Coal

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2009-04-05T00:44:00Z

Australian
Wednesday 1/4/2009 Page: 4

Greg Combet appears to be on a collision course with the coalmining industry, which the new Parliamentary Secretary for Climate Change has been specifically charged with winning over to the Government"s proposed emissions trading scheme. The coal-seat MP and former coalmining engineer confirmed in an interview with The Australian he would have "principal responsibility for consultations with the coal industry", which is incensed at its exclusion from the Government"s plan to offer free permits to compensate trade-exposed companies.

Mr Combet said his discussions with the coal industry would be about allocating the five-year $750 million "transitional" fund offered to coalminers by the Government, not about the industry"s demand that it should get 60% of its permits for free a demand that would boost the industry"s five-year compensation to about $2.5 billion. "It is not the Government"s position or intention to treat coal as an emissions-intensive, trade exposed industry because of particular characteristics of that industry," Mr Combet said.

He cited the fact that the amount of gas produced during coalmining varied greatly from mine to mine and even within the same mine, making an industry-wide compensation formula difficult. Mr Combet conceded that mines with geological characteristics that happened to make them gassy were particularly vulnerable to additional costs at a time when the coal price was falling. "I will be talking to those mines in particular about how we can use the already announced package to assist them," he said.

According to the Australian Coal Association, the $750 million package is unfair and inadequate and qualification for 60% free permits is "non-negotiable". "The coal industry believes it has been unfairly excluded from the emissions-intensive compensation even though it clearly qualifies under the Government"s formula, and we are in talks with the Government and the Opposition and the other senators to make sure that we are included in that compensation scheme in any legislation that passes the Senate," ACA executive director Ralph Hillman said.

Opposition emissions trading spokesman Andrew Robb said coal should be treated "like any other trade-exposed industry". Mr Combet warned the business community that sinking the ETS in the Senate, where the Coalition, the Greens and the independents have all expressed grave reservations, could be worse for it than the costs the scheme could impose. In a speech to the Committee for Economic Development of Australia today, Business Council of Australia president Greg Gailey, calls for political bipartisanship on climate change.

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2008-10-25T03:41:00Z

In my recent post on coal seam gas (CSG) I noted that BG"s bid for Origin Energy was the event that kick-started the boom in interest in Australian CSG producers.

BG"s bid for Origin eventually failed (with ConocoPhilips instead buying a share of Origin"s CSG assets), but they have now returned to the fray - this time with a $5 billion bid for QGC (Queensland Gas Company).

BG already owns 9 per cent of QGC (and 20 per cent of QGC"s CSG reserves) and is keen to secure supplies for planned LNG export plant at Gladstone.

The Australian is speculating that the offer could "open QGC up to rival bids from other global majors, such as Shell or BP looking to enter or increase their presence in CSG".

QGC and AGL both went into a trading halt yesterday pending announcement of a material transaction.

Shareholders of Sunshine Gas and Roma Petroleum, whose shares also went into a trading halt, were advised to take no action on QGC"s current separate bids for each company. Wilson HTM analyst Andrew Pedler said it was not surprising that the bigplayers were still pushing to get hold of CSG reserves amid global market turmoil and fears of recession.

"There"s no other apparent major source of new gas on the east coast and domestic use alone is pointing to compound annual growth rates of between 7 and 10 per cent for coal seam gas, which is an attractive business to be exposed to," Mr Pedler said.

"Add LNG to that and you easily double the amount of gas that"s required in 2014."

QGC, BG and AGL all declined to comment or confirm the deal yesterday.

In a takeover offer that is still playing out, QGC in August agreed to pay 82c a gigajoule for Sunshine Gas"s proved, probable and possible, or 3P, reserves. If QGC accepted the same for its 5683 petajoules of reserves, it would value the company at $4.67 billion, or $5.10 a share.

The credit crunch and a nearly 50 per cent fall in QGC"s shares since June have probably saved BG from paying close to the unprecedented prices Conoco will fork out next week for half of Origin"s reserves. Conoco paid $1.88/GJ for half of Origin"s 3P reserves and a 50 per cent stake in a planned LNG plant in a deal worth up to $9.6 billion.

