CSG, Markets, Technology

Coal seam gas

According to independent energy research firm EnergyQuest, in 2006 CSG production reached a new high of 80 PJ, an increase of 31.4 per cent, in response to Australia’s growing gas consumption needs, which rose 3.4 per cent to 908 PJ.

Throughout recent years, industry transactions, farmins and takeover bids have seen the reshuffling of CSG interests, including BHP’s sale of its Australian CSG assets to AGL for $93 million in June 2006.

BHP was a co-owner of the Moranbah Gas Project, one of Australia’s most active CSG assets with a production rate of approximately 46 TJ/d. Shortly after the sale, the 2005/2006 drilling campaign was completed, bringing the total number of production wells to 72. Current owners Arrow Energy and AGL are undertaking an intensive period of development drilling to bring the field up to a planned deliverability of 55 TJ/d, with a view to increase this to 58 TJ/d by 2008.

Current gross field production from the Moranbah project is over 40 TJ/d, with total gas production for the quarter to 30 June 2007 of 4.11 PJ.

Following the sale of BHP’s CSG assets, Molopo took on three members of BHP’s ex-CSG team to support its ongoing growth strategy. Molopo then proceeded to drill its Harcourt field asset, before focusing upon developing the Gloucester Basin, which is north of Newcastle in New South Wales.

Molopo, with Lucas Energy, commenced drilling and construction at the Stratford Pilot located within PEL 285 in the Gloucester Basin in September 2007. The pilot at Stratford and an exploration drilling program, comprising four part-cored and nine stratigraphic chip holes, are aimed at establishing reserves across the Gloucester Basin, and ascertaining production capabilities prior to a development decision.

Also in September, Molopo finalised a $A33.25 million share placement, with funds to be put towards the further development of the Mungi Gas Field over the next 12 to 18 months, once the existing sole risk well program there is successfully completed.

The funds will also be used to help finance the $A6 million cash portion of Molopo’s acquisition of Helm’s share of the Queensland CSG assets, which was announced in June.

Molopo has also reported that its Timmy Prospect has the potential to outstrip its Harcourt and Mungi fields, and the company plans to drill a production test well to establish reserves by late 2007.

Meanwhile, during the past year Origin Energy reclaimed its position as Australia’s largest CSG producer, ousting Santos who had pushed ahead of Origin last year. Origin’s CSG reserves increased significantly in the quarter ended 30 June 2007, growing 80 per cent from 1,095 PJ equivalent (PJe) to 2,470 PJe.

The reserves increase was achieved mainly through the additions in Origin’s CSG tenements in the Bowen Basin (Spring Gully and Fairview fields) and the Undulla Nose area of the Walloon coal measures in the Surat Basin (predominantly the Talinga, Argyle and Kenya fields).

“Origin has pioneered the development of CSG in Queensland over the last decade, and we are now adding reserves for less than 10 cents per GJ,”? said managing director Grant King.

Construction is expected to begin soon on Origin’s Darling Downs Power Station – a gas-fired power station of approximately 630 MW capacity near the Braemar site in Queensland – with Origin having made a financial commitment to the project in September.

The new power station will take advantage of CSG reserves held by Origin in southwest Queensland, predominantly in the area around Roma and Chinchilla.

Origin in also considering the development of a nominal 1,000 MW coal seam gas fired power station at Spring Gully, 80 km north of Roma, with fuel for the power station to be provided from the adjacent Spring Gully CSG plant.

Santos has also posted promising results and has high expectations for its CSG business, after achieving an overall production record for the quarter ended 30 June 2007.

Santos’ proposal to construct a 3-4 MMt/a LNG processing facility at Gladstone in Queensland has also been a key highlight for the company. The project, which has been granted significant project status by the Queensland Government, would see CSG processed and sold into export markets. Consulting company Wood Mackenzie endorsed the Gladstone LNG plant as a potentially viable development opportunity, saying that the 4 Tcf of reserves needed for the project will be comfortably covered through the expansion of Santos’ Fairview CSG project.

