Chairman's Address to Shareholders
Brisbane, Nov 23, 2022 AEST (ABN Newswire) - State Gas Limited (
ASX:GAS) (STGSF:OTCMKTS) is endeavouring to be as responsive as possible to energy market dynamics and so has formulated a strategic response to market signals.
The prime market themes evident are high prices for gas and electricity, the need for energy security in Australia and elsewhere, and the increased levels of volatility in the domestic gas market. The primary causes are two-fold, namely: the war in Ukraine, which has highlighted the need for energy security; and the recognition of the fundamental role played by natural gas as a key enabler in the energy transition. The intermittent nature of renewable energy requires the immediate response that gas fired generation can supply when the wind doesn't blow or the sun doesn't shine. It should also be remembered that gas is a key feedstock for many industrial processes, the production of fertilisers, heating, and is a fundamental building block for products we use every day.
State Gas is fortunate to own both conventional and coal seam gas assets. CSG extraction is optimal where gas supply requirements are steady and consistent. Conventional gas production, on the other hand, can be stopped and started at will. These characteristics facilitate our vision: to use our CSG as the base load to underwrite development infrastructure, whilst reserving the more responsive and flexible conventional gas production to surf the gas price peaks.
We envision a three stage development over the next five years, with the first stage the trucking of compressed natural gas, and stages two and three involving the development and enhancement of a physical pipeline.
We are now executing stage one: our plan to produce, compress, transport and sell conventional gas from PL 231. We expect to be delivering the gas in the first half of next year, in time for the next winter peak. The gas spot prices over the last six months have averaged well over $26/GJ and the shortest distance to the east coast pipeline network is about 70km. If the average price over the last six months were realised, the estimated capital for this project would be paid back within six months. We have already sourced the compressor - the longest lead time item - which should be on site by late February/early March. Our recent arrangement with MES, announced on 10 November, has sourced the CNG canisters and we are presently optimising the purchase of the dehydrator. Approvals are in train.
Stages two and three of our vision are dependent on successful production testing at Rougemont. This morning we announced that the Rougemont 3 lateral, and Rougemont 2 vertical well pair, is finally on pump. We will lower the water level slowly: the Bandanna coals are highly sensitive to pressure differentials and the changes must be slow. It will be 2-3 months before we begin to expose the coals and gas flow begins to build.
The results from the production testing at Rougemont 2/3 should be known by the end of this fiscal year. Depending on those results, we aim to commence the feasibility study for a permanent fibrespar pipeline to one of the two existing network gas pipelines, enabling the sale of up to 15TJ/day to commence as early as 2024.
If further drilling justifies production above that capacity, the proposed pipeline easement could be used for steel pipe augmentation subject to requisite approvals.
As can be seen, State Gas is poised for an exciting period of growth. Our Board has been strengthened by the appointment of Philip St Baker and Jon Stretch, both of whom have deep experience in extracting value from highly volatile energy markets. Last week we announced the retirement of Ian Paton as a director of the Company, and we thank him for his service and contribution to your Board.
Richard Cottee
Executive Chairman
STATE GAS LIMITED
About State Gas Limited
State Gas Limited (ASX:GAS) (OTCMKTS:STGSF) is a Queensland-based gas exploration and development company with highly prospective gas exploration assets located in the southern Bowen Basin. State Gas Limited's mission is to support east coast energy markets through the efficient identification and development of new high quality gas assets.
It will do this by applying an agile, sustainable but low-cost development approach and opportunistically expanding its portfolio in areas that are well located to gas pipeline infrastructure.
State Gas is 100%-owner of the contiguous Reid's Dome (PL-231) and Rolleston-West (ATP 2062) gas projects, both of which contain CSG and conventional gas. The Projects, together some 1,595km2 , are located south of Rolleston, approximately 50 and 30 kilometres respectively from the Queensland Gas Pipeline and interconnected east coast gas network. State Gas intends to accelerate commercialisation of these assets through the application of an innovative virtual pipeline ("VP") solution which will see the Company transport compressed gas by truck to existing pipeline infrastructure or to an end user.
State Gas also holds a 35% interest in ATP 2068 and ATP 2069 in joint venture with Santos QNT Pty Ltd (65%). These two new areas lie adjacent to or in the near vicinity of State Gas and Santos' existing interests in the region, providing for the potential of an alignment in ownership interests across the region over time and enabling synergies in operations and development.
State Gas is also participating in a carbon capture and sequestration initiative with minerals explorer Rockminsolutions Pty Ltd in respect of EPM 27596 which is located on the western border of ATP 2062. This project is investigating the potential of the unique basalts located in the Buckland Basaltic Sequence (located in EPM 27596) to provide a variety of in-situ and ex-situ carbon capture applications.
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