What is the next move, page-2

Buddy, the story was cut short, please find the full narrative as below. Same link as provided by original post
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WITH moratoriums to the left of him and bans to the right, Central Petroleum managing director Richard Cottee has told Energy News he can only help save east coast gas markets if the authorities remove structural dis-incentives to invest.

Richard Cottee.

Cottee is keen to further develop the Mereenie, Palm Valley and Dingo gas fields in the Amadeus Basin, to put as much as into the proposed Northern Gas Pipeline as there is both capacity and demand for, but he says the regulatory environment is not supportive.

He’s heard the noises coming from the Council of Australian Governments about the need for downward pressure of pricing and the need for market reform, but he says COAG needs to do more than recognise the rules aren’t working, especially for pipelines tariffs, and that is constraining the market.

Central’s three fields have gross 2P reserves of 207 petajoules and 234 PJ (2C) and it has gross installed production capacity of up to 65 terajoules per day, plus advanced targets for drilling such as Ooraminna, Mereenie Deep, Mereenie Flank, Palm Valley Deep, Palm Valley West and a scattering of leads around Dingo, but he says he can’t justify ramping up drilling if the market support isn’t there.

“We have the gas, but if we contract now and there is downward pressure we are locked into the old price, and given the fact that the NGP is being built – the steel has been ordered and will be delivered this month – that gives us a high degree of optionality, but there is a real issue with backhaul,” he said.

“What I use as an example is the Mt Isa to Ballera Pipeline. It was built to supply Mt Isa, and that market is fairly stable at 40PJ.
“When the NGP gets built 10 of those petajoules that are supplying Phosphate Hill drop out of going north [from Ballera] and 10PJ will come from the west [from the NGP], but the overall market will remain at 40PJ.”

If Central wants to get its gas into the eastern cities of Melbourne and Sydney its gas will likely only get as far as Mt Isa before it is consumed, and the equivalent amount of pipeline gas in the network will be made up elsewhere, with no actual transmission taking place, and that will be the case until the gas that comes west from Tennant Creek exceeds the 40PJ demand at Mt Isa.

He said, with compression, the NGP would still only reach 32PJpa, so only 8PJ will be needed to come up from Ballera.
“The pipeline owner of Ballera to Mt Isa will charge the people who are contractually supplying Mt Isa for the 32PJ even though it is only supplying a fraction of that,” he told Energy News.

“At a reference rate of $1.56/mcf, before we put out supplies in they would get say $47 million in revenue, and they will still get that, but then they will still charge us the $1.56 reference tariff to notionally transport our gas to Ballera, so there will be a 75% decrease of the gas being physically transported in that line and a 75% increase in revenue.

“It will cost us more to go from Ballera to Mt Isa in a 20-year-old pipeline than from Tennant Creek to Mt Isa in a new pipeline.”
Cottee says that makes no sense, because backhaul decreases operating costs and increases the revenue for the pipeline owners.
If you say that there is a gas shortage and you want to do something about it, that offers no incentive to drill, he said.

He is hoping COAG will keep up the cracking pace it has sent since August, fired up by the ACCC report, and will act on a report due in December.

“We maintain if Adam Smith was correct in The Wealth of Nations and price is a market clearing mechanism … then the pricing signal has to be translated back to where the shortage is otherwise the market won’t get back into balance,” he said.

Cottee said the low-hanging fruit allows the easy resources to be developed that supports the infrastructure, regardless of the resource.
That held true for Mt Isa in the 1930s and 1940s, which eventually led to lower grade deposits such as Ernest Henry being developed, that also was the experience in the Cooper Basin, and it should hold true for the Northern Territory.

“If the infrastructure is continually being repaid then the higher cost stuff will not be developed. That would be a disaster in the Northern Territory,” he said.

http://www.energynewsbulletin.net/storyview.asp?StoryID=826967355