November 2021
In several recent announcements, the Australian Federal Government has demonstrated its intention to have gas, particularly coal seam gas, play a central role in Australia’s future energy mix.

The Federal Government has recently announced a new gas-fired power station at Kurri Kurri in the Hunter Valley and released the National Gas Infrastructure Plan (NGIP) – Interim Report. It has also announced various budget measures aimed at addressing a forecast shortfall in dispatchable power as well as issues with gas affordability and reliability. The changes are aligned with, and develop, the Federal Government’s Gas-Led Recovery Plan.

NGIP Key Components 

The NGIP identified the following key indigenous gas supply components as part of the solution to the forecast east coast power shortfall: 

  • increased local coal seam gas production from the Bowen and Surat Basins in Queensland;
  • supply from the Santos Narrabri Coal Seam Gas Project in the Gunnedah Basin of New South Wales, now that the judicial review decision on the project has been upheld;
  • ·new gas production in existing offshore basins in Victoria; and
  • ·new onshore gas production in Victoria, now the Victorian moratorium on conventional onshore gas exploration and production has ended; there is a permanent ban on coal seam gas production in Victoria.

The Federal Government believes that investment by the market in the development of these gas resources, and their associated infrastructure, is central to solving the anticipated east coast gas shortfall. The costs associated with new gas exploration, and the long lead times before gas from new developments is available to the market, present challenges to both the development of Australia’s coal seam gas resources from existing basins and the identification of new basins.

The government has therefore committed A$28.3m (US$21.1m) to unlocking coal seam gas and tight shale gas supply in five strategic basins in Queensland and the Northern Territory. The first full National Gas Infrastructure Plan, to be delivered in late 2021, will consider these investments and identify, and signal to the market, the medium- to long-term east coast gas market infrastructure needs up to 2040. The government aims to facilitate a more strategic approach to gas infrastructure development over the long term and to encourage investment from the private sector. There have been several noteworthy recent developments in coal seam gas projects aiming to address the shortfall in east coast gas supply available for power generation.   

Tri-Star – Surat Basin

One of the most significant chunks of uncontracted Australian coal seam gas resources to hit the market in years is set to be fast-tracked into production, with initial volumes potentially reaching east coast buyers as early as 2023. Tri-Star, a privately owned venture active in Queensland’s coal seam gas industry, is seeking a partner to help it develop the Gilbert Gully resource west of Toowoomba, in the Surat Basin.

The 343PJ resource, which was once held by Origin Energy’s APLNG venture, is expected to draw interest from Gladstone’s LNG exporters which are short of gas, including Santos’ GLNG, as well as from domestic producers such as Senex and Beach Energy, and potentially the retailer AGL Energy. The reserves only represent about 1% of Queensland’s total coal seam gas reserves of more than 31,597PJ.

However, the project’s targeted production of 80TJpd is not covered by any long-term sales contracts, making it potentially appealing to the tight east coast market. Its production would be about 50% higher than Senex’s current gas output in the Surat Basin.

Senex Energy - Surat Basin

Senex is on a growth path for domestic gas production at its projects in Queensland’s Surat Basin, which it is developing into a tight market for gas, with shortages anticipated in Australia’s southern states before 2024. The company has attracted a surprise A$845m (US$630m) takeover approach from South Korea’s Posco, in a move that would be the giant steelmaker’s first foray into coal seam gas in Australia. The move could spark rival bidding interest as global gas prices soar. 

The surprise Posco bid highlights the appeal of gas, particularly in supply-constrained areas such as eastern Australia.

State Gas – Bowen Basin

State Gas has commenced the next phase of activities in its program to bring new coal seam gas supplies to market to meet impending shortfalls on the east coast. Following encouraging results at both its Reid’s Dome and Rolleston-West projects in the Bowen Basin, Central Queensland, State Gas is progressing with field works at both locations.

AusGasCo CSG – Bowen/Surat Basins

In February, first-time explorer AusGasCo CSG was appointed the preferred tenderer for two coal seam gas blocks, located to the east and south-east of Injune, totalling 114 square kilometres. These blocks are part of the Queensland government’s 2020 release of a total of 8,205 square kilometres for coal seam gas exploration to maintain a pipeline of future resources projects.

CSG Potential Upside – North Bowen/Galilee Basins

In September, the Australian government committed A$20.7m (US$15.4) to the first stage of the Queensland North Bowen and Galilee Basins Strategic Plan. Some A$15.7m (US$11.7m) will go towards gas well trials, with a further A$5m (US$3.7m) allocated to a feasibility study for a gas pipeline from the North Bowen Basin to the east coast gas market. The Queensland government is also providing A$5m (US$3.7m) for the feasibility study, which may see a pipeline running to Mackay in Queensland.

About 9PJ of coal seam gas is produced from the North Bowen and Galilee basins every year, but there is an estimated 17,661PJ in place, enough to supply the entire east coast gas market for a decade.

Santos – Gunnedah Basin

In October, the NSW Land and Environment Court rejected an appeal into the approval of the A$3.6bn (US$2.7bn) Gunnedah Basin Narrabri Gas Project in the state's north-west.

Santos will now proceed with its plans to drill 850 coal seam gas wells in the Pilliga region, which were approved last year by the Independent Planning Commission. Two alternative pipeline projects are proposed to connect the Narrabri Gas Project to the east coast gas market. The Hunter Gas Pipeline would connect the Wallumbilla Gas Hub in Queensland to Newcastle via Narrabri, with a proposed capacity of 220 to 450TJpd. The Western Slopes Pipeline would connect the Narrabri Gas Project to the Moomba to Sydney Pipeline with a capacity of 200TJpd. 

When fully developed, the project is expected to provide domestic supply equivalent to 50% of NSW demand for 20 years.

Future of Australian CSG 

The Australian government’s Gas-Led Recovery Plan highlights its intention to make gas, particularly coal seam gas, the core dispatchable generating resource for the National Energy Market to maintain reliable power alongside renewable energy sources and to address the supply and affordability issues facing the gas sector.

The government initiatives discussed above represent key steps in the implementation of the Gas-Led Recovery Plan, with further steps to be addressed in the National Gas Infrastructure Plan to be released in late 2021.