Gas supply hubs underpinned innovative contracts
I n 2 0 0 6 , S a n t o s p a r t i c i p a t e d i n s e v e r a l i n n o v a t i v e c o m m e r c i a l i s a t i o n a c t i v i t i e s w h i c h l e v e r a g e d t h e C o m p a n y ’ s n e t w o r k o f g a s s u p p l y h u b s i n e a s t e r n A u s t r a l i a .
resource from the Reindeer gas field, located north-east of John Brookes, in which Santos has a 45% interest.
CLIMATE CHANGE INFLUENCES
The interaction between the Wallumbilla and the Cooper Basin hubs, in south-east Queensland and South Australia respectively, is now delivering the greater production versatility and the optimisation of costs that were the objectives of Santos’ hub strategy.
This strategy is delivering a number of commercial benefits including:
the sale of coal seam gas (CSG) under Cooper Basin contracts which has underwritten further development of Fairview reserves by bringing forward the production of gas for which markets were not immediately available in south-east Queensland;
meeting Cooper Basin sales commitments with CSG, which contains no ethane, facilitates the separate sale of higher-value Cooper Basin ethane;
the expansion of an existing gas swap agreement between Santos and Origin Energy from 18 PJ to 40 PJ per annum, and extension of the agreement by six months until mid 2012;
the sale of 34 PJ of gas over nine years to Zinifex for power generation at the Century zinc mine; and
the potential to further extend Santos’ gas supplies to South Australia and New South Wales.
GROWING ROLE FOR CSG
CSG is playing an increasing role in Australia’s energy supply mix and now represents 25% of the 2P gas reserves in eastern Australia.
With low barriers to entry and established transmission infrastructure in the region, the CSG market is highly competitive with many new and emerging participants. Given its low-cost, high-productivity production facilities at Fairview and Scotia, Santos is well positioned to supply CSG to this burgeoning market.
GAS PRICE TRENDS UP IN WA
In Western Australia, Santos signed several new gas contracts in 2006 as prices moved sharply higher, reflecting robust and increasing demand for gas.
Santos contracted with Newmont Australia for the supply of 16 PJ of gas over three years from the John Brookes field. The contract, which will supply gas to Newmont’s Jundee gold mine and Parkeston power station, is expected to generate more than $90 million in revenue during its term.
The John Brookes field will also supply up to 37 PJ of gas over 10 years to Wesfarmers’ new LNG plant at Kwinana, south of Perth, which is scheduled to come online in early 2008.
The favourable demand and gas price trends in Western Australia provide an attractive opportunity to commercialise an additional 300–500 PJ of gas
Political and market responses to climate change created commercial opportunities for Santos in 2006.
Santos sold Gas Electricity Certificates (credits earned by the Company’s Ballera power plant) to Energex to enable the power retailer to meet its obligations to the Queensland Government to source 13% of its electricity from gas-fired generation or purchase Gas Electricity Certificates in lieu of financial penalties.
The pursuit of lower-carbon-intensity fuel has enhanced the competitiveness of natural gas over coal, and is expected to stimulate more gas-fired power generation in eastern Australia with a resulting positive impact on gas prices.
In 2006, the New South Wales Greenhouse Abatement Certificate Scheme, under which electricity retailers are required to meet mandatory targets for reducing or offsetting greenhouse gas emissions, was extended until at least 2021. This scheme increases the competitiveness of gas-fired electricity generation and improves the outlook for gas in one of Santos’ core markets.
SANTOS DIRECT SALES TOP $30 MILLION
Sales by Santos’ retail gas marketing arm, Santos Direct, passed $30 million for the first time with sales on the Victorian spot market and to large industrial users. In 2006, Santos acquired a gas retail licence in South Australia and applied for a licence in New South Wales.