Q&A: Equus MD Will Barker puts WA’s gas market in focus

• WA’s old gas fields are running down
• Domestic buyers need more than 1000TJ of gas a day
• EQU’s 1.7Tcf gas resource could help fill the gap

Natural gas has been a hot topic in Australia and globally, as years of underinvestment and geopolitical tensions combine to threaten supply security for the still-critical fossil fuel.

Equus Energy (ASX:EQU) managing director Will Barker sat down with Stockhead to speak about the gas market, challenges, opportunities and what his company is offering.

What is the current state of the gas market in Australia – or more specifically Western Australia?

Australia has two distinct markets. We’ve got the East Coast market that is a completely separate entity from Western Australia.

WA is obviously a huge gas exporter with over 50MMtpa of LNG, which represents about 12.5% of the whole global supply at the moment.

LNG is also exported from the East Coast out of Gladstone, Queensland, as well as serving a significant domestic market up and down the eastern seaboard.

WA has had a long run of large projects from the original North West Shelf development that supported and underpinned domestic gas supply as well as projects like Gorgon, Wheatstone and Pluto.

The WA reservation policy has been very effective over the last 20-odd years in ensuring that significant volumes – 15% of LNG exports – are directed into the local market, which is a large market that requires over 1000 terajoules of gas per day.

To put that in perspective, the New South Wales market is under 300TJ/d.

Alcoa are the largest user of gas in WA with around 200TJ/d.

They along with other big customers like Yara Australia, South 32, BHP, Rio and big power generators like Synergy account for about 80% of the total market.

Without those buyers, you don’t have fertiliser production, ammonium nitrate for the explosives used by the mining industry, power generation that supplies mining activity, as well as other industrial customers and residential demand.

The challenge is that we’re running out of gas.

We’ve depleted the major historical resources on the North West Shelf and we’re facing a time now where we’ve got LNG trains being shut in because they don’t have the feedstock and we need new developments to be able to fill both that domestic and export demand.

What kind of impact have we been seeing from the broader regional or global market?

With all of the conflicts that we’ve had this year in the Middle East, as well as the ongoing impact of the Russia-Ukraine conflict, energy supply throughout Europe and the rest of the world has been impacted.

But that has resulted in people looking at the importance of supply chain security and where they source their energy from.

There was very much a concentration of LNG supply occurring out of Qatar and that has been shut off from the international market.

Buyers, especially throughout Asia, who had become reliant upon that supply are now having to consider where they want to source their long-term energy needs from.

Australia is the standout here.

While we’ve had our own ongoing political uncertainty caused by the likes of regulatory approval issues, threats of taxes or domestic reservation policies, Australia remains a very stable jurisdiction with existing infrastructure.

It has the ability to continue to meet Asian LNG demand in a way that provides that diversification and security of supply that those major customers need.

We’ve seen a series of transactions this year, for instance around Woodside’s Browse development, where you’ve had Japanese buyers coming in and acquiring interests and getting themselves positioned for the next round of LNG developments in WA.

You had INPEX make a bid for Petrochina’s interest, though they were pre-empted by Woodside, and just recently, ADNOC announced it was acquiring Shell’s interest in the North West Shelf.

The federal government’s proposed domestic gas reservation plan might include provisions for WA’s existing gas reservation scheme. Can you touch on what this means?

There’s still a lot of uncertainty around the detail of how the national reservation policy will actually function and how it could impact WA, which has an existing reservation policy that has been very effective.

We do have the need for constitutional consistency across the nation, but WA does have a well-functioning system.

We don’t want to be forcing changes on a market where it is creating more uncertainty at a time when we need new investment decisions to be made.

In WA, we have a very interesting system where onshore gas has been exclusively for domestic use.

Recently, there was the exemption for the Waitsia project to be able to export for a five-year period to backfill the North-West Shelf to bring that new production into the market.

This contrasts with Queensland where all onshore gas is exported.

I think there’s a real case that WA should be excluded from the national policy and our Premier is trying to make sure of that.

Yeah, you would hope that would take some learnings out of the WA system. Artificial structures that they’re trying to create where they’re trying to force you 100%, 110% of domestic supply into the market could lead to some really negative outcomes that, you know, stop investment in the sector and have the opposite effect of what they’re trying to create.

What are the opportunities that are on offer in the west?

We have declining production and we haven’t replaced those resources.

If we want one of our absolute top three export industries to continue producing absolutely vital gas we need for our domestic. Industry and power generation as well as exports, then we need to be encouraging more investment.

At the moment, we are seeing a lot of uncertainty creeping in but it is not entirely deterring investment right now as have desire from buyers and investors.

We really need to take full advantage of this to ensure the industry thrives.

What progress has Equus made in the past six months and what can we expect to see going forward?

The last six months have been about demonstrating the value of our Equus asset and its large 1.7 TCF of proven resource in the northern Carnavon Basin on the North West Shelf.

We’ve met a series of milestones around executing our funding agreement with Alcoa.

As our foundation customer, they’re supplying us with over US$30m of funding to undertake our feed studies and all of our pre-file investment decision technical work.

We also executed our domestic gas offtake agreement with Alcoa, which is a 10-year supply agreement that fulfils our 15% domestic gas obligation.

It provides us with the blue chip customer here in WA and helps support the LNG development.

We’ve completed our pre-feed studies, which demonstrated the capital-efficient tieback that Equus provides, where we can leverage all of the existing offshore infrastructure tie back to existing pipelines and platforms.

At the same time, we have a market that is looking to lock in new long-term LNG supply out of Australia.

Our path ahead for the next six months is really focused on bringing in those partners that can help us monetise this asset.

We still own the asset 100% so what we’ll be doing over the next 6-12 months is a series of transactions where we look to bring in big operating partners, big LNG buyers that can provide the capital to take this project into development.

There’s a lot of your interest from the big Asian buyers to take an interest.

We also have the advantage of having much lower CO2 content than Browse or Gorgon along with having high heating value gas with good liquids content that’s need in LNG plants to keep them full.

At Stockhead, we tell it like it is. While Equus Energy is a Stockhead advertiser, it did not sponsor this article.

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