I took the liberty of copying and pasting this post from...

I took the liberty of copying and pasting this post from somewhere else as I found it interesting to read.:

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""You have to feel for Incitec Pivot.

There it is with a big fertiliser plant near Brisbane that needs to secure an affordable long-term gas supply or its decades-long campaign on Gibson Island will come to an unnecessary end and, with it, the 1500 jobs it supports would go.

And the only way to fix that problem is for Incitec to build a contractual bridge over troubled waters between the emperor of Australian gas pipes, APA Group chief executive Mick McCormack, and one of the domestic gas industry's most notable maverick entrepreneurs, Central Petroleum's Richard Cottee.

Now it would be fair to say that McCormack and Cottee do not see eye to eye. They are like water and gas. They do not mix.

In the past Cottee has painted McCormack's APA as the earner of excessive rents from its monopoly pipeline network and thus a choke point on the gas industry's capacity to respond to the east coast gas crisis.
In return, McCormack identifies Cottee as a free-rider who has worked to leverage a gas supply crisis into low-cost access to the pipelines that he needs to get Central's Northern Territory gas to east coast customers.

The rights and wrongs of that argument do not matter a whole lot to Incitec. What it needs is a package of gas and pipeline access that arrives at a price point that will sustain Gibson Island through 2019 and beyond. To make that happen it first needs to push Cottee's gas down the APA pipelines that sit at either end of Jemena's spanking-new northern gas link, an artery that will be open for business from December.

So, in what stands as another impressive example of the relentless malleability of the corporation in the face of crisis, Incitec has been forced to become far more active than your average industrial gas user in forging a still-uncertain solution.

In the short term Incitec has become its own middleman. It has contracted the pipeline access it needs and it will buy Central's gas at an ex-field price in an arrangement that kicks in from December and extends for 12 months

This is an arrangement that says an awful lot about the short and medium outlook for the Australian gas market. It signals that the market is still short of affordable gas (in contrast to anything the Australian Energy Market Operator (AEMO) might choose to imagine) just as it announces the inevitable complexity of network logistics that are and ever will be needed to sustain east coast demand.

For example, one of the unexpected oddities of the deal confirmed on Monday is that the volume being delivered appears to fall a little bit short of the estimated 14 petajoules (PJ) annual load that Gibson Island needs. That means only that Incitec would appear to be more exposed to the vagaries of the short market than it wanted to be.

The original plan was that Incitec would buy 10PJ from Central that would be sourced from recovered production in its 100 per cent-owned Palm Valley fields and from its half-share of the Mereenie joint venture. The balance of Incitec's needs would be covered by the Macquarie half of that JV.

But the Central deal is for just over 7PJ on an annualised basis. Central says that is because the link between Mereenie and the main Amadeus pipeline requires remediation to increase pressures to a level that allows ready network access. But there appears to be some level of debate as to who might pay for that upgrade, with producer and pipeliner at odds over who might carry the cost of that upgrade.

Central noted that Incitec had a call on another 3PJ of capacity "subject to a commercial accommodation with APA".

Either way, this gas supply and logistics arrangement will need to be expanded and extended beyond December 2019.

Given this interim feedstock solution will add $50 million to Gibson Island's cost base in 2019, you can appreciate why Incitec is still gathering options for 2020 and 2022.

But, in the end, the duration of any future long, long-haul arrangements – the Central gas will travel 3300km to get to Gibson Island – will be determined by the other, more-radical and ambitious wing of the Incitec-Central strategy.

Rather famously, back in March, the driller and its customer earned the nod in the race for a choice new gas tenement being released by the Queensland government. That success was built on the design of a pitch that saw Incitec commit to fully finance a $20 million drilling program.

Central will do the drilling but get a free carry on the opening phase of exploration. The reason for that arrangement is that the future customer did not want Central's less-robust balance sheet holding up progress on drilling. And that is because Incitec wants Surat gas as soon as physically possible because it will arrive much cheaper for two reasons.

First, the gas will travel more than a third the distance to market than Central's Northern Territory molecules. And second, Incitec's quid pro quo for sole funding of the first phase of ATP (A) 2031, is that Gibson Island will be delivered its gas at cost rather than at the cost-plus that has secured next year's tranche of supply.

As we understand it, the plan is to speed through a nine-well exploration and appraisal program with the strategy being to have Surat gas feeding Gibson Island by as early as 2022. But drilling cannot start until it is approved. Application for approval cannot be made until the right to the tenement is granted. And that grant will not be finalised until next month.

Given that it takes between 18 months and two years to bring an individual coal seam gas well into production, this is an ambitious schedule. It announces an expectation that exploration would promptly result in a final investment decision on moving into production. And that intent reinforces Incitec's frustration with the state of Australian gas.

Incitec is one of many users that have complained long and loud about the domestic market pressures triggered by the coincident arrival of three east coast liquid natural gas projects. Demand for east coast gas has quadrupled but supply has not. For nearly three years commercial and industrial customers have protested about rising gas prices. Through last year customers worried more that the gas they need just isn't available at the tenor they need.

According to AEMO, those concerns were justified but now aren't. The market operator is confident that domestic demand in 2019 will be covered and that the market will not now be short until 2030, all things being delivered as the producers have flagged.

But Incitec, for one, is no longer prepared to accept the producers' promises. Instead it is preparing a pathway to join the ranks of gas project owners and to meet its own needs.

As if to prove that nothing in gas arrives without complication, Central Petroleum's good-news day arrived with the seeds of drilling disappointment in Mereenie. Central is in the throes of drilling a well called West Mereenie 26 that Cottee's people believe could be a bit of a game-changer.

It is a horizontal well, the sort of thing that usually results in hydraulic fracturing. But it is targeting a geological sweet spot where the gas-hosting sandstones are naturally busted up and the pressures are intensive enough to drive gas.

But the initial news is slightly discouraging. While the main target has not yet been reached, Central has reported that some of the natural fractures hit so far are blocked by some form of mineralisation caused by the chemical interaction of "water, gas and other stuff".""