Shell, PetroChina give the green light to $10bn Surat Basin project
Shell and PetroChina’s Arrow Energy have approved the first stage of their $10bn Surat Basin coal-seam gas project.
Shell and PetroChina’s Arrow Energy have approved the first stage of their $10bn Surat Basin coal-seam gas project in Queensland in a rare investment boost amid one of the worst downturns for the oil sector in a generation.
The initial $2bn phase will add 100 petajoules of gas annually from 2021 at peak production, equating to 16 per cent of total east coast demand.
The QGC venture, also operated by Shell, will buy supplies from Arrow to feed both its Queensland LNG export plant in Gladstone along with industrial users on the nation’s east coast.
While the amount of gas flowing to local users will be at the discretion of QGC, there are hopes that volumes will help ease an expected supply shortfall in Australia’s southern states due in 2023.
“Arrow holds the largest undeveloped reserves on the east coast at around 5 trillion cubic feet,” Resources Minister Keith Pitt said.
“The Australian Energy Market Operator has highlighted that new gas is going to be required into the east coast market by 2024. Arrow is going to be an important part of delivering that new gas.”
The broader $10bn project will run until 2047, with Arrow staggering the drilling of 2500 wells through three phases that all require separate investment decisions by Shell and PetroChina.
Some 600 wells will be drilled initially, creating 1000 jobs, including 200 initial construction jobs and 800 ongoing roles.
Sanctioning the project given the depressed state of the oil market was a surprise, consultancy Wood Mackenzie said.
Shell had cut $5bn of its global capital spending this year in response to a halving in oil prices amid oversupply and COVID-19 smashing demand.
“(It) was a surprise as project sanctions will be a rarity this year after exploration and production operators globally took an axe to their 2020 capital budgets,” Wood Mackenzie senior analyst Daniel Toleman said.
Gas would “keep the QCLNG liquefaction plants full. But it’s likely this gas will be sent to the domestic market as well, as we see the east coast market tightening around 2024.”
Signing off the deal showed the long-term strength of the gas project, Arrow said.
“These are tough times for the industry,” Arrow chief executive Cecile Wake said. “Our task is to put forward investment cases that are robust through the economic and price cycles.”
He said sharing infrastructure had minimised development risk and “contributed to our shareholders having the confidence to go ahead despite the tough macroeconomic conditions”.
Gas will be piped to the QCLNG export project in Gladstone owned by Shell, China’s CNOOC and Tokyo Gas. Shell bought into Arrow Energy in 2008 and two years later took over the whole company in a 50-50 joint venture with PetroChina.
When Shell acquired QCLNG as part of its $90bn takeover of BG Group in 2016, the path was set for the two projects to join.