The agreement covers a 12-month period and is contained in a binding memorandum of understanding signed today and announced by QGC managing director Richard Cottee.
“Today’s announcement signals QGC’s future as an integrated energy company,” Cottee said.
Cottee, who was previously CEO of CS Energy Limited, told energyReview.net that the best way to sell gas surplus to contracts was to convert it to electricity and sell it into the electricity spot market.
“I’ve had a lot of experience in building power stations and our general manager Bill Williams is a former exective with retail electricity experience,” Cottee said.
“That’s a lot of aggregate experience and we can identify power station opportunities from real-life experience.
“Our gas is 97% pure methane with very little CO2 and no sulphur. We won’t have to demoisturise it. We won’t even have to compress it. We are avoiding pipeline tariffs, desulphurisation and water costs, decompression costs and reheating costs.”
Planning is already well underway for the construction of a 57 megawatt baseload gas-fired power station to be built near Chinchilla, south-west Queensland and supplied from nearby QGC-operated fields in the region.
But aiming to build a second power station at Gibson Island shows this the company is serious about moving into the downstream energy market.
“We have sought to take advantage of the relationship with Incitec Pivot as customer and investor to create additional value for QGC shareholders by building a substantial electricity business”, Cottee said.
Incitec Pivot has already contracted to buy 74 petajoules of gas from the QGC’s majority-owned Argyle gas field at the rate of 7.4 PJ per year over 10 years starting from 2007.
Cottee also announced that the QGC Board had authorised the drawdown of the remaining $3.5 million from the $5 million unsecured redeemable convertible note facility with Incitec Pivot on certain terms aimed at facilitating the project financing.
At last November’s annual general meeting QGC shareholders approved the total issue of $5m in convertible notes. Mr Cottee said Incitec Pivot had indicated that it intended to convert $1.5 million of the convertible notes by 31 March 2005.
“Entering into this memorandum of understanding which could result in the provision of a power station at Gibson Island strengthens the business relationship between QGC and Incitec Pivot, and will build upon the existing gas supply contract and Incitec Pivot’s investment in QGC,” Cottee said.
“Our innovative technology is enabling us to achieve substantial increases in gas reserves and flow rates of coal seam gas at the Berwyndale South and Argyle gas fields and gives promise of major additional reserves on the back of further drilling and testing. QGC further increased its gas holdings last month by lifting to 100% its ownership of ATP 632P containing the Berwyndale South gas field”, Cottee said.
QGC will also be supplying CS Energy with 4 to 6 PJ of gas per year with deliveries to start in the first half of 2006; and it is likely that for the first 12 months, gas being proved up for the Incitec Pivot contract would be delivered to CS Energy, thus minimising gas waste through flaring, QGC said.
In terms of its own power station plans, QGC will be supplying 4 to 10 PJ of gas per year to the proposed Chinchilla power station which is planned to be operational by 2008. A further 4 PJ of gas per year would be required for any proposed power station at Gibson Island.
“QGC’s focus is now two-fold; on proving up the necessary gas reserves and on generating electricity in the most cost effective way and with the minimum of pollution”, Cottee said.