If BG had agreed to pay that much for QGC"s reserves, the deal would value the company at more than $10 billion, or more than three times QGC"s market value.

The Sydney Morning Herald concentrated on what the deal meant for QGC shareholder and local power generator AGL.

The deal would involve AGL agreeing to sell its 25% stake in QGC to BG. QGC and BG are partners in a proposed $8 billion liquefied natural gas project at Gladstone.

That deal would immediately boost BG"s stake in QGC from 10% to 35% and serve as a strong platform from which to launch its friendly takeover. In return, AGL would be granted the right to coal seam gas resources, possibly through a direct equity ownership in permits. AGL has been considering options for its valuable stake in QGC for months.

In August, AGL"s managing director, Michael Fraser, said the holding could be leveraged in return for access to more direct control over gas resources. "In the longer term, one of our aspirations is to have our foot on our own equity gas production at the asset level, rather than through a company," Mr Fraser said.

AGL at present sells more gas through its retail business than it has in reserve, forcing it to buy additional gas from other suppliers.

Carbon trading is expected to raise the value of gas on domestic markets, as gas-fired power plants emit up to 70% less carbon than do brown coal-fired plants. But increased demand for gas around the world is increasing the value of controlling gas assets directly.

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2008-10-23T19:12:35Z

Let"s hear it for Hawaii. The island nation is walking into the future a touch faster than the rest of the United States by pledging to never again build a coal-fired power plant. And since coal plants have a lifespan of between 30 and 50 years, Hawaii will someday be 100% coal free.

Another portion of the pledge is to be 70% powered by renewable energy in 2030. These are big goals, and not simple to achieve. Hawaii has a bit of an advantage over the rest of the U.S. though. First, a small population where power is already far more expensive (due to shipping costs) than elsewhere in America.

They also (obviously) have tremendous geothermal potential, not to mention plenty of windy and sunny days per year. However, they also face some unique challenges. Because the state is geographically divided from itself, it"s difficult to generate power for each individual island. That"s why part of this plan is to create an undersea cable connecting Maui (where lots of renewable power is already generated) to Molokai and Lanai.

The plan includes feed-in tariffs for renewable electricity, tax breaks for biofuels, and a plan to run Hawaii"s many oil-fired power plants on "sustainably harvested" biofuels. This bit is the sketchy. If I know one thing about Hawaii, it"s that it is a biological gem, and we certainly shouldn"t be harming that...even if it means increased carbon emissions.

Details on the plan will continue to emerge, and we"re hoping that other states will be following in Hawaii"s footsteps soon.

Via TreeHugger

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2008-10-21T03:02:00Z

Age
Saturday 4/10/2008 Page: 9

ON A wide, flat plain in Germany"s depressed north-east, one of the keys to our future has begun turning. Beside a giant power station known as Schwarze Pumpe (Black Pump), a small plant has begun to capture the carbon released when brown coal is turned into electricity, ultimately to store it underground. In Australia, the world"s biggest coal exporter, carbon capture and storage is endlessly debated, praised and condemned.

In Germany, in a modest way, it has begun. Swedish power giant Vattenfall has invested $120 million to build the world"s first pilot plant to capture and store the carbon dioxide from burning coal. The project, just three weeks old, has huge implications for the future of Victoria"s brown coal industry - and its electricity prices. Unless carbon capture and storage can work at reasonable cost, the experts say, Victoria"s heavily polluting power stations will gradually shut and not be replaced.

The world has other projects that capture and store carbon dioxide, including a small one in the Otways. What makes Schwarze Pumpe unique is that it is the first to trap the emissions from a power station boiler, separate the carbon dioxide and - ultimately - bury it in a depleted gas field. If it works, says Vattenfall"s president and chief executive Lars Josefsson, one of its existing generators will be converted into a much larger demonstration plant by 2015, with the first full-scale "clean coal" power station operating by 2020.

"Coal has a future - but not the carbon dioxide emissions from it," says the chief executive of its European division, Tuomo Hatakka.. carbon capture and storage has divided environmentalists here, as in Australia. Germany"s Greens argue that projects such as Schwarze Pumpe breed false hopes that coal can be made clean, and divert funds from the urgent need to speed up development of cost-effective renewable energy, such as solar.

