Gas secured for Shell’s LNG asset as second stage of Australian project gets greenlighted

Arrow Energy, a joint venture (JV) between UK’s energy giant Shell and PetroChina, a subsidiary of state-owned China National Petroleum Corporation (CNPC), is planning to develop Phase 2 of its gas project in Queensland, Australia.

As part of Phase 2, the gas from the Surat gas project is set to flow to the Shell-operated QCLNG liquefied natural gas (LNG) facility on Curtis Island to meet long-term contracts and supply domestic customers. According to JV partners, the project aims to commercialize most of the Surat Basin gas reserves – around five trillion cubic feet.

Around 22,400 barrels of oil equivalent per day, or 130 million standard cubic feet per day, at peak production, are anticipated as part of this stage. It will deliver volumes to be processed through QCLNG infrastructure and comprise up to 450 production wells, a field compression station, 27 kilometers of new pipeline, and road and infrastructure upgrades. First gas is expected in 2026.

“Embarking on Phase 2 of the Surat Gas Project with Arrow is part of our commitment to bring more gas to market,” said Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director. “QCLNG marked its 1000th cargo at the end of last year, reflecting its significance as a gas supplier for Australia and the region. This investment will enable us to sustain and grow this important, secure energy source that offers a lower emissions alternative to options like coal.”

This is part of an existing 27-year gas sales agreement between Arrow Energy and QGC, which is a JV between Shell (73.75%), CNOOC (25%), and MidOcean Energy (1.25%). According to the UK giant, QGC supplied 15% of demand on Australia’s east coast in 2023. Arrow Energy was formed in 2010, with a 27-year gas sales agreement to supply gas to QCLNG following suit seven years later. Phase 1 of the Surat gas project was approved in April 2020 and included more than 600 wells.

Phase one includes more than 600 wells to be drilled from 2020, focussing on an expansion between Arrow’s operational areas at Daandine and Tipton. The initial phase will see the construction of inlet processing facilities (IPFs) at David and Harry Field compression stations, enabling Arrow to supply gas from its operational fields under the gas sales agreement.

Arrow intends to continue using its existing gas compression facilities at Daandine and Tipton, with upgrades to the Tipton Central gas processing facility. Phase one also includes upgrades and connection to water treatment facilities, while subsequent phases will include additional wells and gathering, and construction of two new field compression stations at Lynwood, south of Arrow’s Tipton development and Girrahween, near Miles.

Compared to 2022, Shell plans to grow its LNG business by 20-30% by 2030, and LNG liquefaction volumes by 25-30% as it believes LNG will play a critical role in the energy transition, replacing coal in heavy industry and power generation, helping curb local air pollution and carbon emissions. The firm foresees a 50% increase in LNG use by 2040, as industrial coal-to-gas switching gathers pace in Asia these countries are expected to use more LNG to support their economic growth. 

While the UK giant’s decision to move away from renewables to focus on oil and gas has been criticized by environmental groups, this approach brought an adjusted profit of $6.3 billion in the second quarter of 2024. The firm invested in several LNG-related projects in this quarter, including the acquisition of Singapore-based Pavilion Energy, taking a final investment decision (FID) for the Manatee undeveloped gas field in the East Coast Marine Area (ECMA) in Trinidad and Tobago and purchasing a 10% stake in ADNOC’s Ruwais LNG project.