Santos says Narrabri CSG project will ease NSW gas crunch

Santos says there could be job losses and industrial closures if its $3.6bn Narrabri gas project does not go ahead.

The Narrabri coal seam gas project

Santos has warned there could be job losses and industrial closures if its controversial $3.6 billion Narrabri coal-seam gas project, which could supply half of NSW’s gas demand, does not go ahead.

In its environmental impact statement, Santos says Narrabri, which has faced strong community opposition, is an economic project that could be safely producing in 2019 to ease a looming east coast shortage, if environmental approvals can be secured.

The Adelaide-based oil and gas company has challenged the NSW government to push through approvals as markets grow tighter in the face of exports from its Gladstone LNG project that have sucked up former NSW supply from the Santos-operated Cooper Basin.

If Narrabri, which was previously forecast to cost $2bn, does not go ahead, there could be job losses, industrial closures and shortages, Santos says.

“The Narrabri Gas Project could supply up to 50 per cent of the natural gas needs of NSW and deliver substantial benefits to the local community and the state,” Santos chief Kevin Gallagher said in the project’s environmental impact statement, which is currently open for submissions.

​“The EIS concludes the project can be developed safely with minimal and manageable risk to the environment,” he said, adding there would be minimal risk of impact on agricultural and domestic water sources.

The project, largely in the Pilliga state forest, has been on the drawing board since 2011 when Santos bought the John Anderson-chaired Eastern Star Gas for $920 million.

But Narrabri suffered setbacks in the form of strong environmental and farming opposition, state government restrictions and a reserve downgrade because the coal- seam gas was not as easily produced as previously thought.

While Santos has labelled the project as “non-core” and slowed development, and its 20 per cent partner EnergyAustralia has written the project value down to zero, it last month surprised the market by declaring it would submit a 7000-page environmental impact statement and had struck a deal with APA Group to link the project to market through a 400km pipeline.

The Santos-led Gladstone LNG project in Queensland has come under the spotlight after Malcolm Turnbull’s emergency meeting with gas producers last week because it is buying the equivalent of about one-third of east coast domestic gas consumption because it does not have enough gas reserves to support the two LNG export trains it built at Curtis Island.

The other two projects at Curtis Island, Shell’s Queensland Curtis LNG and the Australia Pacific LNG plant run by Origin Energy and ConocoPhillips, are net suppliers to the domestic market.

In the Narrabri EIS, Santos explains the impact that LNG exports are having on the domestic market, where buyers are complaining of shortages and big price hikes. ​

“From 2017, a major shift will occur when all three liquefied natural gas facilities in Queensland will reach more stable production levels,” the EIS says.

“The majority of the gas that was previously contracted from the Cooper Basin will no longer be available to supply NSW, as it has been contracted from 2016 to meet some of the supply requirement of these Queensland natural gas facilities.” Santos says NSW will have to get its gas from Victoria, raising supply risk if there is an outage.

“Should the project not proceed, and if a feasible alternative to current gas supply is not found in the short term, there is a risk that jobs may be lost, large industrial gas users may close and there may be gas shortages,” Santos says.

The project is expected to cost $3.6bn to develop in nominal terms, require another $1.9bn of operating costs and deliver its owners a net present value of $2bn. As under previous plans, 850 wells will be drilled over 20 years, producing peak production of 200 terajoules a day.

​“Construction of the project is expected to commence in early to mid-2018 with first gas scheduled for 2019-20, subject to obtaining regulatory approval and a final investment decision,” Santos said.

Mr Gallagher said the project would provide 1300 jobs during a three-to-four year construction period, 200 ongoing jobs and would generate $1.2bn in state royalties.

While NSW was the leader in restricting onshore gas production in the east coast, followed up by Victoria and the Northern Territory, in 2014 it listed Narrabri as a “key strategic entry project in its state Gas Plan, after NSW chief scientist and engineer Mary O’Kane declared the technical challenges and risks of the industry could be managed.

But opposition has not really eased, with the Wilderness ­Society declaring the largely unchanged plans in the current EIS puts Santos “on a collision course with the Narrabri community and people across NSW”. How the project will be funded, if it is approved, is also unclear, with Santos in no position to embark on the project on its own.

The east coast gas crisis is being made worse by sliding oil prices that sapped funding options and shareholder excitement for new gas projects.

Origin’s economic Ironbark coal seam gas project in Queensland is up to five years behind schedule and Mr Gallagher, since taking the reins at the debt-laden Santos early last year, has slashed spending.