From Gotti today:
…we’re really left with only one alternative — the Bowen Basin in Queensland although there is gas in the Northern Territory but that too is being blocked by the Northern Territory administration.
The gas in the Bowen Basin is owned by Shell and Petro China. The Bowen Basin gas was originally owned by BHP and then AGL. Shell and Petro China bought the gas field for $3.5 billion and have since invested large sums in it. (Shell and AGL in the north Bowen Basin supply gas to Townsville, including Clive Palmer’s nickel plant).
There are huge reserves but they are deeper than the Surat basin further south and much more complex. Shell and Petro China drilled a series of some 20 pilot wells but not all of these flowed as well as Shell had hoped, so more work is required to extract the gas economically.
It will therefore take some years to bring Bowen gas to market and the outlays will be large. Probably the best alternative is to pump the gas 250 kilometres to the Wallumbilla gas hub where it can be piped to Sydney and Melbourne.
Alternatively, it can be pumped 500km to Gladstone to reduce the Santos and Origin shortfalls so that they’ll no longer require gas from the Cooper or Bass Strait.
When Shell purchased British Gas in 2015, it acquired the BG LNG project in Gladstone, which is now owned in a consortium with a different Chinese partner. Shell has sufficient Gladstone gas so it doesn’t need to suck gas from the Cooper and Bass Strait to honour its commitments.
Given the costs and complexity of developing the Bowen Basin, it’s probably not at the top of Shell’s agenda. More importantly, Shell needs to make sure it continues to drill in the old British gas areas in the Surat, so that there continues to be enough gas to supply its LNG requirements.
To develop Bowen gas will not only require more development work but the buyers of gas in Victoria and New South Wales will need to come together and offer an iron clad contract to take the gas.
That’s half the answer, Gotti. It’s the right gas. But asking customers to pay to develop it when it is Shell that is withholding gas in Surat is to reward a monopolist and will solve nothing when it comes to prices given the contract will be a massive gouge. Gotti’s solution is basic rent-seeking for Shell.
Two simple rule changes will free this gas for development at better prices. Apply domestic reservation to it and tight “use it or lose” laws. Both are already used in WA.
To be honest, I’m not sure that will be enough, either, but it will inject Bowen gas into the market and add another seller, taking some pressure off.