But others warn that the fight against global warming will be so hard that the world will need to use every option. In a recent landmark report, the International Energy Agency estimated that to halve greenhouse gas emissions by 2050, while developing countries are growing rapidly, the world will need to open a full-scale carbon capture and storage project every fortnight.

Even Schwarze Pumpe"s existing power station is a stylish, state-of-the-art plant producing far less greenhouse gas than its Victorian counterparts. Vattenfall"s goal is to use brown coal to produce "almost emission-free electricity" that will be commercial from 2020, as carbon prices force generators to shut down traditional coal-fired plants.

The pilot plant at full operation produces nine tonnes of carbon dioxide an hour. For now it is being sold for commercial use, but from early next year it will be trucked across Germany to be buried in the almost depleted Altmark gas field - an operation that parallels the goal of burying carbon dioxide from the Latrobe Valley plants in Esso-BHP"s emptying gas fields in Bass Strait. Many will be watching its progress with fingers crossed. If it works, it could make the world"s - and Victories - road to stop global warming much easier.

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2008-10-19T10:29:00Z

The Australian has a column predicting a bright future for coal seam gas producers, in spite of tumpling oil prices - Coal seam gas will survive falling energy prices.

Gladstone"s coal seam gas-to-LNG hopefuls are in a decent position to weather this financial storm. While the inter-related credit freeze and falling oil and gas prices have severely dented investor sentiment, and there is no questions projects could be delayed, the main local players remain cashed up from stake sales.

Analysts also say oil prices that are hovering around $US70 a barrel still have a long way to fall before the LNG export schemes start looking uneconomic. "I do not see the fall in energy prices as being too much of a negative for coal seam methane," ABN AMRO analyst Chris Brown said. "The oil price would have to be well south of $US50 a barrel for the projects to be uneconomic."

The projects are also based on long-term average oil prices and with production not expected for four to five years, a short dip below $US50 would not derail them.

The financial world is a vastly different place to what it was just six weeks ago, when Origin Energy auctioned off a stake in its huge Queensland CSG reserves to ConocoPhillips for up to $9.6billion, marking the peak in a series of transactions with global players that, at that stage, had markedly revalued higher its reserves.

But since early September, when the Origin deal was announced, most of the four local companies have suffered share price falls more than double the 19 per cent fall in the All Ordinaries Index over the same period, as investors cashed in shares and fretted about the state of energy prices and unbuilt projects.

Santos, which is planning an 8million tonnes a year LNG plant with Malaysia"s Petronas, has slumped 48 per cent. Queensland Gas, which has aligned with BG Group for a project about the same size, is down 41 per cent. And Arrow Energy, which sold 30percent of its reserves to Shell and is looking at a much smaller plant, has lost 38 per cent.

But Origin, which is planning a mammoth four-train, 14 million tonnes a year operation with Conoco that would rival the size of the North West Shelf LNG operation, has held strong and is down just 13 per cent at $15.37.

This is not far below the $15.50 a share that BG offered for Origin before Santos"s $US2.5 billion sale of a share in its CSG assets to Petronas resulted in Origin managing director Grant King walking away and trying to get more for his reserves.

Morgan Stanley energy analyst Stuart Baker said the global malaise and lack of access to cash was bound to slow development, but that the CSG-to-LNG sector probably would not be derailed.

"In general, the coal seam gas industry has a couple of attractive aspects that are beneficial," he said. "They have world-class reserves and large companies that are putting in a lot of investment. "If oil goes to $US30, then not much is viable, but you would hope their investment would be on a more conservative view of the world than those in markets (that pushed oil up to almost $US150 a barrel earlier this year)."

Mr Baker also said that LNG demand was based on electricity use and therefore not as sensitive as that for petrol when global growth slowed.

In February, QGC said that with oil at $US60 a barrel, its share of the BG project would bring in revenue of $25 billion over the life of the project and $800 million in earnings before interest, tax, depreciation and amortisation.

None of the players would reveal long-term oil prices at which they thought their plants would become uneconomic, or what price their studies were based on.

