Galilee gas players eye coal projects to kick-start sales
There are two proposals to connect the Galilee Basin into the east coast gas grid. James Davies
Gas explorers in Queensland's inland Galilee Basin are harbouring hopes of an early start to production as momentum builds behind coal projects in the region, offering potential for sales ahead of the construction of pipeline to transport gas to the high-priced east coast market.
The basin is estimated to hold more than 8000 petajoules of gas resources, about 15 times the annual east coast domestic gas consumption, but the gas remains commercially unproven and it is currently stranded from the east coast gas grid network.
Pipeline connections into the Queensland gas grid are under study by Jemena, owner of the new $800 million Northern Gas Pipeline that will connect the Northern Territory to the east coast grid as of December, and APA Group.
But Tor McCaul, chief executive of the biggest explorer in the basin, junior Comet Ridge, said that coal projects in the region, led by Adani's Carmichael mine, could provide an early sales outlet for Galilee gas to complement renewable energy.
The Galilee gas tenements are currently stranded from the east coast pipeline grid. Comet Ridge
"We see them as an early start to get us running," Mr McCaul said, estimating production could start in 2021 in a best-case scenario.
Last updated: Thu Nov 29 2018 - 6:49:20 AM
"They could give us early revenue, but our assessment is that they'll never take enough energy there compared to what's available in the basin so ultimately there will need to be a pipeline route south or south-east."
Comet Ridge and Galilee Energy, the other junior making strides towards production in the Galilee Basin, have seen buoyant gains in their share prices in the past several months on the back of test results and as investors wake up to the potential of the region.
Shares in Comet are up 31 per cent over the past 12 months, while shares in smaller rival Galilee have more than tripled to give it a market value of $109 million. Comet's partner, Vintage Energy, raised $30 million in an initial public offer in September but has since seen its shares slide, closing Wednesday at 16.5¢ compared with its 20¢ offer price. Blue Energy is also active in the area.
RBC Capital Markets analyst Ben Wilson describes the Carmichael mine as "a strong potential taker" of any gas that Comet and Vintage produce as pilot projects "or for initial volumes ahead of a pipeline built connecting the basin with markets further south."
Much of the east coast's gas needed to meet demand is still to be firmed up into reserves. AEMO
"A final go-ahead for the Carmichael mine would be a boost for the Galilee gas plays as it could possibly accelerate commercialisation of what we think is a very prospective resource," Mr Wilson said in a research note.
Comet Ridge flowed gas from its Albany-1 conventional well in the Galilee in June and Mr McCaul said the partners are close to contracting for a bigger drilling rig to return to the well in March. They will also carry out a large seismic survey to help define drilling targets in deep sandstone.
He said that, while "the jury is still out" on whether production will be commercial, more than 20 drilling targets have been identified so far in the vast 9700 square-kilometre project area, which is many times bigger than typical petroleum blocks.
Galilee Energy, meanwhile, is focusing on coal seam gas in the Galilee and has a pilot running at its Glenaras project, producing 15,000-20,000 cubic feet a day. Managing director Peter Lansom told shareholders at the annual meeting on Wednesday that a successful pilot achieving commercial gas rates has the potential to book at least 500 PJ of reserves.
Galilee Energy aims to use an extension of a Jemena pipeline to get its gas to market. Galilee Energy
Mr Lansom's presentation refers to "significant interest" in the Galilee Basin as a new source of supply for gas customers and points to Ergon Energy's Barcaldine power station as an option for early-stage sales of gas.
While the Beetaloo Basin unconventional gas resource gets most of the airplay as a potential large new source of gas for the east coast, Mr McCaul said the Galilee Basin has advantages over the Beetaloo in terms of cost and location.
"The cost of coal seam gas and sandstone drilling is an order of magnitude lower than shale," he said.
"In terms of proximity to market I think the Galilee is a very strong candidate too. I think we've got enormous potential in the Galilee. There just hasn't been that much activity over the last hundred years and we now have to take a much more serious look at it."
