Santos (STO) has nailed the silly argument from The Greens and the Australian Industry Group that we face a gas shortage in the Eastern States in coming years because the rising level of exports, especially by the Queensland coal seam gas sector.
That argument has seen the industry group warn that manufacturers and other users will face possible shortages and soaring prices that could jeopardise jobs and the economy generally.
But it has failed to pay any heed to what companies like Santos were doing, and what market prices might do to gas supplies (they have boosted them significantly in the US, even though prices then crashed, before rebounding slightly).
Yesterday Santos told the annual conference of the Australian Petroleum Exploration Association in Brisbane that after a decade of decline the company’s production capacity in the Cooper Basin in central Australia has risen for the past three years and is poised to surge by 30% over the next two years.
STO APPEA Investor Briefing
Santos is the major producer of oil and gas from the Cooper Basin, which is vital for gas supplies in much of NSW and southern Queensland.
Santos said capacity at its operations in the Cooper Basin had risen for the past three years after bottoming at about 400 million cubic feet a day.
At the same time, oil production has risen to three-year highs, it said, without providing details of actual output levels.
It said that gas production capacity is now expected to rise 30% to about 550 million cubic feet a day by 2015.
The news comes as Santos and its partners (such as Beach, which is starting to step up drilling along the western flanks of the main producing basins in the region) prepare to access a greater portion of so-called unconventional gas, which in the Cooper will be sourced from shale.
Already Santos says it has seen strong initial flows from unconventional gas wells in the region. It has pointed out in the past that it has a long experience in horizontal drilling and fracturing tight formations in the region in the hunt for convention gas.
Santos said there were "market opportunities evident beyond 2015 support acceleration of Cooper unconventional resources program".
To help boost output, the company said it was working to reduce "down time", when its wells are not producing, to less than 10% over the next three years, as well as working to reduce production costs to below $10 a barrel of oil equivalent.
It is also moving to more than double the number of wells drilled annually in the Cooper from the present level of about 25 wells, it said. Santos also said that its 180 gas wells would be drilled in the Cooper Basin from this year to 2015, with four drilling rigs operating in the area by next year.
From what Santos said in its briefing, much of the additional gas will come from tight formations (i.e. conventional natural gas) and from tight shale formations (shale gas).
And Santos said its NSW operations around Narrabri are well placed to fill the looming gas shortage in the state.
"NSW has a looming energy shortage with existing gas contracts expiring. Santos’ Narrabri development is positioned to deliver NSW gas to NSW customers within 2016-19 window," it said.
Santos shares hardly moved in the update yesterday, finishing up less than 1% at $12.80.
STO YTD – +13%