Santos pointed out oil prices were at about the same level as they are now when it announced its $8 billion project in July last year. "The fundamentals for energy demand remain on track," a spokesman said. "Our bet on Asian energy demand is well founded and the economics of our project depend not only on revenue but on costs."

Costs of major resources projects, which have been subject to huge inflation in recent years, are expected to pull back with sliding commodities prices.

Despite confidence projects would proceed, ABN AMRO"s Mr Brown said falling share prices and a sliding dollar might make consolidation in the sector cheaper for predators.

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2008-10-07T13:22:00Z

Alan Kohler had an interesting column in The Business Spectator recently, in which he speculated that oil and gas producers could emerge from the credit crunch as the new financial "masters of the universe".

In 1999 a barrel of oil would have bought just 40 cents of global earnings. Now that earnings are falling and that figure has gone up to $US8 of earnings, the price of oil would have to fall to $US20 a barrel to return the purchasing power of a barrel to its long-term average. Just as the equity market looked cheap between 2003 and 2007 to anybody who could source capital from the debt markets, it now looks cheap to anybody who can source it from oil. ...

The other big liquidity pool is Asian central banks, which are now sitting on $US4 trillion of foreign exchange reserves, up from $US1 trillion in 2001. Private equity has a surprisingly resilient pool of liquidity ($US323 billion) but the buying power of this money has contracted dramatically with the availability of debt.

No, the real financial power now lies with those who are sitting on oil and gas. In Australia we have seen incredible wealth being generated out of the coal seam methane reserves in Queensland’s Surat Basin, thanks in part to a rise in the price of LNG towards parity with oil.

The world’s oil-rich – including the Australian gas producers – could emerge from the bear market as the new masters of the universe.

It certainly won’t be Gordon Gekko and his mob on Wall Street.

While gas producers in Australia have traditionally focused on natural gas production - originally in central Australia, later in Bass Strait and most recently offshore the north west and northern coastlines - in recent months we"ve seen a surge in interest in coal seam gas (CSG) production and stock market valuations of coal seam gas producers, triggered by a bid by BG for Origin Energy - one of the major players in the sector - a few months ago. The bid eventually failed, with Origin instead choosing to partner with Conoco Phillips in a CSG to LNG development, with Conoco paying $US9.6 billion ($12 billion) for a half-share of Origin Energy"s CSG assets.

In this post I"ll look at recent events in the industry and what they mean for Australian gas production in future.

Coal Seam Gas - What Is It ?

Coal seam gas (also called coal seam methane or coal bed methane) is trapped in coal seams (usually 300-600 metres underground) by water, which must be removed to initiate gas flow. In the past it has been viewed as more of a hazard to miners than a benefit.

CSG is extracted via wells which are drilled down into coal seams - the water is pumped out and the CSG is then released (desorbed) from the coal. If the pressure within the seam is high enough the gas may flow to the surface unaided, otherwise the gas must be pumped.

Various techniques have been developed to enhance the rate of desorbtion, including the pumping of carbon dioxide underground to increase field pressure (which leads some CSG promoters to describe it as a form of "clean coal").

Like shale gas, coal seam gas is often called "unconventional gas" and seems to have been overlooked as an alternative to natural gas until recently.

The technology for extracting gas from coal seams was originally developed in the United States, though in recent years Australian companies have enhanced the technology considerably.

Coal seam gas producers in Queensland"s Surat Basin claim their gas contains more than 98% methane, with very small amounts of nitrogen and carbon dioxide, and is therefore "cleaner" than natural gas alternatives. However a recent JPMorgan study found that CSG projects actually had higher emissions than some offshore natural gas developments, so it appears that this varies on a case by case basis.

"The lowest emitting project according to our estimates is the Pluto project, whereas the highest carbon emitting project is the Browse LNG project," analyst Mark Greenwood said. "We were surprised when we worked through the details that the coal seam methane LNG projects, which contain negligible CO2, do not have the lowest CO2 emissions."

