By Robb M. Stewart
MELBOURNE, Australia--Royal Dutch Shell PLC (RDSA) has moved finally to unleash a massive natural-gas resource buried in coal deposits in eastern Australia in a development that will see fuel flow to its majority owned liquefied natural gas venture on the country's tropical coast.
The energy giant and various partners have agreed to a 27-year sales deal covering 5 trillion cubic feet of gas that will anchor the staged development of the Arrow fields in Queensland.
Shell and PetroChina Co. /zigman2/quotes/205108732/composite PTR +0.38% placed a bet on the coal-seam gas deposits in 2010 with the joint acquisition of a small energy company they intended would supply a proposed LNG plant, but plans remained on the drawing board and were officially dropped at the start of 2015 with the slump in crude-oil price and as costs for rival LNG projects soared. Shell had maintained an LNG-scale outlet for the gas was needed to justify the cost of developing what is one of the largest discovered resources on Australia's east.
"Onshore gas developed in Queensland has none of the oil produced by traditional gas fields and is expensive to develop, so without the scale of LNG development it would simply stay in the ground," Zoe Yujnovich, chairman of Shell's Australian operations, said Friday.
The gas from the Arrow fields will feed the US$20 billion QCLNG operation, one of three big LNG plants that sit side-by-side on Curtis Island that was picked up by Shell in 2015 with its acquisition of BG Group PLC. It will bolster exports from QCLNG, which is part owned by China's CNOOC Ltd. /zigman2/quotes/204964401/composite CEO +1.53% and Tokyo Gas Co. (9531.TO), while also providing Shell and its partners additional supplies for a tight local market.
Qian Mingyang, chief executive of the Arrow venture, said approval by Shell and PetroChina of a binding gas-sales agreement followed 18 months of work arranging collaboration deals for the upstream operations. Development will see Shell and its partners lean on existing infrastructure to reduce costs, including gas-compression, processing and transmission equipment and water-transport and treatment facilities.
Initially, work would focus on expanding Arrow's Tipton field before moving to new development areas in 2021, creating 800 construction and another 200 ongoing jobs, Mr. Qian said. He estimated an additional 240 petajoules a year of gas would be brought to the Queensland market at peak output, adding to current supplies in the state of about 1,450 petajoules.
Australia is set to overtake Qatar as the world's biggest exporter of LNG in the next couple years. However, a ramp-up of LNG shipments from plants around the country has coincided with a jump in demand for natural gas to feed power stations, straining the local market and driving up prices.
Canberra in late September held back from flexing new powers to curb LNG exports after securing agreements from gas producers to put more gas into the domestic market and ensure there wouldn't be shortfalls during periods of peak demand.
Australia is on track to ship 58.1 million metric tons of LNG in the current year through June, and with further projects due for completion over the next year will grow its export capacity to 85 million tons, National Australia Bank forecasts.
"When more gas is developed, everyone wins," Shell's Ms. Yujnovich said. "Australians win again because there is more gas to heat our homes and provide energy to our factories and exporters win because they have more gas to feed their job creating export projects."
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