Petroleum activity in NSW
Petroleum exploration and production in NSW is almost entirely focussed on coal seam gas (CSG). Projects have seen a marked increase in well completion and well testing. In particular by companies such as AGL and Santos.
Nevertheless, the petroleum industry has seen a number of land use issues over the past year, including the introduction of new policies to help address growing community concerns of the impacts of CSG exploration and production activities to groundwater aquifers, strategic agricultural land and the imminent removal of the six year Royalty Holiday on first production.. The introduction of a permanent ban on the use of BTEX drilling additives and a moratorium on hydraulic fracture stimulation (fraccing), a moratorium on the renewal of Petroleum Exploration Licences (PEL) and grant of new applications. As a result the petroleum industry has seen a marked decline in exploration activity. The record breaking expenditures and investment recorded in 2010-11 of about $145 million, is expected to fall to around $65 million in 2011-12.
CSG development is still at an earlier stage compared to Queensland however, it is developing to be a potential major source of gas for domestic use and a cleaner power generation alternative. Exploration and development projects will, however, have to adapt to the new guidelines and policies. The industry has quickly responded with the utilisation of innovative drilling techniques (lateral or surface-to-in-seam) which not only increase flow rates, but also addresses some land access issues. Treatment and disposal of formation water via reverse osmosis and water bore monitoring of potential pressure depletion and aquifer contamination are being implemented by operators. Increased levels of community engagement and consultation will also be a permanent feature from initial exploration through to production.
Despite the uncertainty, CSG has been the focus of a number of large acquisitions and take-overs worth over $1billion. In 2011 Santos Ltd and Dart Energy both increased their stakes in the coal seam gas industry in NSW. These two companies, together with AGL, are now the largest titleholders in the State.
Santos Ltd now holds most of the titles over the Gunnedah Basin (Narrabri projects) exploration and development ventures via a corporate buy-out of Eastern Star Gas and Australian Coalbed Methane’s assets and interests. Prior to the buy-out Eastern Star Gas had accelerated all development plans in the Gunnedah Basin, lodging a concept plan for the Narrabri CSM project. This concept plan outlines a four-staged development proposal starting with ongoing gas exploration and production testing, power generation, construction of pipeline infrastructure to supply gas into the NSW market and product expansion to support a range of value-adding downstream initiatives (such as Liquefied Natural Gas (LNG)).
Following acquisition of ESG’s operations, Santos Ltd is committed to accelerating exploration in the Gunnedah Basin however, they are reviewing potential gas markets.. Dart Energy has had positive results in their exploration of the area near Fullerton Cove, northeast of Newcastle. Plans for production testing pilot wells are proceeding. Due to strong community opposition in inner Sydney, Dart shelved plans to drill and test CSG potential at St Peters.
NSW remains significantly under-explored for petroleum, both conventional and CSG, compared to other states. Geophysical surveys and basin evaluation studies undertaken by the NSW Government through its initiative funding, have demonstrated that the sedimentary basins in NSW have all the elements of petroleum systems suitable for the generation of oil and gas. Many of the geological formations and sedimentary basins that host economic gas and oil production in South Australia and Queensland all extend into NSW. Recent discoveries in Queensland are located close to the border with NSW.
There have been encouraging results with conventional petroleum exploration, particularly in the Clarence-Moreton Basin where Metgasco has successfully tested a gas-charged deep sandstone reservoir in their Kingfisher field near Casino.
Commercial conventional petroleum production, either onshore or offshore, occurs in all states except NSW. After several years of exploration and prospect promotion, the first offshore well was drilled in December 2010, located some 25 kms off the coast east of Newcastle within Sydney Basin. While the drilling did encounter high quality reservoir sands, the depth where it was penetrated was not favourable for accumulation of hydrocarbons and the results were quite disappointing. The title holder plans to undertake a 3D seismic survey to define the good reservoir sands deeper in the basin.
Opportunities in New South Wales
NSW is Australia’s largest potential market for oil and natural gas. NSW generates approximately one third of the country’s total energy demand. The industrial and transport sectors alone consume around 80% of gas demand in NSW, with the remaining consumption in the domestic and commercial areas.
The NSW gas pipeline network has undergone significant expansion, bringing gas to many new regional centres. It is expected that expansion of the gas pipeline network will act as a significant stimulus to exploration in NSW. The expanded network will provide new and larger market opportunities for gas sales. It will also provide the infrastructure needed to transport the gas to the major markets, reducing the cost and risk of developing any petroleum discoveries.
The Central Ranges Pipeline Pty Ltd (CRPPL) was commissioned in August 2006 and now supplies natural gas to Tamworth via a junction at Dubbo. There are also additional gas distribution networks supply areas in the Murray Valley region on both sides of the Murray River including Griffith and Wagga Wagga.
The Queensland Hunter Gas Pipeline (QHGP) is a proposal by Hunter Gas Pipeline Pty Ltd to construct an underground, high pressure natural gas pipeline from Queensland to the Lower Hunter industrial hub at Hexham, north of Newcastle. The pipeline will transport gas collected in the coal seam gas fields of the southern Surat Basin in Queensland. It is estimated the project will cost $850 million and could create up to 800 jobs during construction and 150 when operational.
NSW is unique in having large market opportunities and expanding gas related infrastructure in close proximity to frontier acreages. Proposals for other gas production pipelines have been submitted. The Lions Way Gas Pipeline will connect the Casino gas field to Ipswich at a distance of 145 km. The Stratford to Hexham Gas Pipeline is proposed to bring the gas production from the Gloucester coal seam gas project at Stratford to Hexham and into the main Sydney to Newcastle gas pipeline.
To address the perception that NSW was not prospective for petroleum and the lack of exploration, the NSW Government funded three exploration initiatives; the original Discovery 2000 initiative, the succeeding Exploration NSW initiative and the current New Frontiers initiative. The petroleum component of these initiatives has resulted in the provision of enhanced geophysical, geochemical, structural and stratigraphic information on NSW sedimentary basins.
As a result of NSW Government initiatives and legislative changes that have occurred in respect of acreage and access to infrastructure, NSW is increasingly recognised as an attractive target for petroleum exploration. Key components of the acreage management system in NSW include:
- Up to a maximum six-year title grant system with 25% relinquishment on renewal;
- A competitive work program bidding system when acreage becomes available (applies to offshore only).
- Availability of a large amount of pre-competitive data
The changes and initiatives have resulted in a dramatic increase in petroleum title applications in NSW over the past few years. Exploration for coal seam gas has undergone a multi-fold increase in recent years with most of the titles covering areas where coal seam gas is the primary target. The Darling Basin is the exception, where conventional petroleum in Devonian strata is the main objective. Less than 300 conventional petroleum wells have been drilled within NSW despite the state having almost 500,000 km2 of sedimentary basins. While the majority of NSW basins remain largely untested there is high petroleum potential in the Bowen/Surat, Clarence-Moreton, Darling, Eromanga and Murray basins.