Coal Seam Gas - The X Factor In Australian Gas Supplies

In my recent post on Australian natural gas supplies, I mentioned that the big unknown when estimating reserves is the amount of coal seam methane (CSM - also known as coal seam gas or coal bed methane) that can potentially be extracted.

The coal seam gas sector has been pioneered in Australia by Queensland Gas (QGC) and Arrow Energy, with Origin Energy and Santos also emerging as major players, along with a host of smaller competitors - primarily in the Surat and Bowen basins in Queensland.

Exploration is now expanding to the Galilee Basin and Millungera Basin in Queensland, the Gunnedah Basin and Clarence Morton Basin in NSW and regions in other states like Western Australia.

Some international players like Conoco, Amoco and Enron have also tried to become CSG producers, without success.

There has been a lot of corporate activity in this area lately, including:

* The failed bid by BG (British Gas) for Origin Energy, the largest local CSM producer. Origin instead did a $9.6 billion deal with ConocoPhillips acquiring a half share in Origin"s CSG assets.

* Petronas acquiring a stake in Santos" planned CSM to LNG plant.

* Shell buying a stake in the CSM gas projects of Arrow Energy.

* QGC making a $900 million bid to buy Sunshine Gas.

Smaller CSM operators like Beach Petroleum have been pondering their now substantially enlarged valuations and wondering if "prices might have been blown out of proportion".

CSG currently accounts for around 15% of gas production in the eastern states (and over 70% of production in Queensland). According to consultants EnergyQuest, CSG production is growing rapidly, as are proven and probable reserves.

"In less than five years the east coast has gone from facing a looming gas shortage to having more than enough gas to meet local demand and export overseas," EnergyQuest CEO Graeme Bethune says.

Output in the June quarter rose by 34 per cent to 36.9 petajoules on a year-by-year basis. Over the year, proven CSG reserves have almost doubled from 6600PJ to 12,400PJ.

Oil companies like AWE are also considering expanding into the CSG sector.

Total coal seam methane reserves in Australia are hard to get a handle on - The Australian claims that "as a guide, Queensland now has bigger estimated reserves of gas than offshore Western Australia", though they fail to quantify this or point to a source for the data. The SMH says "analysts believe the state might ultimately hold just as vast resources of coal-seam gas as [Queensland]".

Source: Wood Mackenzie, ABARE (via Eastern Star Gas)
Notes: Reserves announced up to 1 January 2007.

The Business Spectator had some numbers in this article on Phil Mathews ("Australia"s peak oil billionaire), claiming Santos alone has 100 tcf of CSG (in comparison, Australia"s proven natural gas reserves are around 150 tcf). Santos recently said it likely has a 40 tcf resource in the Gunnedah Basin alone.

That stake in Santos is worth $660 million. Mathews told me this morning that his main fund – called the Sabre Fund - totals $2 billion, and there are two others in his stable worth a total of $1.5 billion, called the Tomahawk Fund and the Velocity Fund. So he has a third of his main fund in Santos. This is a man who likes a big bet.

According to other recent substantial shareholder filings Mathews also owns 19.6 million shares in Nexus Energy, 15.4 million in Arrow Energy, 9.6 million in Metgasco and 6.5 million in Pure Energy. On top of that he also owns 93 million shares or 10.5 per cent of Renison. ...

[Mathews] wouldn"t comment on the stories about a big oil futures bet, but one thing we know for sure: he is making a massive bet on coal seam gas. “It’s bigger than the Bass Strait,” he told me. “Santos has 100 trillion cubic feet, which is equivalent to 40 billion barrels of oil. 40 billion barrels! That’s bigger than that new oil discovery off Brazil.”

Eastern Star Gas estimates that resources of CSG in Queensland and New South Wales are more than 250 Tcf. The same figure is quoted in this interview with Belinda Robinson of the APPEA.

The 250 tcf number is also quoted by Arrow Energy"s CEO Shaun Scott, referring to an estimate from the CSIRO.

Certainly in Queensland as you know there"s lots and lots of coal. Coal seam gas is really created at the same time the coal"s made. So, you know, coal exploration"s been going on for a lot longer than coal seam gas so we know a lot about coal and where it is and the properties of it and we know there"s gas in it. So I think, you know. From a resource potential. It"s enormous, CSIRO I think estimating in Queensland somewhere between 250 to 300 trillion cubic feet of resource exists in coal seam gas.

