Gas sector to play key role in global net zero transition, despite IEA’s end of ‘Golden Age’ declaration (Source: Small Caps)

By Colin Hay - October 27, 2023

While the International Energy Agency (IEA) has declared that the recent energy crisis has marked the end of the “Golden Age” of gas, the fossil fuel is still set to play a key role in the global transition to net zero.

The “Golden Age of Gas” is a term coined by the IEA in 2011 with global natural gas use increasing by an annual average of almost 2% since that year.

But in its latest annual in-depth assessment of the global energy scenario, the IEA forecasts that gas demand growth will slow to less than 0.4% per year from now until 2030.

The IEA’s annual World Energy Outlook (WEO) reports that natural gas demand in the power sector will decline from today until 2050, with a particularly strong dip in the 2030s when co-firing in gas-fired power plants begins to be deployed at scale.

However, its analysis also found that despite this gradual slowdown, the global installed capacity of natural gas power will continue to expand over time.

McKinsey forecasts ongoing gas growth

A new report from McKinsey & Company found that natural gas growth is expected to continue in the next few years and then remain a core part of the world’s energy mix for decades to come.

The “Global Energy Perspective” forecast that total natural gas demand to 2040 will increase under most scenarios, due to gas’ predicted role in the lead-up to renewables-based power generation and until batteries are deployed at scale.

However, McKinsey says there are differences of opinion on where gas demand heads in the decade to 2050.

The forecasts range from a steady increase under conservative scenarios to a steep decline under scenarios in which renewables and electrification advance faster.

Vintage rapidly expanding its gas production

Since producing its first commercial gas flow from the Vali field in Queensland earlier this year, Vintage Energy has continued to achieve significant production and marketing milestones.

Vali commenced production in February in permit ATP 2021, located in Queensland adjacent to the Queensland-South Australia border.

The ATP 2021 Joint Venture is currently supplying AGL Energy under an initial contract to sell an estimated 9 petajoules to 16 petajoules of gas.

Vintage added a second string of commercial gas production assets in September when the Odin-1 gas well commenced supply under an agreement with Pelican Point Power Limited.

A 50% interest holder and operator of the PRL 211 permit joint venture, Vintage and its JV partners Metgasco (25%) and Bridgeport (25%), recently signed an additional two-year gas sale under the master gas supply agreement for the Odin gas field.

The joint venture parties have agreed and signed terms with Pelican Point Power Limited for the supply of gas from 1 January 2025 to 31 December 2026. The new sale follows the announcement in May 2023 of an agreement between the joint venture parties and Pelican Point Power for supply of gas from Odin from field start-up to December 2024.

Blue closing in on Queensland gas start-up

Elsewhere, Blue Energy is confident it is closing in on the commercialisation of its large Sapphire gas project in Queensland’s Bowen Basin.

Blue has executed three non-binding Memorandums of Understanding (MoU) to date and continues to hold discussions with gas buyers and pipeline owners to help bring its Sapphire offtake to the east coast markets.

The company has already successfully completed a Sapphire Pilot drilling campaign comprising approximately 14,000 metres of hole with a total of approximately 8,000 metres in horizontal section.

A new independent assessment of the Sapphire project has unveiled a 36% increase in the estimated total proved and probable (2P) reserves for the proposed gas development.

The reserves and resources upgrade support the gas supply volume required under a non-binding MoU signed between Blue and Queensland Pacific Metals (ASX: QPM) in June.

Blue has agreed to potentially supply gas into Queensland Pacific Metals Energy newly acquired Moranbah gas project plant, which is located immediately adjacent to Sapphire.

If it progresses, the QPME transaction will provide Blue with a simple path to the commercialising of Sapphire gas being produced by pilot well production testing activities.

Blue is currently undertaking a major program of pressure build up tests to further assess the productivity potential of the block as part of the pilot program.

Australian demand remains strong

The global gas growth forecasts are reflected in Australia’s domestic markets, where the east coast and South Australia in particular are expected to require consistent gas production over the next few decades as those markets shore up their renewable options.

That expected demand growth continues to attract strong exploration and development investment and a new breed of junior companies looking to grab their share of the market.

Some of the new names which have already had success in providing much sought after new gas supplies include Vintage Energy (ASX: VEN), while another group of hard-working energy companies such as Blue Energy (ASX: BLU) and BPH Energy (ASX: BPH) are moving towards commercialisation of their assets.

BPH targeting offshore NSW gas development

Through its 36% interest in unlisted Advent Energy, BPH Energy is looking to finally unlock the exciting potential of the large PEP-11 permit off the NSW coast.

Long regarded as potentially one of the largest gas reserves off the east coast of Australia, development of the PEP-11 permit has been significantly delayed by environmental concerns and a lack of drilling rig availability.

BHP is hoping a recent successful $1.9 million capital raise can at least assist with coming up with an answer for the latter problem.

BPH executive director David Breeze has said the proceeds of that raising will provide the company with a strong cash position to fund its hydrocarbon projects, with $1.5 million for funding for exploration and development of its oil and gas investments.

The majority of the $1.5 million oil and gas exploration funding is expected to go towards supporting Advent Energy and its plans for the PEP-11 permit.

Advent and its joint venture partner Bounty Oil & Gas (ASX: BUY) are currently in discussions with relevant authorities over the granting of a variation to work program conditions and related permit extension for the PEP-11 licence.

The JV is also investigating the potential to contract a mobile offshore drilling unit to drill the Seablue-1 well on the large Baleen prospect.

Advent has already instigated discussions with a number of drilling contractors along with other local permit operators who have recently contracted rigs for work in the Australian offshore beginning in the first half of 2024.

It appears the rumours of the death of gas sector have been greatly exaggerated.