Investors snap up ASX-debutant State Gas as shortage looms

State Gas shortage ASX IPO

State Gas (ASX: GAS) made a timely debut on the ASX this week, which sent investors flocking to the stock, triggering its $0.20 offer price to sky rocket and the company to finish its second day of trade at $0.38.

As Australia’s domestic gas supply is predicted to reach crisis point in coming months, emerging conventional gas developer, State Gas is welcome news in a tight market.

State Gas holds a 60% stake and operates petroleum lease 231 (PL 231) in central east Queensland.

The company’s primary focus is targeting shallow conventional gas in the Cattle Creek Formation, which is home to a number of historical wells. State Gas’s secondary prospect is the underlying Reids Dome beds within PL 231.

Both targets have produced gas during exploration and appraisal well drilling.

With constrained domestic supply and spiralling gas prices, State Gas is pushing full steam to advance the project as fast possible.

The company has already lodged a pipeline survey application with the Queensland state government to investigate potential avenues for installing a feeder pipeline from the project that connects to the Queensland Gas pipeline and the east coast market.

Once in production, the State Gas board has stated it prefers to take advantage of spot market prices.

As part of its admission to official quotation, State Gas raised $5.25 million through its offer of 26.25 million shares at $0.20 each.

The company will invest the funds in further appraisal of the Cattle Creek Formation target and begin developing the resource.

East coast gas market faces brewing supply deficit

According to the Australian Energy Market Operator (AEMO) managing director and chief executive officer Audrey Zibelman, Australia’s eastern and south-eastern states could be facing an impending gas shortfall in 2018 and 2019.

At best, domestic gas supplies are expected to remain tight in the next two years.

However, with the volatility seen in international markets in recent years, Ms Zibelmen cautioned the situation required close monitoring.

“The results of AEMO’s recent analysis and the ever-tighter integration of the electricity and gas markets, together with the increasingly dynamic character of Australia’s energy systems, suggest there is a need to look at reforms to improve predictability and stability in energy markets to the benefit of consumers,” she said.

The supply issues have been largely due to higher demand in export markets, with Queensland gas producers anticipated to export a total of 1,303PJs to international customers. The remainder of the expected 1,891PJs total gas production will be directed to meet domestic consumption requirements.

According to AEMO’s forecasts, domestic gas demand for 2018 will be about 642 petajoules (PJs) in 2018, with a predicted shortfall between 54-107PJs. In 2019, domestic gas consumption is anticipated at 598PJs with a potential shortfall of 102PJs.

With scarcer domestic supply, local gas prices have been steadily increasing, causing Australia’s federal government to thrust its weight behind the issue – threatening to mandate Australian producers to curb exports in order to satisfy domestic need.

Meanwhile, if State Gas fast-tracks development of PL 231, it could be producing gas in time to take advantage of these market fundamentals.

Until its ASX debut, State Gas was a wholly-owned subsidiary of oil and gas producer Triangle Energy. The oil and gas producer has retained a 35.47% stake in State Gas, with its own stock riding the gas tide closing the day up 5%.

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