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LNG plans: Santos requires 4,000-5,500PJ; Arrow at least 1,000PJ, three times current level of CSG production; risk development of LNG export project can reduce availability of gas to domestic gas market in Eastern Australia

Posted by gasweek on 2 October, 2007

Santos and Arrow Energy had recently announced proposals for Liquefied Natural Gas (LNG) projects in Gladstone, noted the Owen Inquiry into Electricity Supply in NSW, Availabiltiy and Cost of Gas for NSW Baseload Generation (31/7/2007).

Detailed studies required for two projects: It was important to note that these projects were in the early stages of assessment. Detailed studies were required to understand the viability of these proposed LNG projects. Both projects required the certification of sufficient gas reserves to underpin long-term LNG supply contracts.

Under current labour and material cost, evaluation “challenging”: Both companies had sufficient encouragement from initial scoping economics to proceed into the next phase of evaluation. However it should be noted, the large capital investment of LNG projects made them particularly challenging under the current cost environment (labour and material).

Implications for gas availability in Eastern Australia: The announcements of the proposed developments for Eastern Australia LNG exported represent a significant vote of confidence by the proponents in the potential of the Coal Seam Gas (CSG) resource. Of particular interest was:

• The gas reserves required to underpin these developments was significant. For the Santos proposal, between 4,000 and 5,500PJ would be required. For the Arrow Energy proposal at least 1,000PJ would be required, although with the option to expand, the volume could be in the order of 2,000PJ to 3,000PJ.

• The gas certification process would run in parallel with detailed studies. As a result the exploration and appraisal work would be undertaken over the next two years.

• The development of CSG processing capacity was significant, approximately three times the current level of CSG production.

LNG export project risk to eastern gas market: There was a risk that any development of an LNG export project could reduce the availability of gas to the domestic gas market in Eastern Australia. This could occur through the preferential allocation of uncontracted reserves to support the possible long-term LNG contracts entered into as part of any LNG development. However, it should also be recognised the significant investment (exploration and appraisal work) in reserves certification required from both Arrow Energy and Santos over next two years. Both companies had confidence in the potential of their Coal Seam Gas (CSG) resources. In addition to these CSG producers, there were other CSG explorers and producers that would also be undertaking exploration and appraisal at this time.

Potential impact factors include labour, material shortage: The significant increase in activity associated with this reserves and production expansion could be impacted by the availability of material, equipment and labour. A shortfall in gas availability in Eastern Australia was therefore more likely to be a result of constraints on the speed to develop the resource into production rather than limitations on the overall resource base available.

Reference: Owen Inquiry into Electricity Supply in NSW, Availabiltiy and Cost of Gas for NSW Baseload Generation, 31st July 2007. This report has been prepared for the Owen Inquiry by Wood Mackenzie. Sydney, Suite 108,Level 1, 16-20 Barrack Street, Sydney, NSW,2000, Australia , Telephone +61 (0) 2 9299 0989, Fax +61 (0) 2 9299 0669 Consultants: Ian Angell, +65 6518 0862; Andrew McManus, +61 2 9299 0989; Richard Quin, +44 131 243 4378; David Bradley, +61 8 9430 9599; Graham Tyler, +65 6518 0823; Valery Chow, +65 6518 0854; Karthikeyan Sathyamoorthy, +65 6518 0853; Facsimile: +61 (0) 2 9299 0669, e-mail:

Erisk Net, 31/7/2007


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