east coast demand to soar as oil giants hog ga

East coast demand to soar as oil giants hog gas for export projects
• MATT CHAMBERS
• THE AUSTRALIAN
• JANUARY 16, 2014

Source: TheAustralian
OIL giants Shell and PetroChina have refused to offer new domestic gas supply from their vast Queensland coal-seam gas reserves, warehousing all the gas for an LNG export project that is yet to be approved due to high Australian construction costs.
Amid concerns of a looming east coast gas shortage, it is understood the pair's Brisbane-based Arrow Energy joint venture has been approached by at least two domestic major east coast gas buyers but has been unwilling to take part in the tender process.
Instead, as it is allowed to do under state and federal government approvals, Arrow is warehousing the gas for a planned LNG export project, or collaboration with another plant at Gladstone in Queensland, at a later date when the economics are better.
This would better suit the scale PetroChina and Shell are chasing and justify the $8 billion spent to date acquiring and studying the ground.
The situation where uncommitted gas reserves are unavailable for domestic use is frustrating Australian industrial east coast gas buyers, who face price increases and potential shortages next year as three other Gladstone LNG export projects, costing a combined $70bn, start and rapidly triple Australia's east coast gas demand.
The Australian revealed in November that Arrow had been told by Shell and PetroChina that the LNG project could not compete with other global options and it needed to improve the project economics and look at potential collaboration.
It is understood that as well as high costs in Australia, Arrow's CSG wells, of which thousands would have to be drilled to supply an LNG plant, have not performed to expectations.
It is also understood Arrow is planning redundancies this year as it scales back, but speculation that half the company's 1000-plus employees could go is overstated.
Neither Shell nor Arrow -- which already supplies some domestic gas under contracts signed before Shell and PetroChina bought the company -- would comment on whether Arrow could supply more domestic gas or whether staff cuts were imminent.
According to an April 2013 release, Arrow has 9500 petajoules of proved and probable reserves, which is enough gas to supply the entire east coast market for 13 years, or a single LNG production train for about 20 years.
Manufacturing Australia executive director Ben Eade said it was frustrating that Arrow was sitting on reserves that could be developed and were not committed to export markets, but would not even consider supplying the domestic market.
"Despite having among the world's largest gas resources, we don't have them available for industry and we are being asked to pay the world's highest prices," Mr Eade said.
"We have a looming transition period (where gas supply will lag LNG plant demand in the early years) that could be devastating for Australian manufacturers."
Rio Tinto said last month that it was struggling to get gas sellers to the table to tender for gas contracts for its Gladstone plant, while Incitec Pivot said higher gas prices in 2015 and 2016 would boost manufacturing costs at its Mount Isa fertiliser plant by $100 million.
But last week, Envestra chief executive Ian Little told The Australian that fears of a looming gas shortage were "overplayed". He said there were ample gas supplies available but customers would have to get used to paying higher export-parity prices.
The east coast problem is being made worse by NSW Premier Barry O'Farrell putting restrictions on CSG projects.
Australian Industry Group chief executive Innes Willox said the Arrow situation was an example of why Australia should employ a national interest test to consider the impact of new projects. "Just as Arrow has a strong internal process to ensure investments make commercial sense, Australia needs a national interest assessment, similar to those in the US and Canada, that would consider broader impacts of new projects," Mr Willox said.
"The absence of such a process has contributed to our current problems."
Federal Resources Minister Ian Macfarlane's office said there was no scope to apply "use it or lose it" provisions for onshore gas projects. A spokeswoman for Mr Macfarlane said there were gas deposits in Queensland that were unsuitable for exports that could be better developed for domestic supply: "It would be up to the state government to put in place the conditions under which this development would occur."
Queensland Deputy Premier and State Development Minister Jeff Seeney said the state was doing all it could to develop new gasfields. "Disappointingly, the southern states of Australia haven't taken our lead and are instead pursuing policies that will harm domestic gas users," he said.
"The domestic gas situation has been exacerbated by political cowardice in NSW and Victoria, where governments have surrendered to scare campaigns that have no basis in fact."

http://www.theaustralian.com.au/business/mining-energy/east-coast-demand-to-soar-as-oil-giants-hog-gas-for-export-projects/story-e6frg9df-1226802707271