Arrow Energy, a joint venture equally owned by Shell and PetroChina, has unveiled plans to advance Phase 2 of its Surat Gas Project in Queensland, Australia.

The gas from the project will be transported to the Shell-operated QCLNG liquefied natural gas (LNG) facility on Curtis Island, near Gladstone, to fulfill long-term contracts and supply domestic customers. This is part of a 27-year gas sales agreement between Arrow Energy and QGC. Phase 2 is anticipated to add approximately 22,400 barrels of oil equivalent per day (or 130 million standard cubic feet per day) at peak production.

“Initiating Phase 2 of the Surat Gas Project with Arrow aligns with our commitment to increasing gas supply to the market,” said Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director. “QCLNG celebrated its 1000th cargo at the end of last year, underscoring its role as a key gas supplier for Australia and the surrounding region. This investment will help us maintain and expand this vital and secure energy source, providing a lower-emissions alternative to coal.”

At Capital Markets Day 2023, Shell announced plans to enhance shareholder value by securing additional feedgas supply for its LNG facilities through new backfill projects. Phase 2 will contribute volumes for processing at QCLNG infrastructure, involving up to 450 production wells, a field compression station, 27 kilometers of new pipeline, and upgrades to roads and infrastructure. First gas is anticipated to flow in 2026.

Shell and PetroChina established the Arrow Energy joint venture in 2010, which led to a 27-year gas sales agreement in 2017 for supplying gas to Shell’s QCLNG joint venture. Phase 1 of the Surat Gas Project, approved in April 2020, involved the development of over 600 wells. QCLNG, a Shell-operated joint venture with Shell holding a 73.75% stake, CNOOC at 25%, and MidOcean Energy at 1.25%, supplied 15% of the east coast’s demand in 2023. The project taps natural gas from coal seams in the Surat Basin. Phase 2 of the Surat Gas Project is projected to yield an internal rate of return (IRR) surpassing Shell's hurdle rate for its Integrated Gas business. Shell aims to expand its LNG business by 20-30% by 2030 compared to 2022 levels, with a planned 25-30% increase in LNG liquefaction volumes. According to Shell’s LNG Outlook 2024, global LNG demand is expected to rise by over 50% by 2040 due to coal-to-gas switching in Asia and increased LNG use for economic growth. Shell views LNG as crucial for the energy transition, replacing coal in heavy industry and power generation to reduce local air pollution and carbon emissions while providing necessary flexibility to power systems amid rapid growth in renewable energy.