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Australia strikes it rich as oil majors scent big potential of coal-seam gas

Times Online
The Times
May 31, 2008

Australia strikes it rich as oil majors scent big potential of coal-seam gas

A dead canary in the hot, wet and filthy confines of a coal mine once meant a panicked evacuation. Natural gas was the most perilous of hazards, and a fall from the perch was an early warning of potential explosions, poisonous air or both.

This year, the rush has been back down the shaft as soaring prices and demand in Asia-Pacific have drawn BG Group and its international competitors to the world’s largest resource of coal’s unloved bedfellow: methane.

The charge is centred on what Australia’s Science Agency estimates is 250 trillion cu ft of gas locked in vast Jurassic coalfields largely under the sweeping agricultural plains of southern Queensland. Proven reserves are a fraction of that but confirmation of the full resource would make this tiny portion of the country the world’s fourth-largest source of natural gas – ahead of Saudi Arabia.

Aiden Bradley, an analyst at ABN Amro Morgans in Sydney, said: “The potential is pretty mind-boggling. Historically because of Australia’s isolation, it was not worth a lot. Now there’s the potential to export it through LNG because of the buoyant market in Asia. This is one of those last great deposits – an almost infinite resource.”

A few hundred kilometres up Queensland’s coast, at the industrial port city of Gladstone, a parallel race is on: to build the world’s first liquefied natural gas (LNG) plant fed by coal-seam gas. Four LNG projects worth more than A$20 billion (£9.7 billion) are set to come on stream from 2011-13.

BG, the biggest gas trader, was the first big energy group to move, signing a joint venture in April with Queensland Gas Company (QGC), the third-biggest coal-seam gas producer, to build an LNG plant. Less than a month later it bid A$12.9 billion for Origin Energy, the sector’s leading company.

Two days ago, Petronas of Malaysia, the world’s third-biggest LNG producer, joined the fray by paying US$2.5 billion (£1.27 billion) for a 40 per cent stake in the coal-seam gas operations and planned LNG plant of Santos, Australia’s No 3 oil and gas producer.

Yesterday, Arrow Energy the fourth-largest producer was in a trading halt as energy majors, rumoured to include Shell, circled. Analysts say that BP, ENI and Total are interested.

Thanks in part to BG’s tilt at Origin, the market has finally recognised that the Australian continent is of a similar size to the US, but with gas domestic consumption of just 0.5 per cent of the bigger economy. Coal-seam gas supplies about 18 per cent of the eastern Australian gas market but the domestic market is tiny and production increased 44 per cent last year.

In Asia-Pacific alone, annual LNG demand is expected to double from 100 million tonnes to almost 200 million tonnes a year by 2015. Additionally, the booming markets of Asia are a relatively short journey away by sea.

But some analysts say the prospect of Gladstone becoming a hub for LNG exports into Asia-Pacific are not yeat clear-cut as no one has built an LNG plant fed by coal-seam gas.

Richard Cottee, QGC chief executive, says there are uncertainties but says his company has “cracked the code” to key technological barriers in drawing the gas from coal. His company and more than a dozen others have already succeeded where BP and Amoco failed in the Nineties. Conventional gas is caught between grains of rock such as sandstone.

But 70 per cent of the gas is between the molecules of coal and only 30 per cent in the gaps. So while BHP and Anglo Coal are producing coal-seam gas, albeit at small levels, most of the majors have pursued it using conventional methods and, as a result, have harvested only 30percent of the potential.

Coal play

— Coal-seam gas is a natural gas formed as a byproduct during the coalification process in which organic matter is turned into coal

— To extract the gas a hole is drilled down into the coal seam and is cased. The coal seam is perforated which then enables the gas to flow to the surface, where it is gathered and processed as required

— Coal-seam gas is odourless and is used like any other gas to power homes and industry and as a fuel for electricity generation

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