East coast gas supply Q&As

Q. Gas production from Longford is forecast to drop from 2017 to 2018. How was Esso able to ramp up for 2016 and 2017, but not maintain that level of production going forward?

From 2018 we expect to return to the levels of gas production we supplied in 2011-2015.  Over the last 24 months, our Gippsland operations have been able to do the heavy lifting to meet unprecedented east coast gas demand by increasing our production well above our historical levels. Achieving this is not as simple as turning the tap harder. It requires exceptional work from our engineering, production and maintenance teams to identify and implement new production opportunities across our onshore plants and offshore platforms. But accelerated extraction inevitably means accelerated decline, especially in an operation that’s already exceeded expectations. Some have expressed surprise that we cannot sustain these high production levels for an extended period, but this is simply not possible if the developed gas is not there to produce.

Q. Can you explain why Longford cannot supply more gas in 2018 given the large investment that has just been made in the Kipper Tuna Turrum Project? 

The Kipper, Tuna, Turrum project is delivering an additional 1.6 trillion cubic feet of gas to the market. The new fields require additional processing to remove impurities, which limits the rate at which they can be produced. The $5.5 billion investment will help offset decline from the Gippsland Basin’s mature gas fields, to sustain a plateau into at least early next decade. 

Q. Has the forecast decline in the Gippsland Basin’s mature gas fields been communicated to regulators and customers before now?

East coast market modelling detailing the expected decline of our major Gippsland fields dates back 20 years and formed the basis of the business case for the 1997 PNG Gas Pipeline Project into Queensland.  Detailed modelling identifying a 2018 shortfall to east coast domestic gas supplies in the wake of full production of Queensland Export plants were widely discussed in 2013 following the AEMO Eastern and South-Eastern Australia Gas Statement of Opportunities Report. The decline of our heritage gas fields comes as no surprise to those with knowledge of the energy industry.

Q. Should Esso be doing more to fill the expected shortfall on the east coast gas market?

For over four decades the Gippsland Basin Joint Venture had been a market leader providing gas supplies to the east coast. However, today we are only one of a number of potential gas supply sources into a highly competitive market. Bass Strait today has only 5 percent of the east coast’s remaining proven and probable gas reserves. Regardless, we have the best geoscience and engineering minds working on ways to develop what we have left, to maximise reliable supply through our Longford gas plants for as long as we can.

Q. What is your outlook for availability of gas on the east coast over the next few years? What is the longer term outlook?

Our outlook is stable to 2020 and we’re working hard to keep this going. Gas developments are driven by market demand. Bringing undeveloped gas resources online requires investors to put forward huge capital outlays – typically billions of dollars – and accept high risks, in order to make a financial return many years later. This is why long-term certainty and stability in the investment climate is so important. After almost half a century of production, we have delivered about 8 trillion cubic feet (TCF) of gas to the market. According to Geoscience Australia, there remains over 45TCF of proven and probable gas resources available to Australia’s east coast market, most of it onshore. How and when these resources are developed will be determined by market dynamics and resource owners’ ability to compete for the significant capital investments that will be required.

Q. Would a domestic-gas reservation policy (similar to Western Australia) help the current supply issues and result in lower prices?

A domestic-gas reservation policy would be unlikely to work on the east coast.  The best approach is to make sure the market is allowed to work to send signals to potential investors to encourage new fields to be developed. There are significant undeveloped resources that could supply the eastern Australian market, and a reservation policy would likely lead to market distortions and be a disincentive to future developments.

Q. What action is Esso taking to help bring more gas into the domestic market?

We are working hard to identify the next commercially viable prospects to develop to sustain production from our Gippsland facilities. Following the successful completion of our $5.5 billion Kipper Tuna Turrum Project, we set-up a multi-disciplinary taskforce to look for gas we can bring on-line in the short term, as well as to engineer longer term Bass Strait gas developments. This taskforce is looking at everything from geotechnical assessments and small investments such as debottlenecking facilities, to larger projects requiring major capital. The team is having some good success and we are making the gas available to the market once we have confidence that the molecules are there and can be produced.

Q. What gas exploration activities are currently underway? 

We continue to bring to bear our technology and understanding of the basin to ensure its full potential is realised. We are working hard, as we have for the last 40 years, to identify the next commercially viable prospects to drill. Using the latest super computer processing capacity, our geoscientists reprocessed old 3D seismic data with new algorithms. After detailed analysis of the results they identified new prospective drilling targets and as a result we have acquired our first new Bass Strait exploration acreage in over 20 years. Next year, we will spend around $100 million in a highly uncertain deep-water exploration drilling program in this acreage, in the hope of finding new gas for the market. If successful, these could then be developed to help offset the inevitable production decline from our heritage Gippsland fields. We hope there is more gas yet to be discovered in Bass Strait, and we have the best minds working hard to look for it.