Gas pressure rising after federal goverment gives greenlight to Narrabri
Santos could sanction its controversial $3.6bn Narrabri gas project in NSW in 2022 after winning federal environmental approval.
Santos could sanction its controversial $3.6bn Narrabri gas project in NSW in 2022 after winning federal environmental approval, with the Berejiklian government considering using the development to create a new regional manufacturing hub powered by gas.
The South Australian producer will kick off a 12-18 month gas appraisal program for Narrabri, with the project given added momentum after the NSW government set out a plan boosting its support for the domestic gas industry.
The South Australian producer said the environmental conditions were largely in keeping with its GLNG project in Queensland, where it had already drilled thousands of coal-seam gas wells.
“We accept the conditions from the commonwealth, which are very much in line with our other operations across the country, and welcome the approval that all relevant matters of national environmental significance have been adequately addressed,” Santos chief executive Kevin Gallagher said.
Pressure will now grow on Santos to give Narrabri the green light, with the producer spending years talking up the vast potential of the project to ease tight gas markets on the east coast expected by 2025.
NSW Deputy Premier John Barilaro announced plans on Tuesday for a new Narrabri manufacturing precinct, creating 1500 jobs, and echoing elements of the Morrison government’s gas-led recovery plans for the east coast.
Multinational Perdaman, Australia’s largest brickmaker Brickworks and retailer Weston Energy — which supplies gas to big users in the state — have already indicated plans for $2bn of investment should Narrabri proceed.
“This gas project opens up a wide range of industry growth opportunities in manufacturing everything from plastics to fertiliser and construction materials,” Mr Barilaro said. “We want to create a thriving energy hub in Narrabri focused on value-added production and manufacturing to power long-term job opportunities across the region.”
NSW Premier Gladys Berejklian has indicated the state will tap LNG imports if Narrabri fails to move ahead, to meet a federal government deal to supply an extra 70 petajoules of gas into the east coast domestic market.
Still, with no drilling at Narrabri undertaken in the last six years, analysts said there would be intense interest in the appraisal phase.
“Federal approval was an expected milestone. The more critical next phase will be appraisal drilling to delineate and de-risk the potential development. We might expect more details from Santos next week at their investor briefing day,” Credit Suisse analyst Saul Kavonic said.
Disruptive protests and separate environmental approvals for a new $500m pipeline planned by APA Group to transport Narrabri gas to customers also loom as potential hurdles.
“We still cannot rule out further social licence risks to the project, given scope for activist protests alongside further environmental approvals that may be required, including for pipelines to enable a larger-scale development in the future,” Mr Kavonic said.
The green light from Environment Minister Sussan Ley removes a final planning hurdle for the South Australian energy producer after a four-year wait. Santos in September accepted 134 conditions imposed on the project by the NSW Independent Planning Commission, with Ms Ley noting strict conditions on clearing limits and rehabilitation of rural land.
Attention will now turn to the cost and timing of gas supplies.
Critics of Narrabri question whether it will reduce prices.
Narrabri gas would need to be sold for $8 to $10 a gigajoule to achieve an economic return on investment, JPMorgan said.
Former prime minister Malcolm Turnbull also questioned whether it will stack up.
“If the cost of getting that gas out of the ground is $7 a gigajoule, you have to really ask yourself is it going to be competitive with LNG coming in and how much demand is there going to be for gas as you see more batteries and more pumped hydro,” Mr Turnbull told a business conference on Tuesday.
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