Shell to release additional 10% of gas locally in 2017

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  • Good news for energy prices in the short to medium term
  • 161 new wells to be drilled in South West Queensland
  • Santos urged to supply more gas to the local market
  • Shell and Chevron chiefs blast New South Wales and Victoria policies
  • Moody’s gives thumbs up to South Australia energy plan

The very much belated energy crisis meeting between Federal Government Prime Minister Malcolm Turnbull and gas producers seems to have yielded results as Shell has committed to providing 10% more gas for consumption by the local market.

The move comes as a result of a $500 million investment to drill 161 wells in South West Queensland.

Shell has committed to a one-off deal for 2017 to release an additional 10% of its gas supply to the local market

After Snowy, we are now presented with “Project Ruby” which will be handled by Shell’s QGC arm, involving the drilling of 161 new wells. While the project will take time to set up and put into action, it has given the oil giant security in knowing that it can up its output in the future.

As a result, it has pledged to sell more than 75 petajoules of gas to Aussie customers this year, net of what it purchases off the market.

To make that understandable, it is committing to provide 10 per cent of East coast demand for gas this year. This should lead to savings for Queenslanders, but it is not clear as to how this will help NSW and Victoria customers in the short to medium term. As things stand, eliminating waste and self-generation is still the only way to go for short term savings against continued rising costs.

So far, Shell has made no pledge to an ongoing deal, but even if this is a one-off pressure valve, QGC is set to announce two new sales contracts for high consumption industrial gas customers.

Queensland Prime Minister Annastacia Palaszczuk said the Ruby Project is a win-win situation with jobs being created in the state, while also easing the pressure on the highly stressed East coast market.  “Other states have moratoriums on gas development, but we have a rigorous policy that has promoted the sustainable development of the LNG industry,” she said.

Shell and Chevron Chiefs blast New South Wales and Victoria gas policies

  • Call for state governments to unlock resources now

Shell Australia chairman Andrew Smith also had harsh words for the New South Wales and Victoria governments, citing Victoria’s “particularly stupid” ban on all onshore development.

“The simple fact is it costs more to ship gas from Queensland to Victoria than it does to ship from the US and that is wrong”

Shell Australia Chief Andrew Smith 

He also said that there was something fundamentally wrong in the way the pricing system works, particularly to transport LNG within Australia.

“It costs us a lot to get gas from Victoria and we’re happy to do that but the simple fact is it costs more to ship gas from Queensland to Victoria than it does to ship from the United States to Victoria and that’s wrong.”

He said that energy customers in Queensland will pay less for gas than those in southern states as a result of the new project and urged NSW and Victoria governments to revise their policies if they had people’s interests at heart.

Speaking at a Committee For Economic Development of Australia, the new Chief of Australia’s Chevron Arm echoed Mr Smith’s call for action to unlock gas resources. He said that the reliability of electricity supply depended on reliable gas supply and this required the development of existing and new oil and gas fields.

He said that the crisis could be solved very quickly if immediate and concrete action is taken, adding that if resources are unlocked: “Communities, industry, manufacturing and the environment would benefit.

 Santos urged to do more

The news comes as pressure grows on Santos to do its bit to ease the pressure on the markets by producing more gas. The finger-pointing continues because gas prices have tripled and Santos, which bizarrely needs to draw on local gas supplies to meet almost half its own needs.

Hemming and hawing, CEO Kevin Gallagher gave a noncommittal statement saying: “We are continuing to work with our partners, the federal government to look at opportunities across our portfolio to make more gas available to customers domestically. However, we are not in a position to provide an update at this time.”

Moody’s gives thumbs up to South Australia energy plan

  • State deficit to increase, but manageable if the plan is implemented properly
Moody’s gives the thumbs up but urges prudence

In other news, the South Australian Government’s energy plan has been given the thumbs up by international credit agency Moody’s. The $500 million gas, battery storage and renewables plan will put a dent in the state coffers and increase the deficit, but it is manageable and will increase the reliability of supply and economic stability in the longer term, according to a feasibility study it has drawn up.

Moody’s did however caution that the plan needs to be implemented responsibly and in a sustainable manner if it is to work. It added that security of supply will offset capital expenditure by attracting new business to the region.

What does this all mean for energy consumers?

  • Wholesale natural gas supply impacts both the natural gas price and wholesale electricity prices;
  • By introducing more supply into the natural gas and electricity markets, prices for the end-user should come down;
  • This is good news as we are now moving into an environment where it is clear that something is being done from a policy standpoint. The added market certainty will ultimately be reflected in the future price of electricity and natural.
  • The question is: How long will it take for the consumer to see a benefit?

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