This story was originally published in The West Australian on 17 May 2017 with the headline "$4b Quadrant float to hit gas supply poser." © Peter Milne.
Macquarie and Brookfield will have to sell exploration potential in their planned $4 billion float of Quadrant Energy amid concern its domestic gas plants could run dry in as little as six years.
With Quadrant’s existing fields having peaked, it faces tough competition from rival new supplies and questions over whether customers can afford to pay a gas price high enough to support any developments.
Macquarie and Brookfield bought the WA domestic gas and oil interests of US firm Apache in April 2015 for $2.7 billion when the oil price was $US56 a barrel. The Brent oil price was yesterday about $US52.
The Gas Statement of Opportunities for WA issued by the Australian Energy Market Operator in December predicted only the Gorgon, Wheatstone, North West Shelf and the small onshore Xyris plants had sufficient gas from existing fields to continue production past 2023.
Quadrant’s production comes from its Varanus Island and Devil Creek plants and a minority stake in the BHP-operated Macedon plant.
Paul Taliangis, chief executive of Adelaide-based energy consultant Core Energy, said production from the fields supplying Quadrant’s customers had peaked, but the area was prospective for discoveries.
The challenge for Quadrant would be to develop the fields at a low enough cost to be economic, he said. Fields in shallow water, near existing infrastructure and with a high level of liquids would be the most viable.
For a new gas field to break even, it needed a price of $5.50 to $6 a gigajoule and an oil price of more than $50 a barrel, he said.
Last year Quadrant supplied 22 per cent of the WA gas market, with three-quarters of that production coming from the two Quadrant-operated plants where Santos takes the remaining 45 per cent of production, according to data from the AEMO WA gas bulletin board.
Santos noted in its annual report last year new projects such as the Spar-2 tieback and additional compression on Varanus Island would unlock undeveloped reserves. There was a discovered resource base that may supply Varanus Island and Devil Creek in the longer term.
Wood Mackenzie analyst Saul Kavonic said Quadrant was positioned to capitalise on increased gas prices from its infrastructure, as well as any gas production developed beyond their commitments to service their existing large Alcoa contract.
Mr Taliangis said another unknown for domestic gas producers was how fast the Gorgon and Wheatstone projects would bring extra gas to WA’s market.
A Quadrant Energy company spokesman said as a private company it does not publish details of field development plans or reserve outlooks.