Basin review, CSG, LNG, Markets, Projects, Technology

Coal seam gas: the new Star of NSW

New South Wales has long been seen as the state between two major gas producers, but Eastern Star Gas (ESG) is looking to change this reputation. The state may even become a net gas exporter, says ESG, if reserves and resource upgrades continue at the Narrabri coal seam gas (CSG) Project.

The project is located in PEL 238, adjacent to the town of Narrabri. It is located in close proximity to a number of ESG’ other permits – PELs 6, 427, 428, 433 and 434, all situated within the lightly-explored Gunnedah Basin. ESG holds a 65 per cent interest in the project, while joint venture partner Santos holds the remaining 35 per cent.

Drilling in NSW

A key feature of the permit is the vertically fractured architecture of the target coals. While vertical wells could not produce gas in the expected volumes, ESG found that lateral wells could realise the potential of the coal seams. Following a number of successful lateral pilots, the company is looking forward to trialling a new “˜stacked multi-lateral pilot’ well design. This design involves two or more lateral wells targeting different seams being drilled from the one location, allowing very high gas recovery rates.

The permit’s location also protects it from one of the key issues facing Queensland’s CSG sector – water management. In response to environmental concerns, the Queensland Government recently passed legislation on the management of CSG water, as well as establishing landholder committees in affected areas. Luckily, ESG’s primary targets are completely surrounded by layers of rock, which means that they are isolated from regional aquifers. This also means that CSG drilling for the project will not affect the Great Artesian Basin or the surface area.

Commercialising CSG

ESG is looking to commercialise the Narrabri project in multiple stages.

The first stage involves gas supply to the 7 megawatt (MW) Wilga Park Power Station, located in PEL 238. The station is owned by the Narrabri joint venture partners and supplies electricity to Country Energy. A further 9 MW of capacity will be installed at the station in the first quarter of 2011. Although conventional gas from PPL 3 provides the majority of feedstock for the station, pilot production gas from Narrabri is also used, providing early monetisation of the resource. Opportunities also exist for further expansion of the station.

Approvals processes are underway for commercialising gas under stages 2 and 3 of the Narrabri CSG development. These stages would involve connecting the project to existing pipeline infrastructure, allowing gas to feed the east coast market as well as other power stations. Under stage 2, the Narrabri development would be connected to existing markets via a lateral to APA Group’s Central Ranges Gas Pipeline.

Stage 3 would involve expanding this domestic supply with pipeline extensions from the Central Ranges Pipeline to Bayswater, Tamworth and Wellington. Underpinning this stage, ESG has three Memorandums of Understanding (MoUs) in place for the supply of a total of 1,700 petajoules of gas for power generation, commencing from 2013.

ESG has signed an MoU with ERM for the supply of 20 petajoules per annum (PJ/a) of gas from 2013 to the 660 MW Wellington Power Station. The company has also signed an MoU with National Power for supply of gas to a proposed new gas-fired power station in northern New South Wales. The proposed station would require new connecting pipeline infrastructure.

The final Narrabri development stage involves looking at other “˜value-adding opportunities’. ESG has entered into an MoU with Hitachi Limited and Toyo Engineering to investigate the feasibility of an LNG plant in Newcastle. The company has looked at alternatives, including piping the gas to Gladstone for use in CSG-to-LNG projects or developing a gas-to-liquids or methanol project. However, ESG Managing Director David Casey says, a Newcastle LNG development is at present the most attractive. APA Group will construct an approximately 400 km CSG pipeline from Narrabri to Newcastle.

Speeding towards trains

Although the results of the feasibility study are not expected until the end of 2010, the company is rapidly progressing the Newcastle option. An agreement has been signed to acquire 24 hectares of land on Kooragang Island, Newcastle, and the company has raised $100 million to progress the development. Following the feasibility study, the development partners are looking to progress front-end engineering and design work in 2011 to allow a firm commitment in 2012. This development schedule could see LNG leaving the Port of Newcastle as early as 2014.

Current gas reserves support a one million tonne per annum (MMt/a) LNG development, however the site has the potential to expand to at least 4 MMt/a of LNG. Having spent considerable effort on exploration activities, Mr Casey says that ESG is a company ready to transition to development and production. In 2011, the company will be completing gas sales and LNG project agreements, along with progressing project approvals and upgrading reserves to support its ambitious plans for CSG in New South Wales.

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