An affiliate of Royal Dutch Shell plc has made a final investment decision (FID) to move ahead with the first phase of a multi-billion dollar project to expand natural gas production in the Surat Basin of Eastern Australia to supply domestic and export markets.
With the FID, Arrow Energy, a joint venture (JV) between Shell Australia and PetroChina Co. Ltd., said it would start work on the first phase of the project this year, which includes 600 wells between its Tipton West and Daandine fields in southern Queensland.
Shell said sanctioning the project would bring up to 90 Bcf/year of gas to market, which would flow to the JV facilities it operates with China National Offshore Oil Corp. and Tokyo Gas Co. Ltd. on Curtis Island in Queensland, known as QGC for local and international distribution.
“The utilization of QGC’s existing upstream pipelines and treatment facilities enables Arrow to significantly reduce development costs, making the project competitive and economically attractive,” said Shell’s Maarten Wetselaar, director of Integrated Gas and New Energies. The The JV partners’ decision not to build another two liquefaction trains “on Curtis Island provided the opportunity to create this alternative pathway to market for the resource.”
In December 2017, Arrow, which has long operated in the basin, announced a 27-year gas sales agreement to QGC underpinning the Surat expansion project. Ultimately, more than 2,500 wells are to be developed during subsequent phases.
Wood Mackenzie analyst Daniel Toleman said Shell’s FID came as a surprise given that project sanctions are likely to be a rarity this year as capital budgets have been axed in response to the Covid-19 pandemic and falling commodity prices. QGC operates two liquefaction trains on Curtis Island, and Toleman said it’s likely additional Surat gas is needed to keep the plant full.
QGC also supplied 16% of gas demand on Australia’s east coast last year. Toleman said more gas would be needed in the region in the years ahead as the market tightens.
Shell announced a $5 billion cut in global capital spending last month. The Surat project is no doubt a bright spot in Australia, where billions of dollars in investment decisions on LNG production expansions and gas field development have been delayed because of the pandemic.
Shell said the Surat project is expected to create up to 1,000 jobs, including an initial 200 for construction during the first phase and 800 operational and construction roles over the life of the project.
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