Shell has taken a final investment decision (FID) to proceed with Phase 3 (SGP Central) of the Surat Gas Project (SGP), whose coal-seam gas production supplies eastern Australia’s domestic market and provides feedstock to the Shell-operated Queensland Curtis liquefied natural gas (QCLNG) export facility on Curtis Island near Gladstone.
Arrow Energy, a 50-50 joint venture between Shell and PetroChina, operates SGP. The company began development of SGP following an investment decision in 2020, with first gas delivered in 2021. SGP Phase 3 is expected to produce 79 MMscf/D of coal-seam gas at peak output, with first gas expected in 2028, Shell said in a press release on 5 August.
While Shell did not disclose the cost of the Phase 3 investment, The Australian Financial Review reported it as AUD 713 million based on its own analysis of local project briefings.
Arrow Energy has supplied the QCLNG joint venture with gas under an existing 27-year gas sales agreement signed in 2017. Shell holds a 73.75% operating stake in QCLNG, alongside partners CNOOC (25%) and Washington DC-based MidOcean Energy (1.25%).
In 2023, QCLNG supplied 15% of gas demand on Australia’s east coast, according to Shell.
Balancing Domestic Demand With Export Commitments
Over the course of the 27-year sales agreement, Arrow Energy expects to drill about 2,500 gas wells in the Surat Basin, including 143 backfill wells as part of Phase 3, along with the construction of gathering systems that will leverage existing infrastructure.
Exporting more than 8 mtpa of LNG, Shell’s QCLNG facility is among east coast LNG expected that could be required to dedicate additional gas volumes to Australian consumers under the Labor government’s proposed 20% domestic gas reservation policy taking effect in 2027.
In a statement issued separately from the Phase 3 sanctioning announcement, Shell Australia Executive Vice President and Country Chair Cecile Wake called for taking a balanced approach to domestic supply quotas so as not to jeopardize international contracts.
He said, “Australia is best served by having a strong and well-supplied domestic market, underpinned by a thriving export sector.”