Northern Australia gas play Blue Energy (ASX: BLU) is poised to become a major supplier to the east coast gas market thanks to its significant resource in the Bowen Basin, according to a new research report.
Blue holds vast acreage and large gas resources in Queensland’s Bowen, Surat and Galilee basins, as well as exploration interests in the Northern Territory’s Wiso Basin.
Its 100% owned ATP814 permit in the North Bowen Basin alone has been certified to contain a 2C (best estimate) contingent gas resource of 1,119 petajoules, and 3,248PJ of recoverable gas on a 3C (high estimate) basis.
In March, the company inked a 10-year gas supply deal with energy retailer Origin Energy (ASX: ORG) for 300PJ of gas from ATP814. This follows a heads of agreement signed with EnergyAustralia late last year for 100PJ over 10 years, and a similar deal made with Townsville gas consumer Queensland Pacific Metals for 105PJ over 15 years for a proposed battery metal refinery.
While these offtake deals total 505PJ – more than any listed peer – the volume is still only about 15% of Blue’s Bowen Basin resource, leaving some 85% of this large resource available for additional contracts.
Analyst Breakaway Research’s recent report on the company has a ‘buy’ recommendation on the assumption that “the quantum of gas contracted and the revenue it could generate dwarfs the current market value”.
“Additional volumes of gas contracted would drive our best estimate of value higher, noting that only 15% of Blue’s gas is subject to some form of gas sale agreement at this time,” Breakaway research manager Stuart Baker wrote.
The report also highlights the development readiness of Blue’s Bowen Basin assets, noting the supply deals with blue chip customers and memorandums of understanding with pipeline companies for infrastructure access.
Breakaway said based on current contract gas prices, the 505PJ of gas under offtake agreements represented a revenue opportunity of about $4 billion over 10 years, or $400 million per annum at estimated current prices for long-term gas supply.
Blue has already invested $110 million in the project since 2008, conducting significant exploration and drilling programs and delivering a series of reserve and resource upgrades.
It also refreshed an agreement with APA Group (ASX: APA) in early 2020 to investigate building, owning and operating a gas pipeline to tie in Blue’s Sapphire/Monslatt coal seam gas fields (within ATP814) to APA’s network running into Gladstone, Queensland.
The Australian government has recently acknowledged natural gas as an important input to the economy for its use in industrial applications, for residential purposes, and for its critical role in power generation to mitigate the unreliability of renewable energy sources.
The federal government allocated funds in its October 2020 budget to aid gas development under the National Gas Infrastructure Plan, which specifically identified the need to open up the gas-rich Bowen, Galilee and Beetaloo basins and bring the gas south to Australia’s east coast gas market.
Meanwhile, the Queensland state government has separately pledged $5 million on feasibility studies into a North Bowen Basin gas pipeline.
“The company continues to be buoyed by the high grading of the Bowen Basin by both the federal and Queensland governments as a new gas supply source for the east coast and the potential for new nation-building infrastructure connecting the Bowen Basin to the Wallumbilla gas hub,” Blue stated in its recent March quarterly report.
“The North Bowen Basin is one on the few east coast gas basins that has the scale of resource (15,000PJ) and is sufficiently de-risked (ie, it is already discovered and on production) to make a rapid and long-term difference to the supply of new gas into the east coast domestic gas market,” it added.