Shell JV to develop second phase of Surat gas project in Queensland
Arrow Energy, a 50-50 joint venture between Shell and PetroChina, is set to develop the second phase of the Surat gas project in Queensland, Australia, Shell Australia announced on August 12.
Gas produced from this project will be directed to the Shell-operated QCLNG LNG facility on Curtis Island, near Gladstone, to meet long-term contracts and supply domestic customers. This development is part of a 27-year gas sales agreement between Arrow Energy and QGC, with the first gas from the second phase expected in 2026. Shell did not provide the cost estimate for the second phase.
Phase 2 is projected to contribute approximately 22,400 barrels of oil equivalent/day (or 130nn ft3/day) at peak production. “Embarking on Phase 2 of the Surat gas project with Arrow is part of our commitment to bring more gas to market,” said Zoe Yujnovich, Shell’s Integrated Gas and Upstream Director. “QCLNG marked its 1000th cargo at the end of last year, reflecting its significance as a gas supplier for Australia and the region. This investment will enable us to sustain and grow this important, secure energy source that offers a lower emissions alternative to options like coal.”
During its Capital Markets Day in 2023, Shell emphasised its strategy to secure additional feed gas supply for its existing LNG facilities through backfill projects, aiming to enhance shareholder value. Phase 2 will deliver volumes to be processed through QCLNG infrastructure and will include up to 450 production wells, a field compression station, 27 km of new pipeline, and upgrades to roads and infrastructure.
Arrow Energy, formed in 2010, announced the 27-year gas sales agreement to supply gas to the Shell-operated QCLNG joint venture in 2017. Phase 1 of the Surat gas project, approved in April 2020, involved the development of more than 600 wells.
QCLNG is a joint venture of Shell (73.75%), CNOOC (25%), and MidOcean Energy (1.25%), supplying 15% of the gas demand on Australia’s east coast in 2023.
The investment in Phase 2 is expected to generate an internal rate of return (IRR) exceeding the hurdle rate for Shell’s Integrated Gas business. Shell aims to expand its LNG business by 20-30% by 2030 compared to 2022, with LNG liquefaction volumes planned to grow by 25-30%, as outlined during Shell’s Capital Markets Day in 2023.
According to Shell’s LNG Outlook 2024, global demand for LNG is expected to increase by more than 50% by 2040, driven by industrial coal-to-gas switching in Asia. These countries are anticipated to rely more on LNG to support their economic growth.
Shell views LNG as a critical component of the energy transition, replacing coal in heavy industry and continuing to displace coal in power generation. This helps to reduce local air pollution and carbon emissions while providing the flexibility needed as renewable energy generation grows rapidly.