Yesterday after markets closed, Central told shareholders it had signed the agreement with AGIG which would see the company ramp up production from its three currently producing gas fields and pipe the gas to Santos' Moomba gas supply hub in South Australia through a new pipeline.
Central will drill a series of development wells across the Mereenie, Palm Valley and Dingo gas fields, and also upgrade and debottleneck its existing infrastructure.
The pipeline is an answer to one of the most complicated commercialisation challenges across the onshore NT region, allowing gas produced from the central NT to reach the east coast gas market which is facing gas supply shortfalls by 2024.
Currently gas produced from the onshore NT is piped more than 2200 kilometres through a pipeline that connects to Mount Isa and then doubles back on itself to Moomba. The Northern Gas Pipeline is owned and operated by Jemena.
This new pipeline proposed by AGIG will be "less than half" that distance, about 950km, and make piping gas to Moomba significantly cheaper, according to AGIG. It would cost more than $1 billion.
The pipeline will have a 16-inch diameter and have the capacity to pipe 124-terajoules of gas per day with an option to expand that capacity with compression.
"We are delighted to partner with Central Petroleum and Macquarie Mereenie by signing a memorandum of understanding for the development of this significant new pipeline," AGIG chief Ben Wilson said.
AGIG is owned by Hong Kong-based CKI Group, which was nixed from buying fellow pipeliner APA Group by newly appointed Treasurer Josh Frydenberg in 2018 over foreign investment concerns.
Wilson noted the pipeline development would be a major piece of infrastructure for gas markets in the NT and Eastern Australia.
Not only is it good news for Central Petroleum in the Amadeus Basin, but an important development for all onshore regional players including Santos, Empire Energy, and Origin Energy which are all planning major gas exploration and appraisal in the nearby Beetaloo Sub-Basin, which an expansion could connect it to.
It will allow Santos to connect its Dukas well, which it also shares with Central Petroleum, to the east coast gas market, a major win for the NT gas hopeful.
Work on front-end engineering and design has already been conducted, as part of a process AGIG completed in 2015. A final investment decision will be made in the second half of next year.
Construction would then begin in 2022 with first gas deliveries by 2024. This would be the same year the Australian Energy Market Operator expects major gas supply shortfalls and a stark lack of gas across the east coast.
The project could receive funding from the Commonwealth's Northern Australia Infrastructure Facility program. The NAIF financing mechanism is provided at a fixed rate with interest rates and payback periods determined separately for each individual project.
The pipeline development might be a huge win for the Australian oil and gas industry in the NT, but it also meets recommendations by the National Covid-19 Coordination Commission which has warned any hope of a gas-fired economic recovery in Australia would be dependent on a new and upgraded gas infrastructure network.
NCCC chair Neville Power told a Senate Committee earlier this month that its manufacturing taskforce had recommended the federal government underwrite pipeline development to bolster the industry's ailing infrastructure.