Santos CEO David Knox is also quoting the 250 tcf figure for Queensland, though he quotes ABARE rather than the CSIRO.

ABARE has said there"s 250 TCF of gas in eastern Australia. ... Whether there"s 250 [TCF] still has to be proven. Right now our proven resources are much smaller than that.

I came across the CSIRO study mentioned about 3 years ago, but my bookmark has succumbed to linkrot and I"ve been unable to find the paper on a recent search.

The CSIRO is also investigating if injecting microbes and carbon dioxide into coal seams can produce commercially viable quantities of methane.

CSG to LNG

Using coal seam methane for LNG is a new development - until now this hasn"t occurred as the gas does not contain the higher value liquids (LPG and condensates) that can offset the high capital cost of an LNG development.

Rising LNG prices seem to have changed this equation, with the cost of producing LNG from CSG estimated to be around $2.60 per gigajoule while (according to The Australian) Asian customers will pay around $12 per gigajoule.

Several LNG project development proposals have been made for sites at Gladstone in Queensland by a number of groups, with 5 major projects currently under consideration.

* Origin Energy and ConocoPhilips plan to build a 7 million tonnes per annum LNG plant, which they hope to eventually increase to 14 million tonnes, with first shipments starting in 2014. By way of comparison, he east coast of Australia currently consumes about 9 million tonnes each year.

* Santos and Petronas are proposing to develop a 3—4 mmtpa LNG plant costing around $7 billion and commencing operation in 2014, which they would like to eventually increase to 8 million tonnes.

* BG and QGC are also proposing a 3—4 mmtpa LNG plant costing around $8 billion which they hope to eventually increase to 12 million tonnes. The first shipment is expected in 2013.

* Arrow and Shell are working with LNG Ltd to a proposed 1.3 mmtpa LNG facility (though doubling the capacity is under consideration) at Fisherman"s Landing. Arrow Energy plans to build a pipeline from Moranbah to supply the gas. The plant has been delayed by the credit crunch, with LNG looking for more equity to compensate for frozen debt markets.

* Sunshine Gas is working with Sojitz to develop a 0.5 mmtpa LNG plant. Production is planned in 2012. Sunshine is the subject of a takeover bid from QGC, which would remove this project from the equation if successful.

Extracting gas from coal seams requires a lot more drilling than extracting conventional natural gas, which has led existing Australian LNG exporter Woodside to downplay the likelihood of competition emerging on the east coast.

Woodside"s Don Voelte is on the record as saying that not only does he know a bit about coal seam gas but he doesn"t think much of it. He told ABC television in July: "No LNG plants have been built based on coal bed methane. It takes literally thousands of wells. There are a lot of issues around. It"s a low quality gas. We"ve looked at it. We have an opinion about it, and we"re pretty happy with our gas."

Regarding the "low quality gas" jibe, both Arrow and QGC are both claiming their is no difference in gas quality and that Japanese customers are very interested in buying LNG from the projects when it becomes available.

QGC"s Richard Cottee has more comments on the quality issue at the Business Spectator:

Richard Cottee: This is a very unusual situation for the Australian gas market in the sense that it’s actually not market constrained. The demand for LNG is highly elastic. For example LNG demand in China is presently 3 million tonnes per annum and projected to go to about 30 million tonnes per annum by 2020 which in the context of Japan, which at the same time will be 80 million tonnes per annum, shows that obviously the demand’s not the issue. The real problem I think is going to be market acceptance because this is the first…this will be CBM and it’s the first time that that’s actually going to be used for LNG.

AK: What do you mean by that?

RC: Coal-seam gas or "coal-bed methane" – CBM. It’s the same concept. CBM is the American term...we’re divided by a common language so we had to invent our own acronym for it.

AK: And what do you mean by market acceptance?

