• MST senior research analyst Saul Kavonic says government policies are responsible for the lack of new gas supplies
  • While the importance of gas has been recognised, the Senate remained a stumbling block for changes
  • Taking action on the Future Gas Strategy will go a long way towards fixing the situation

 

With coal-powered generation continuing to be phased out, gas is playing an increasingly important role in the Australia’s energy mix to back up the intermittency of renewable energy.

This has been recognised by energy regulator the Australian Energy Market Operator, which had flagged in March this year that new investment is urgently needed if gas supply from 2028 is to keep up with demand from homes and businesses, and for gas-powered electricity generation.

It warned that while a range of storage and pipeline projects completed since 2023 had improved gas supplies to southern states and partially offset declining production from Bass Strait gas fields, gas production is forecast to fall faster than demand in the south.

Despite these concerns, there is a distinct lack of new investment and new project development.

 

Government policies to blame

Speaking to Stockhead, MST Marquee senior research analyst Saul Kavonic pinned the blame on government policies, saying a lot of “cognitive dissonance” has been observed in regards to gas.

“While there is an acknowledgement of the importance of gas and support for new investments due to some near misses in both the gas and power sector in the southeastern states, the balance of power in the Senate still sits with the Greens, so we are not seeing action on the key policy changes,” he said.

“That’s leading us towards the path where Australia becomes less self-sufficient in gas and actually (has) to start importing foreign gas at a higher cost and emissions because we are unable to develop our own.”

It is certainly not helped by differing policies at the state and territory level with Kavonic noting that while WA, Queensland and the NT were relatively positive on the development of gas, others – particularly Victoria – remained hostile towards the fossil fuel.

“It is almost impossible to onshore gas exploration in Victoria, which will make it increasingly reliant on gas from other states in future years as its domestic sources from Longford decline, which is going to result in more volatility, higher prices, and even the risk of gas and electricity shortages in Victoria over the next five years,” he added.

“Victoria had the option for many years to be more encouraging of gas investment including allowing for onshore exploration but they have sent a very clear message to industry that it is not welcome there, so the industry has stayed away.”

However, he also noted that the increased near-term risk of gas and electricity shortages in Victoria were driven more by Federal Labor policy than State policy.

“It has been the Federal Government’s multi-pronged assault on the gas sector over the last 24 months that has resulted in less investment in gas capacity on the east coast and Victoria in particular,” Kavonic claimed.

“What you have seen Federal Labor do is the emergency gas price cap that they imposed, which did a huge amount of irreparable damage to gas investment on the east coast, you have safeguard reforms which disproportionately targeted gas.

“We had the Government funding the Environmental Defenders Office bringing green lawfare against new gas developments, proposed changes to the EPBC Act that makes it more difficult to do gas projects and a toughening up of the ADGSM, which could potentially restrict exports out of eastern Australia.

“Take it all in totality and the industry is getting the very clear message from the Australian Government that the gas industry is not really that welcome in Australia anymore and investment is therefore reducing, capacity is reducing and that’s why we had two near misses in two years in terms of having major energy security or blackout events.

“And it is a probability rather than a possibility that we have shortages in the next few years.”

 

Steps to take

Kavonic believes that the Government can still fix the situation by actually following through on its Future Gas Strategy and making some of the changes that it itself recommended.

“The biggest step it can make is to reform the environmental plan to reduce the risk of frivolous green lawfare, which is halting projects, and for the government to stop funding that litigation against projects,” he argued.

“The second will be for the Government to start repealing some of the very hostile policies that have been put in place in the last two years, the most important one being the gas price cap and code of conduct.”

However, he believes that neither is likely as the Government still supports the gas cap policy while the Greens control of the balance of power in the Senate prevents it from actually delivering the changes it wants to make.

 

Where’s the gas coming from?

While there has been much hype about the Beetaloo Sub-Basin in the Northern Territory riding to the rescue of the Australian gas sector, Kavonic thinks gas from that region, which is still at an early stage with little or no infrastructure, is more likely to be routed north to supply Darwin LNG rather than east due to pipeline costs.

More realistically, potential areas that could provide gas are offshore Victoria and South Australia.

“There are approvals challenges but you have some smaller pockets from the likes of Beach Energy (ASX:BPT) and Cooper Energy (ASX:COE) in terms of exploration,” he said.

