Incitec Pivot looks to receive Central Petroleum’s gas before month end

The first delivery of contract gas under a fresh sales agreement between Central Petroleum (ASX: CTP) and Incitec Pivot (ASX: IPL) is within arm’s reach as the northern gas pipeline – the conduit for the contract – prepares for start-up.

In June, the oil and gas junior signed an agreement with the $6 billion Australian fertiliser supplier whereby Central will deliver at least 20 terajoules of gas per day to Incitec’s Gibson Island plant in Queensland, via the Northern Territory’s northern gas pipeline.

Over the term of the 13-month contract, 7.9 petajoules per month will be supplied to Gibson Island, sourced completely from Central’s existing reserves at its re-opened Palm Valley and Mereenie gas fields.

Gas deliveries will commence once the $800 million pipeline project hits commercial operating status, targeted for month end.

Central is currently selling commissioning gas to energy infrastructure company Jemena, which was awarded a contract in 2015 by the Northern Territory government to build and operate the pipeline.

Supply of commissioning gas is expected to ramp up as the commencement date for the pipeline’s commercial operations approaches.

Breathing life into Palm Valley

Central has carried out a program of works this year at Palm Valley to breathe life into the shut-in field and enable it to supply 15TJ/day of gas under contract to Incitec.

With three wells already online, one existing well to be brought into production shortly and an infield appraisal well scheduled to be tied in early next year, Central said in October that Palm Valley was on track to produce at nearly triple the average gas rate prior to being shut-in.

A facility at Mereenie, near Alice Springs, has also been upgraded, with the majority of key processing and production equipment now installed and running to ensure it can process 16PJ per year for the contract.

An installed field boost compressor is undergoing run testing, after which the Mereenie gas field will be capable of delivering 44TJ/day of sales gas on a firm basis plus additional capacity on a non-firm basis.

Central said the Mereenie upgrade and Palm Valley restart projects were fast-tracked to maximise gas sales through the northern gas pipeline.

“Mereenie was delivered eight months after ordering long-lead items which is at least three months earlier than [our] draft initial schedule,” the company said.

“This is an outstanding result and means more gas can be sold this financial year.”

East coast gas sales

The northern gas pipeline has been designed to connect the Northern Territory’s vast gas fields to the east coast gas market.

The pipeline links Tennant Creek to Mt Isa in Queensland – determined to be the most efficient route for getting gas to the east coast way as it reduced potential construction risks and required lower volumes of gas to be contracted to be viable.

By comparison, running the pipeline south via Moomba was a much longer option and was deemed to require more time, cost and technical risk.

It was also believed to provide less of a catalyst to fast-tracking the development of the Territory’s gas fields.

Central is an established conventional gas producer in the under-explored Amadeus Basin (centred around Alice Springs) and the largest holder of gas-prone exploration acreage in the region.

Gas provided under the sales agreement to Incitec will be used to keep the Gibson Island fertiliser plant open.

The plant was at risk of being closed if gas could not be secured at competitive prices to replace contracts which expired in September.

“The sale of Northern Territory gas into the eastern seaboard to Incitec demonstrates the importance of Territory gas to the domestic market,” Central said.

At mid-afternoon, shares in Incitec Pivot were trading 0.53% lower at $3.74, while shares in Central Petroleum were 3.45% higher at $0.150.