build two trains means the more than 10,000 petajoules of proven and probable reserves APLNG has proved up will comfortably supply its existing contracts.
The field, which APLNG will now try to sell, previously had 573 petajoules of contingent (2C) resources that had been part of an 820PJ downgrade of 3P reserves in 2016.
Yesterday, Origin delivered a strong operating report from its gas production and export business for the June quarter.
Gas production revenue for the quarter surged 14 per cent from the previous quarter to $570m and was up 23 per cent from the June quarter last year.
Production rose 2 per cent from the March quarter to a record 64PJ while sales rose 3 per cent to 62.8PJ.
“Across 2017-18, we saw strong uplifts in production, sales and revenue, reflecting a full year’s contribution from Australia Pacific LNG’s Train Two and assisted by strengthening commodity prices,” Origin chief executive Frank Calabria said.
Wednesday, August 08, 2018
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