Got Gas: New Year brings reality check and LNG approvals

It’s a new year – hopefully one without all the drama of 2020 – and time for a look at some of the interesting gas and LNG tidbits that emerged in the past three weeks.

First off, the Australian Government’s ambitious and oft-criticised plan to drive recovery from the COVID-19 pandemic by acting to reduce gas prices may need to take a bit of a reality check.

After all, when a director of one Australia’s biggest gas players scoffs at the likelihood of cheap gas on the east coast, it might perhaps be time to take a step back for a reassessment.

This is exactly what Origin Energy’s (ASX:ORG) newly appointed director Mick McCormack – not to be confused with Deputy Prime Minister Michael McCormack – told The Australian, saying that east coast gas prices of between $4 and $6 per gigajoule was just not realistic.

“Some of the prices I’ve heard being kicked around makes me think someone’s been smoking something,” he said.

“It just makes no sense … it’s not happening.”

To add a little more fuel to the fire, McCormack also called for bipartisan support for Australia to achieve net zero emissions by 2050, a goal that the government has avoided committing to so far.

That’s not to say that nothing is going the government’s way.

The New South Wales state government has given a proposed new gas-fired power station in the Hunter Valley critical infrastructure status, which Minister for Planning and Public Spaces Rob Stokes said would increase competition and mitigate the closure of the ancient Liddell coal-fired power station.

“Gas-fired power stations will have a critical role to play in ensuring our energy security as we transition to a low-carbon emissions economy with renewable energy projects such as wind and solar,” he added.

There’s just one small problem – gas-fired power stations burn gas to generate electricity.

And if there’s no cheap gas flowing from producers, power prices are still going to be impacted.

Gas approvals support LNG plays

Meanwhile, Santos (ASX:STO) has pressed the big green button on an infill drilling program at its Bayu Undan field in the Timor Sea off Timor Leste that will extend field life and ensure that gas keeps flowing into the Darwin LNG facility.

The decision comes just seven months after the company became operator of the Bayu Undan joint venture and is expected to cover the gap leading up to a decision on developing the Barossa gas field.

It follows on the North West Shelf project partners’ decision late last year to process third party gas through their LNG facilities in northern Western Australia under an agreement with Mitsui and Beach Energy (ASX:BPT).

Under the agreement, gas from Mitsui and Beach’s Waitsia gas field will be processed into LNG at the NWS in the period between the second half of 2023 and the end of 2028.

Woodside Petroleum (ASX:WPL) chief executive Peter Coleman said the transformation of the Karratha gas plant into a third-party tolling facility would create new opportunities for the state’s gas industry.

“It will provide new revenue and LNG exports from the NWS Project, add to Western Australia’s domestic gas supplies from Pluto and help underpin Australia’s economic recovery,” he added.

While LNG export projects have been widely blamed for the high price of gas on east coast, Western Australia’s domestic gas reservation policy for offshore gas fields and an explicit ban on the export of onshore gas – barring special dispensation – provides a definite base of gas for domestic use.

Over-pressured gas a positive

Strike Energy (ASX:STX) has suspended drilling of its West Erregulla-3 well after intersecting an abnormally high, over-pressured and Permian gas column that could potentially exceed the current design tolerances of the well.

While a delay is undoubtably frustrating to some, a careful reading of what the company is saying hints that the prize just became a great deal bigger.

The company’s interpretation is that the well was drilled into a fault zone that is likely connected laterally downdip to the Erregulla half graben, a major migratory pathway for generated hydrocarbons.

Additionally, the over pressures are at a magnitude that has not previously been seen in the Perth Basin while analysis of the gas indicates that it is similar to gas produced at the highly successful West Erregulla-2 well.

Taken together with managing director Stuart Nicholls description of the over-pressured gas column as a “major positive”, it is not a stretch to take away that the company has hit a gas reservoir with the potential to produce at high rates (thanks to the pressure).

Strike is moving the rig to drill West Erregulla-4 and will return to West Erregulla-3 during the current drilling campaign with additional well engineering and equipment suited for drilling the over-pressured column.