North West Shelf could be in the market for new gas supplies

Gas players in Western Australia may have an opportunity to feed their gas – whether already discovered or from future exploration – into the state’s premier liquefied natural gas (LNG) project for export.

Wood Mackenzie has forecast that the North West Shelf LNG could have up to 7 million tonnes per annum of spare processing capacity available by 2027, or about 40 per cent of its nominal capacity.

“Decisions on how to fill this gap need to be made now, not only because time is running out, but also because the joint venture is breaking-up,” senior analyst Daniel Toleman said.

“Chevron is running a process to sell out of the NWS, and we see other majors likely to follow.

“We see two windows of opportunity for backfill: one for smaller projects with short lead times, and the second for larger-scale resources that can extend the life of the NWS through to 2050.”

The energy consultancy noted that good progress had been made on near-term backfill small-scale projects with Pluto and Waitsia expected to add incremental supply from 2022.

Beach Energy (ASX:BPT) and Mitsui recently received in principle agreement from the West Australian government to fill available capacity at the Karratha gas plant and export some of its gas as LNG for a short period of time.

However, this is aimed at ensuring that Waitsia’s second stage proceeds to construction.

Large-scale gas needed

Wood Mackenzie said large-scale developments were needed in the longer term, with Woodside Petroleum’s (ASX:WPL) Scarborough and Browse developments expected to be the most likely backfill options.

However, neither projects are straight-forward to deliver, with Scarborough currently slated to supply a new second train at the Pluto plant while Browse is a remote, complex, carbon-intensive and high-capex project.

“Challenges aside, there are compelling reasons for keeping NWS full. Once third-party gas flows through the plant, partners will receive a tariff for liquefaction,” Toleman added.

“The government will receive additional tax revenue, the Dampier to Bunbury pipeline operator receives more revenue and there will be more domestic gas supply for the local market.

“Upstream participants can also monetise undeveloped resources and gain access to potentially higher LNG prices on a low capital outlay.”

There are already some exploration projects looking to fill this gap.

BP – itself a NWS participant – and its partners will soon be drilling the Ironbark-1 well in the Carnarvon Basin that targets 15 trillion cubic feet of gas.

If this is successful, it could be a very strong contender to supply the NWS as it is just 50km from its key fields.

The Australian government has also released new acreage in the northern Carnarvon Basin, though any exploration and resource that might be established from this area are a long way away.