In April this year, Santos completed this $150 million expansion of Fairview- which the company has described as “the largest producing CSG field in Australia”? – as gas production jumped from 27 TJ/d to 55 TJ/d in just two years. The company further expects to increase production at the Fairview field in the second half of 2007.

With the addition of pilot drilling at its Roma, Scotia and Fairview fields, CSG has become a “new legacy asset”? for Santos, according to Managing Director John Ellice-Flint, who expects Santos’ CSG production to increase by 200 per cent over the next five years.

Another company with extensive holdings of prospective CSG acreage in Queensland is Sunshine Gas, with its Lacerta CSG program targeting initial 2P reserves of 244 PJ. Total field production recently reached about 1.27 MMcf/d of gas at the completed Lacerta Pilot Production wells.

In New South Wales, Eastern Star Gas (ESG) has been working on the Gunnedah Basin CSG project, with a number of wells having been drilled and completed in the Bohena area, 25 km southwest of Narrabri, with promising results.

ESG Executive Director of operation David Casey recently said that the company’s primary focus is on exploration, appraisal and development of the CSG resources within PEL 238, a 9,100 sq km licence area in the Gunnedah Basin which contains a gas resource in excess of 17 Tcf.

On completion of its Bibblewindi and Bohena production pilots, ESG intends to connect the developments to the 11MW Wilga Park Power Station, with the company hoping to gain a foothold in the NSW CSG market.

Sydney Gas and project partner AGL have been developing the 300-well Camden Gas Project, located 50 km southwest of Sydney. Stage I of the project has been completed and sales from it are being made. Stage II is focused on increasing production to 40 million standard cubic feet of gas per day or around 15 PJ of gas per year. On successful completion of the Camden Stage II Gas Project, the joint venture intends to expand its production from the much larger Camden Prospect area utilising SIS drilling technology which limits surface footprints and maximises potential recovery.

During the past year, AGL partnered with Queensland Gas Company (QGC), acquiring a 27.5 per cent stake in the company and effectively blocking Santos’ attempted takeover of QGC. “AGL’s cornerstone investment and bankable gas supply agreements will also provide the funding base to further accelerate the exploration and development of QGC’s gas resources,”? said QGC Managing Director Richard Cottee.

In particular, AGL said it hoped to capitalise upon QGC’s Berwyndale South Gas Field, which has produced record-breaking sales of 16 PJ/a, or double the initial contract volumes of gas for customers CS Energy and the Braemar Power Project.

QGC has continued to make progress in the field, with the Berwyndale South-70 well recently reaching a total depth of 846 metres after intersecting the prognosed section in the Juandah and Taroom Coal Measures.

Following Santos’ unsuccessful $606 million takeover offer, QGC secured a short-term gas supply contract for an additional 2 PJ/a of gas to the Braemar Power Project from Berwyndale South. In December 2006, QGC attained formal certification from Netherland, Sewell & Associates confirming the commerciality of QGC’s 64 per cent volumetric increase in 2P CSG reserves to 695 PJ. Mr Cottee said the reserve upgrade was part of a 52 week growth acceleration strategy which aims to increase 2P reserves to 1,000 PJ by December 2007.

For the financial year ended 30 June 2007, Beach Petroleum generated a record after tax profit of $103.3 million, more than double the previous year’s result, with record production of 9.4 million barrels of oil equivalent which was boosted by the Tipton West CSG project in southwest Queensland. Beach Managing Director Reg Nelson said, “Over the next three years it is reasonable to expect that coal seam gas reserves will have increased at Tipton West.”?

There has been no shortage of companies aiming to corner east Australia’s CSG market, including Metgasco which is focused on developing the CSG resources of the New South Wales Clarence Moreton basin, with emerging significant 2P reserves of 113PJ. Metgasco has announced its goal to expand 2P gas reserves to 660 PJ, with a major trial production program commencing in October.

Meanwhile, another company that has been eyeing the CSG industry in Australia and the Asia Pacific is Arrow, who merged with CH4 late last year. Arrow is hoping to dominate the Queensland CSG market, improve margins at the Moranbah Gas Project, and investigate overseas markets for further expansion.

