Joe Collins speaks with ‘The Australian’ on the Northern East Gas Interconnector

NT gas pipeline plan ‘doesn’t stack up’
Paul Garvey | The Australian | 23 November 2015

The economics behind the Northern Territory’s new $800 million pipeline simply don’t stack up, a leading oil and gas consultant has warned, and said the project could struggle to meet its key objectives.

Joe Collins, a senior development engineer with Perth-based Resource Investment Strategy Consultants, told The Australian the scale of the proposed pipeline, the shortage of defined gas in the NT and the large gas resources already in place in eastern Australia could all work against the project.

He also said he believed the NT government would be effectively underwriting the development in the form of minimum volume and tariff income guarantees in the contract, unless Jemena — the Asian conglomerate awarded the contract last week — was prepared to carry an unusually high level of risk with the project.

“It has to be the Northern Territory government underwriting this, and they’re taking a real risk here,” Mr Collins said.

The NT government last week announced it had awarded Jemena, jointly owned by the State Grid Corporation of China and Singapore Power, the contract to build a 622km pipeline between Tennant Creek and Mt Isa in Queensland.

The pipeline has been touted as a means of boosting gas exploration in and around the NT by connecting the territory to the east coast gas market.

A spokesman for the NT government, however, told The Australian the project would not require underwriting by taxpayers. Instead, the spokesman said, the territory’s commitments were to provide major project facilitation and co-ordination services and to supply surplus gas from the government-owned Power and Water Commission into the project.

Modelling by Mr Collins suggested that without some form of government assistance the pipeline would need to charge tariffs of up to $4 a gigajoule to meet traditional industry rates of return, compared with typical pipeline tariffs in Australia of $1 to $2 per gigajoule.

Mr Collins said customers were unlikely to agree to such high tariffs, meaning the NT government and therefore taxpayers would need to step in and pay a “large portion” of those costs through much higher tariffs on the Power and Water Commission gas it has agreed to sell into the pipeline.

A spokeswoman for Jemena noted that there were already contracts in place for gas from the pipeline, and that the tariffs would be in line with other Australian pipelines.

“While the details of the deal cannot be divulged for commercial reasons, Jemena can confirm that there is no requirement for the NT government to underwrite the pipeline as there are commercial contracts in place to secure the volumes required to support the investment.

“Jemena can also confirm the pipeline tariffs are comparable with those being charged by other pipelines in the country, and are at a level where shippers are prepared to enter into gas transportation agreements and which will encourage the development of NT gas resources” she said.

The success of the project will depend heavily on whether it can inspire the exploration and development of new gas reserves around the territory, which has been identified as hosting vast amounts of untapped gas potential.

But Mr Collins also queried whether the pipeline would achieve that goal, given the small scale of the pipeline and the inability of small exploration companies to secure new funding in the low oil price environment.

“It’s really small onshore discoveries that are going to be the target for this pipeline, and those sorts of explorers aren’t exploring in the current climate. They just don’t have those sorts of funds,” he said.

There was also a real risk that significant volumes of cheaper gas could find its way into the east coast market targeted by the new pipeline if state governments changed their policies to¬wards gas exploration and development.

Link to article on The Australian – click here