Arrow Energy’s Queensland gas project preparing to drill hundreds of new wells to lift production

A Shell and PetroChina joint venture is about to start drilling hundreds of new wells at its Surat Gas Project in Queensland, adding a total of 450 to the 275 it has online.

Shell and PetroChina’s joint venture, Arrow Energy, will begin drilling hundreds of new wells at its Surat Gas Project in Queensland, after signing a $100m contract with a local company.

The move will add much-needed gas to Australia’s domestic market as the country’s eastern seaboard is expected to experience a shortage, albeit supplies will also flow overseas via LNG markets.

The commencement of drilling in March comes as Arrow said it had signed a deal with independently owned Australian company Silver City Drilling.

Arrow Energy chief executive Zhengxin Peng said the deal would cement the Surat Gas Project as a major supplier both domestically and internationally.

“Since Surat Gas Project construction began in late 2020, we’ve brought more than 275 wells online, increasing total production to 250 terajoules of gas per day – enough to power approximately 1.7 million homes daily,” Mr Peng said.

“With Silver City Drilling we plan to drill an additional 450 wells over the coming years, including 250 as part of the Surat Gas Project North expansion, northeast of Miles.”

Arrow had said it would expand the project in Queensland’s Western Downs to produce 4000PJ of gas for long-term contracts and to supply the domestic market.

The joint venture said 450 new gas production wells, a new field compression station, a 27km pipeline, and road and infrastructure upgrades over two phases would be developed.

Under the agreement, Silver City Drilling will provide two rigs for an initial three-year term, with options to extend for an additional two years.

It’s the latest gas project in Queensland to expand compared with other east-coast jurisdictions.

The Australian Energy Market Operator says the country’s eastern seaboard could experience a gas shortfall by 2026 – and definitely by 2028 – as traditional sources deplete.

But NSW and Victoria, far more dependent on gas than in Queensland, has refused to approve new projects. Even if Queensland continues to approve new gas projects, infrastructure constraints limit the capacity of supplies to meet Victoria and NSW’s needs.

The rapidly approaching shortfall means both states could be dependent on imported LNG from Queensland or further afield, which the Australian Competition and Consumer Commission this month said could cause higher domestic prices.

Imported LNG via a vessel is traditionally more expensive than relying on piped gas.

Another potential remedy, however, is to bolster gas storage. Victoria, which is Australia’s biggest gas-using state, and NSW typically demand more of the fossil fuel in winter. Increasing storage capacity would allow gas to piped during periods of low demand so that it could be stored for use in winter.

The most developed new gas storage facility is GB Energy’s Golden Beach, and offshore gas reserve in Victoria that still has some gas untapped. Once that is exhausted, new gas could be stored there before being pulled when needed.

The project has won the backing of Origin Energy, which last year agreed to purchase the gas left and then take 40 per cent of the storage capacity.

That capacity was on Tuesday increased by 50 per cent amid a surge in demand.

GB Energy said that after drilling tests, the undersea storage site would be increased to a capacity of 375TJ a day, up from its initial design of 250TJ a day.

GB Energy has already signed a deal with Origin Energy that gives Australia access to 40 per cent of the storage capacity, and it is understood GB Energy is close to locking in more partners for the almost $1bn project.

A final investment decision is expected to be made by June 30.

Originally published as Arrow Energy’s Queensland gas project preparing to drill hundreds of new wells to lift production