In addition, there has been growing interest in demonstrating the viability of CSG production from other areas in Australia, such as the Tasmanian Basin and North Perth Basin.

Pure Energy has commenced drilling its CSG tenement SEL 32/2003 in Tasmania, focusing on the “attractive”? Fingal-Dalmayne area in northeast Tasmania first. Pure believes the Tasmanian Basin to contain significant potential for CSG, as “thick and extensive coal seams at the appropriate depths have been proven by over a century of coal exploration and development.”?

In WA, Dynasty Metals Australia has been granted a Special Prospecting Authority (SPA) license to commence CSG exploration in the North Perth Basin. The licence covers Dynasty’s Irwin CSG Project, which is located 65 km east of Geraldton and Oakagee. Dynasty controls the entire Irwin Coalfield under the SPA license and commenced a seismic program in May to identify the locations of gaseous sequences below the identified coal measures. Dynasty intends to drill the generated targets once the necessary approvals are obtained.

For CSG in the eastern states a significant event in recent times was the suspension of the PNG Gas Project – which would have seen gas piped from Papua New Guinea into Queensland. Occurring in February this year, the suspension saw a gap open up in the Australian gas market that industry insiders have predicted will be filled by CSG. With gas consumption in Australia predicted to rise over the next decade, particularly in eastern Australia, the need to source alternative supplies for the future, including CSG, has been of growing importance.

Other gas distribution pipelines, such as the proposed QSN Link, Casino to Brisbane, and Wallumbilla to Hexham pipelines will provide a link between the eastern markets.

An Australian Bureau of Agricultural and Resource Economics (ABARE) report has projected the natural gas production from the Gippsland and Cooper-Eromanga basins will decline. However, it found that this decline would be partially compensated for by CSG and increasing reserves from the Otway Basin.

“Total gas supply in the eastern Australian market is projected to increase more modestly than CSG production, by around 60 per cent over the 25 year projection period. This is a result of the offsetting effect of falling gas supplies from the mature Cooper-Eromanga Basin and eventually from the Bass Strait,”? said the ABARE report.

“From 2012-13, gas demand in the eastern market is project to outstrip local supply, providing an opportunity for supplies from outside the region to enter the market. By 2029-2030, this market is project to have grown to around 1,124PJ.”?

Numerous companies have also posted their predictions for future CSG market opportunities. QGC has forecast that by 2008 CSG will supply over 80 per cent of a 160 PJ Queensland market while Santos has calculated that CSG will reach 20 per cent of eastern Australia’s gas supply this year. Sydney Gas Chairman John Saunders has made similar predictions based on industry commentary, claiming that by 2020 as much as 50 per cent of Australia’s gas supply may be provided by CSG, a prediction supported by energy consultancy firm Wood Mackenzie.

Metgasco has highlighted southeast Queensland and northern NSW as major focus areas, with power demand in southeast Queensland forecast to grow by 260 MW/a over the next five years. The company is conducting pre-feasibility discussions over a 200 MW gas-fired power station to be located in northern NSW.

However, recent years have not always been smooth for the CSG industry, which is also facing growing pressure to meet gas demand and satisfy potential greenhouse gas emission regimes. Increasing rates of gas consumption in Australia will require almost double the current known reserves to meet demand and satisfy potential greenhouse gas emission regimes. According to ACIL Tasman executive director Paul Balfe’s estimates, Australia would require 5,800 new CSG wells over the next 23 years at a cost of approximately $2.9 billion. Mr Balfe expressed confidence that the CSG industry would be able to rise to the occasion, saying that sufficient gas exists in the Bowen and Surat Basins to cope with this demand.

The past year has been a fruitful, though tumultuous, time for the CSG industry. With growing concerns over greenhouse gas abatement, the need for cleaner fuel sources, the suspension of the PNG Gas Project, and a multitude of new projects and developments that emerged, this burgeoning industry will not be slowing down any time soon.

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