Narrabri could be 'pipe dream'

NEW gas production from Santos’ proposed Narrabri gas project may have little or no influence in driving lower wholesale gas prices in New South Wales, according to an organisation previously commissioned by Greenpeace to debunk the commerciality of a major coal project.
Narrabri could be 'pipe dream' Narrabri could be 'pipe dream' Narrabri could be 'pipe dream' Narrabri could be 'pipe dream' Narrabri could be 'pipe dream'

Narrabri rig image courtesy of Santos.

Anthony Barich

Santos has proposed to develop its natural gas reserves in the Narrabri area in northwest NSW to provide a “much needed” gas source for the state and has told the NSW government and the community that the Pilliga project will play a role in bringing down gas prices in NSW.

The long term gas contracts which have supplied gas to NSW in the past will expire over the next two to three years, coinciding with the commencement of LNG exports from Queensland which will see annual gas demand triple and the other states look to use their gas for their own economic benefit.

“Unless NSW can develop an alternate source of natural gas, the state is likely to face much higher prices than if there was plentiful and certain supply for all domestic, commercial and industrial gas users,” Santos said.

The 98,000 hectare NGP could produce 200Tj of gas a day, equivalent to about half of NSW’s current gas demand, to supply the state’s market via a new pipeline connection running south of Narrabri.

NGP will be subject to a rigorous state and Commonwealth governments’ assessment and approvals process to ensure impact has been assessed and mitigated.

However, a new report by the Institute of Energy Economics and Financial Analysis stated that: “Putting aside pipeline construction uncertainties and likely landholder opposition, our research concludes that the likely substantial capital investment of the project means that if stakeholders in NGP are to enjoy at least cost-of-capital returns, the project will likely have little to no influence in driving lower gas pricing in NSW.”

A Greenpeace-commissioned IEEFA report recently labelled Indian conglomerate Adani Mining’s $16.5 billion Carmichael open cut and underground project uncommercial.

IEEFA director of energy finance studies (Australasia) Tim Buckley said that while analysts differ on forecasts of the future trajectory of NSW gas prices, “there is little debate that prices are at least set to double”

“My analysis finds that the NGP may well have little to no role to play in addressing this issue,” he said.

IEEFA’s report notes that while the Narrabri gas project is touted as a solution for future NSW gas supply, the fact that a pipeline needs to be built is rarely mentioned. A pipeline proposal has not yet been submitted for assessment and recent history provides evidence of organised landholder opposition to gas pipeline proposals.

While the November 13 NSW Gas Plan said operators of the proposed NGP have publicly committed that all gas produced from this project, if approved, will be made available to the NSW market, Buckley said the MOU between Santos and the NSW government was not legally binding and there would be “great pressure” to maximise gas prices in other markets.

He said the proposed Queensland Hunter gas pipeline project would not only run south to the Sydney market but also run north to feed into the Queensland market, linking NSW to international gas export ports.

“Let’s not forget Santos’ first obligation is to maximise profits for its shareholders. This would suggest the direction of gas supply would most likely be north, in the absence of a legally binding MOU between Santos and the NSW government.”

A Deloitte Access Economics report launched in July, commissioned by an alliance of six industry associations (mainly energy users), said that while exporting Australia’s previously untapped CSG reserves was expected to provide a boost to Australia’s GDP, realising these benefits would also entail “painful consequences”

Deloitte’s report said that greater input costs associated with higher gas prices and greater risk arising from a more difficult gas contracting environment would have adverse consequences for many regions and states.