BPH Energy seeks government reconsideration of permit extension as gas crisis looms

Gas explorer Asset Energy, the investee of BPH Energy (ASX: BPH), is calling for the New South Wales and federal governments to “urgently” rethink their opposition to its offshore permit as Australia faces the grim reality of a major gas crisis.

At the start of August, federal resources minister Madeleine King opened consultations on ways to improve the operations of the Australian Domestic Gas Security Mechanism (ADGSM) as the east coast market draws closer to an expected major gas shortfall in 2023.

Last Friday, NSW and Victorian ministers held a second round of talks with national energy minister Chris Bowen following a power and gas crisis that was recently experienced in June.

The minister agreed to extend powers to the Australian Energy Market Operator (AEMO) to store gas reserves in underused facilities ahead of winter 2023 and demand it prepares an annual winter readiness plan each year for the east coast market to identify risks ahead of time.

According to Ms King’s statement, gas accounts for around 40% of energy consumption in manufacturing in Australia and is a crucial energy source to back up electricity generation.

Gas also accounts for about 7% of electricity generation in the National Electricity Market, with coal making up 65% and about 28% deriving from hydro, wind and solar.

She said the reform process would give Australia the opportunity to move to a “solutions-focused debate” about its energy future and ensure the government can “respond quickly to short-term issues rather than only respond to forecast shortfalls a year in advance”.

But Asset Energy says its PEP-11 permit off the coast of NSW could be part of the solution to the east coast’s looming gas crisis, if only the government would give it the go-ahead.

Asset also acknowledged the “significantly changed circumstances” in the international energy market as a result of Russia’s invasion of Ukraine and the prospect of sustained higher energy prices and gas shortages in Australia, making the situation even more dire.

Asset Energy appeals government decision to deny exploration permit

Asset is a 100% subsidiary of Advent Energy, which in turn is held through a 36.1% direct interest by BPH. Asset is the operator and 85% owner of the 4,500sq km offshore permit PEP-11 in a joint venture with Bounty Oil and Gas (ASX: BUY).

Asset had been preparing to drill the Seablue-1 well, about 26km offshore and 30km from Newcastle, before the Commonwealth-NSW Offshore Petroleum Joint Authority refused to vary and suspend the conditions and extend the term of the exploration permit.

In early June, BPH announced to the market that Asset had lodged an appeal to the federal court to review the decision. In a media release today, Asset confirmed a second application to extend the permit has not yet been assessed.

The company alleged that former Prime Minister Scott Morrison was “biased” when he refused to renew their exploration permit with Asset executive director David Breeze describing it as a “political move” that lacked procedural fairness ahead of the federal election.

“We’re potentially sitting on enough gas in our project to power NSW for 20 years and we have pledged to put all of our produced gas in the domestic market at modest prices, but some politicians can’t see past their own biased agendas to do the right thing by ordinary people,” he said at the time.

Mr Breeze also told media that it should have been the relevant minister at the time, Keith Pitt, making the decision rather than Mr Morrison and that Mr Pitt had “long expressed support for our right to drill an exploration well”.

In today’s statement, Mr Breeze said PEP-11 could be a major part of the solution to NSW’s gas shortages, adding that the project could advance in a “safe and sustainable manner that will protect the environment”.

“We acknowledge the widespread discussion around the potential impacts of gas exploration and future production, including in PEP-11, but all too often that discussion is distorted by false and exaggerated claims and ignores the long track record of Australia’s offshore petroleum industry and the ongoing need for gas to meet power generation, industry, and domestic demand,” he said.

ADGSM review

The ADGSM provides the resources minister regulatory power to manage liquefied natural gas (LNG) exports during a year when a gas shortfall is forecast in the domestic market.

Alongside the ADGSM, the federal government has a heads of agreement with Australia’s east coast LNG exporters where they have committed to offer uncontracted has to the Australian market on competitive terms before exporting it. The current heads of agreement is due to expire in January, however.

Options to reform the ADGSM will be based on seven key principles. Speaking with Small Caps, Mr Breeze highlighted some of the areas where the paper is in contradiction with the government’s decision to deny the PEP-11 permit.

Under the first principle of ensuring sufficient supply of gas to the domestic market, the document states “Continued investment in new gas supply will be needed to achieve security in Australia’s supply, so solutions should encourage investment to maintain and grow supply”.

Further down under a proposed option to implement state and territory measures to increase supply, it states “There is a large disparity between the level of gas produced within some jurisdictions, and the volume of gas they consume. This is contributing to the challenges the east coast market faces”.

Mr Breeze is hopeful the government will reconsider the PEP-11 in light of its urgent need to secure domestic gas supply.

The government has encouraged stakeholders to make submissions in relation to its ADGSM review by 22 August.

NSW gas supply

According to Asset, NSW’s only gas production comes from a coal seam gas installation at Camden that produces just 5% of the state’s has needs. What’s more, operator AGL (ASX: AGL) announced in 2016 it would stop production at Camden in 2023 for economic reasons.

A $2 billion deal between NSW and Canberra signed in 2020 had also reportedly failed to deliver the gas it had intended to this year via three proposed projects.

Energy giant Santos (ASX: STO) announced last week it has acquired Hunter Gas Pipeline, which owns an approved underground gas pipeline route from Wallumbilla in Queensland to Newcastle, NSW. It aims to deliver gas from its Narrabri gas project to the NSW market “as soon as possible”.

“At a time when the ACCC is forecasting domestic gas shortfalls, our Narrabri project, which is 100% committed to the domestic market, will inject new supply into southern domestic markets and put downward pressure on gas prices for New South Wales businesses, manufacturers and families,” Santos midstream and clean fuels president Brett Woods said.

Delivery of the gas from Narrabri is subject to a short connection to the main pipeline, which is currently in the planning phase. Santos claims once full operational, the project has the potential to deliver more than half of NSW’s gas demand.

Asset’s proposed drilling offshore Newcastle would also be used to explore the potential for carbon capture and storage, which the company says is an “ideal location” given it is less than 100km from some of Australia’s largest carbon emitters.

The company believes it could deliver gas to the market “within two years” of completing the well. It has also committed to supplying any gas produced to the Australian domestic market and expects so at a cost of around $8 per gigajoule – compared to the average eastern Australian gas prices of $28.40 over the last three months.