“In Queensland there are emerging areas that could look quite exciting, in early stage but if they do come in they will do so rapidly as they are near existing infrastructure.

“These include the Taroom Trough, where Shell, Elixir and Omega Oil & Gas (ASX:OMA) are.”

However, he noted that offshore Victoria and South Australia won’t be enough to feed demand even if exploration success does offset declining production rates.

“There is a lot of heavy lifting to be done here,” Kavonic said.

“You sort of need an all of the above approach, where we basically reduce the pace of decline in southeastern states by tying in and making new discoveries offshore plus more development in Queensland so there’s more excess gas to bring down, possibly more infrastructure investments to actually enable more Queensland gas to come to the south-east.

“Then you have the potential for more long-dated, bigger supplies from the Beetaloo or the Bowen Basin to come in, but they are still at the relatively less mature stage.”

 

ASX juniors pilling in

Here are some ASX juniors looking to make waves in providing gas in Australia.

BPH Energy (ASX:BPH)

BPH holds a 36% interest in unlisted company Advent Energy, which holds 100% of Retention Licence 1 in the onshore Bonaparte Basin, Northern Territory.

RL1 includes the Weaber gas field that has firm 2C (best estimate) contingent resources of 11.5 billion cubic feet and appraisal wells which have proven the ability to produce gas at potentially commercial flow rates.

Advent recently received a five-year extension to RL1, placing it in position to commercialise the area and help feed the NT’s gas needs.

The Bonaparte Basin itself is largely offshore and has a high success rate for discoveries.

Notable fields in this basin include the shut-in Blacktip field and the Petrel, Tern and Frigate fields that have total undeveloped Contingent Resources of 2.7 trillion cubic feet of gas.

 

Vintage Energy (ASX:VEN)

Also in the Bonaparte Basin is Vintage Energy and its EP 126, which includes the cased and suspended Cullen-1 well that intersected oil and gas shows.

The 6716km2 permit has multiple play types that have the potential to host large volumes though half of the area has been declared a “Reserved Area” by the NT government.

However, the company is already a gas producer through its Odin and Vali gas fields in South Australia and Queensland.

Vali has 2P reserves of 97.4 petajoules (PJ) as of the end of 2023 while Odin hosts 2C contingent resources of 39.7PJ.

Queensland Pacific Metals (ASX:QPM)

QPM holds the Moranbah gas project, in Queensland which captures waste mine gas (methane) from coal mines and makes it available for use.

It currently has 2P reserves of 331PJ, over 200PJ of which is uncontracted, and is the subject of work to work to increase current production of about 10PJ per annum to help meet east coast demand.

Besides new wells and additional workovers, QPM is also the beneficiary of a $3m award from the Queensland Government for a trial program of new wells that will target the Fort Cooper Coal Measures (FCCM), which include the Fairhill seam, on the western flank of the Northern Bowen Basin.

These sit above coal seams that will be mined using longwall techniques and are noted for its high gas content and thickness relative to other seams.

 

Omega Oil & Gas (ASX:OMA)

Omega holds the Omega project in the Taroom Trough within Queensland’s Surat-Bowen Basin that has proven 2C contingent resources of 1.51 trillion cubic feet of gas and 68.6 million barrels of liquids.

It’s just 50km away from the existing Wallumbilla Gladstone pipeline, meaning any discovery can be quickly brought into production.

OMA is currently progressing towards the drilling of the Canyon-1H horizontal well in Q3, 2024, the first horizontal to be drilled into the highly prospective Canyon Sandstone at the base of the Kianga Formation.

The project area has also been declared a potential commercial area by the Queensland Government, which indicates that its Department of Resources has assessed it to have a realistic chance of reaching commercial production.

 

Elixir Energy (ASX:EXR)

Also operating in the Taroom Trough is Elixir Energy, which is getting ready to stimulate and test the Daydream-2 well at its Grandis project.

Daydream-2 had flowed gas at a stabilised rate of 1.2 million standard cubic feet of gas per day (MMscf/d) from the Lorelle Sandstone during testing before it was stimulated.

The company plans to stimulate another five zones before flow testing all six zones with the goal of achieving gas flows of more than 2.5MMscf/d.

Even this will test just 19% of the total gas-bearing zones of the Permian section.

 

At Stockhead we tell it like it is. While BPH Energy and Queensland Pacific Metals are Stockhead advertisers, they did not sponsor this article.

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