Origin Energy Resources Ltd operates gas fields in Katnook on behalf of the Katnook Joint Venture, which comprises Origin, an Origin subsidiary and an Australian Worldwide Exploration subsidiary.
The fields supply a gas transmission network servicing over 6,000 industrial and residential customers in the Mount Gambier and Penola region, with annual demand of about three petajoules per year.
This gas network is not physically connected
to the major gas transmission system servicing south eastern Australia.
It has become apparent that watering problems are causing reserves to decline faster than had been anticipated, and the Katnook producers can no longer maintain gas supply at the required levels.
"The gas fields are continuing to supply gas but deliverability is likely to continue to be affected," Origin spokesman Tony Wood told EnergyReview.net.
"As a consequence the producers have declared a force majeure event relating to gas supply."
The wholesaler purchaser of gas from the Katnook producers is Origin Energy Retail Ltd. Presumably Origin Retail will accept the Origin Resources' arguments on force majeure.
But how will its customers, particularly its industrial customers react when it could be argued that the supply problems were based on miscalculations rather than events beyond the producers' control?
"The reserves estimates were based on the best information available at the time," Wood said.
"The watering problems make it very difficult to precisely estimate the reserves. Customers may accept the force majeure argument, or they may conditionally accept it, or they might challenge it. But the producers belive it is a valid argument."
In the meantime Origin has brought forward plans to connect these gas fields to the eastern Australian gas transmission network via the SEA Gas pipeline that transports gas from Port Campbell, Victoria to Adelaide.
Origin Energy is in the process of letting contracts for the construction of this new gas pipeline. Public consultation processes regarding pipeline licence and permit applications in South Australia and Victoria have been completed and Origin is finalising regulatory approvals for the project.
"Construction will commence as soon as practical after all necessary approvals have been obtained, and it is hoped that gas will be available to be sold from the pipeline by October 2005," Origin said in a statement.
Wood agreed that the problem would be getting through the next eight or nine months.
"The Katnook producers have been taking a number of steps with the objective of increasing deliverability from the gas fields," Origin said in a statement.
"This has included the recompletion of an existing well, further testing of an appraisal well in the area which had not previously been considered economic to develop, and consideration of blending gas from the high CO2 Ladbroke Grove gas field into the sales gas. The period of time required to implement these measures is unable to be estimated at this time."
These supply problems prompted Origin Energy to re-enter and production test Limestone Ridge-1, a gas discovery well 10km to the north-west of the Katnook gas plant, that was cased and suspended in 2001.
The production testing ran over two days with the well flowing gas from the Lower Cretaceous Pretty Hill Sandstone at an average rate of 6.2 million cubic feet per day (cfd) with an associated 10 bbl/million cfd of liquids. During the test the flowing tubing head pressure declined from 2400 psi to 2224 psi on a 5/16-inch choke.
Test data is being evaluated to determine if this well accesses sufficient reserves to warrant connecting it to the Katnook gas plant.
The Katnook Joint Venture comprises Origin Energy Resources Limited (operator) 20%, SAGASCO South East Inc 55.7143% (a wholly owned subsidiary of Origin Energy Limited) and Omega Oil Pty Ltd** 24.2857% (a wholly owned subsidiary of Australian Worldwide Petroleum Limited).
