Blue Energy managing director John Phillips said that if the Australian Competition and Consumer Commission had imposed a condition on Shell during its takeover of BG Group requiring the development of their portion of the Bowen Basin CSG fields eastern Australia would likely not be facing a gas crisis.

 

He said the ACCC had been one of the causes of the gas shortage.

 

"They basically had Shell in a position where they needed that approval, and they didn't impose a condition," he said.

 

"That is a pity, because they denied Shell's crack at Woodside for that very reason."

 

That means the Bowen Basin is less important for Shell, which co-owns a share of much of the basin's resources with PetroChina. The Bowen Basin had been planned to support Arrow LNG, but Shell's takeover of BG meant the gas would be developed later,

 

While Phillips said Shell would be hampered in the development because it was a high cost operator, conducting operations to Gulf of Mexico standard, many of those internal hurdles were simply not applicable in the area, and Blue could operate at much lower costs.

 

"It is going to be problematic for them to sell into the domestic market, which will be commanding a lower price than the LNG sector," he said.

 

"To me it is a matter of what needs to happen to get the Bowen Basin commercialised."

 

Blue's Sapphire Block is immediately adjacent to Shell's Moranbah Gas Project and could make 216 petajoules of 3C gas available quickly, while it worked to develop up what could be around four trillion cubic feet of gas (3C) .

 

Blue has another 100PJ of uncontracted gas in the Surat Basin, close to Spring Gully and Senex Energy's Western Surat Gas Project.

 

Blue's lament is that, like so many juniors, it is capital constrained and the markets the company might tap for cash are not running, even for what may be considered low-risk developments.

 

As a result, for more than a year Blue has been pushing the Bowen Gas Pipeline concept, a 150km-long pipeline link to the east coast gas network.

 

That's shorter than the troubled Northern Gas Pipeline, and without the risk of reserves tightness offered by the Northern Territory option, for which the wheels are already starting to come off before the first steel has been welded.

 

Blue is working with gas buyers to bring the gas to market, but there are issues with gas tariffs that are posing economic barriers.

 

"Effectively the cost of transporting the gas is quite high," Phillips said.

 

"Gas utilities in the US are called utilities because they provide a utility rate of return, a few percentage points above the cost of capital, but here it is not that at all. There are some very handsome profits being made by pipeline companies, who do take risks, but they are nothing like the risks in the upstream sector."

 

Phillips says it is clear Blue can help solve the problem of a lack of gas in the market, not if the costs of transport fail to support opening up new areas.

 

"We have reserves in the ground and a big contingent resources base, but the thing for us is building the reserves base that will give customers the confidence the reserves are were," he said. 

 

"We have this big contingent resource base but at the moment it is difficult to get stuff done, either before environmental regulations or Lock The Gate.

 

"The social licence to operate is not always available. You are seeing that movement around the country. NSW, Victoria, the NT and Tasmania have all been shut down and Western Australia has just had an election which will shut down part of the South-West.

 

"The politicians need to understand that they are the custodians of the subsurface wealth for all Australians. Once they figure that out, and that is their responsibility to unlock that, then they need to take the action to allow that to go head, by giving the full backing to the contractors they use to explore, exploit and pay royalties."

 

The Bowen Basin has fewer landholders than CSG companies have to deal with in the Darling Downs area of the Surat Basin, but Phillips is concerned that Lock The Gate will still turn up to protest if Blue seeks to develop its permits.

 

Phillips said if Blue was in a position to get cracking soon it would have a reasonable chance of getting its gas into the market place to meet the expected shortfall.

 

"It's a matter of getting the customers committed to take on the connection between us and them, and accepting that will come.

 

"The problem that we have is that the industrial users, in particular, are used to having $3-4/GJ gas. They had an opportunity to contract gas at $4-6/GJ in the last 4-8 years and they did not do it, because they thought Gladstone would be awash with gas in 2015-16.

 

"They consciously made an effort not to contract new gas, so the strategic options that were decided on by gas users were something a simple SWOT analysis would have told them that their biggest risk is gas supply.

 

"They didn't address that, and now they are asking the government to bail them out with gas reservation because they failed to ensure their business continuity risk was reduced by contracting gas when they could."

 

Phillips said AGL Energy, Stanwell and Origin Energy have also taken gas from legacy contracts and they are re-selling it for export at $8-9/GJ, which is gas that could be going into the domestic market, but they chose to chase higher profits. 

 

He is also not a fan of Qld's quasi-reservation strategy, where areas are being offered up as production licences, circumventing much of the exploration process.

 

"They are saying these areas can go into production within two years, but you have to ask where these blocks have been sitting for the past five years," he said.

 

"These blocks should have been on the routine process of acreage turnover. It should have been out there and people should have been bidding on it.

 

"It just goes to more government delays in gazetting new acreage because of the politics of it, and then the approval for processing applications."

 

On the exploration side, Phillips said the exploration cycle in Queensland was an average of 12 years between permit grant and first gas, which suggest more pain ahead without accelerating the process.

 

Blue has also been caught up in the NT ban, because it has acreage in the Wiso Basin, and while Phillips considers the inquiry "political appeasement" given there have been multiple scientific reviews on fraccing, which typically find it safe if well regulated

 

Until there is certainty, Blue has pulled back on investing in the Top End.