RC: Well there’s two prime issues there. Historically LNG started off with what they call some degree of liquids in it because they couldn’t strip out the butane and the propane efficiently 20 years ago. They can now, so they’ve clearly left some of the LPGs – 1 or 2 per cent of the LPGs. Now coal-bed methane is pure methane which is a cleaner fuel from the point of view of greenhouse gases – but vis-a-vis what’s presently being traded it has got a slightly lower calorific value. Now that doesn’t cause any problems, we believe, with power stations and various others but if you’ve got town gas in say Tokyo or Osaka that is predicated on a particular quality, then each of the mums and dads there may have to have a slight conversion of the gas heaters and so on to take a different quality…

AK: You’re saying that coal-seam methane is not appropriate for domestic use?

RC: I am saying it is appropriate provided you get the right customer who will then commingle it with other energy. Obviously that means you’re talking about big customers or if you get into a new market like China, then they will be more likely to want to build at the leaner end… because of the less pollution that the pure gas will provide.

The Business Spectator notes that the economics of unconventional gas are "radically different – but not necessarily either inferior or superior – to conventional gas".

A recent comparison of conventional LNG projects with coal seam gas projects by Deutsche Bank analysts illustrated the differences neatly. They compared Woodside’s Pluto project with Santos’ Gladstone LNG (GLNG) project, which will source gas from its Fairview resource.

Pluto will drill five wells to support its initial LNG production. GLNG will drill 540. Pluto will increase its number of wells to 8, while GLNG will be adding about 60 wells a year.

The ramp up period to first production is about five days for Pluto, but two years for GLNG, while production per well is about 120 million cubic feet of gas a day for Pluto and only about one million cubic feet per well for Fairview. Total production for Pluto would be around 614 million cubic feet where Fairview is expected to produce 526 million cubic feet.

So, at face value, coal seam gas involves far more drilling for significantly less production and, because coal seam gas contains no liquids, significantly less valuable production.

The capital expenditure on the upstream phase of the development to bring Pluto into production, however, is about $5 billion, whereas Fairview will cost only about $1.2 billion – that’s the difference between an offshore development and an onshore project. Moreover, where Pluto faces a petroleum resource rent tax rate of 40 per cent, as an onshore project Fairview will only pay royalties of 10 per cent – the upstream tax take, the analysts say, will be $6.7 billion for Pluto but only $2.3 billion for Fairview.

As Santos says, the growth in Australian coal seam gas production is following a similar path to coal seam gas in the US, although average production from the Queensland fields is substantially greater than from the average well in the US – Santos says the Australian resources are of better quality than those in the US.

The downside for eastern states gas customers is that once local gas producers have an export market it is likely that domestic prices will rise towards those paid by overseas customers. This may result in some mild form of resource nationalism being adopted, similar to the law passed in Western Australia that mandates 15% of production be reserved for the local market.

CSG For Power Generation

In 2000, the then Beattie government in Queensland mandated that 13% of the state"s electricity be sourced from gas by 2005 (this has since been raised to an 18% target for 2020). At the time, this was believed to be an incentive to build the planned Papua New Guinea gas pipeline (which has since been cancelled, with an LNG development in PNG likely to ship gas to Asian markets instead).

During this timeframe CSG explorers kept proving reserves in the Bowen and Surat Basins and signing agreements to supply gas-fired power stations, while existing sources of gas supply, such as Bass Strait and the Cooper Basin, have plateaued.

As a result, construction of gas fired power stations using CSG is booming, creating what one ABC reporter termed a "carbon war" between coal and gas for power generation. As gas fired power emits around half the carbon dioxide that coal does (leading the APPEA to market it as a "transition fuel" to a low carbon economy), it seems likely that gas will win in the medium term - especially if the proposed Emissions Trading Scheme is implemented.

Ian Townsend: The carbon war between gas and coal is already under way.

Two weeks ago, the Queensland Gas Company said it was going to spend $600-million on a gas-fired power station in the Hunter Valley. In fact, the Queensland Gas Company"s already building its first power station on top of its gas reserves near Condamine, a bit further west of Chinchilla.

Richard Cottee: The gas is coming straight out of the ground, not even being compressed. and thrown straight into the power station. Can you imagine the energy savings on that? And therefore carbon savings, and you start to become just eternally efficient; you don"t waste any energy, and the water the power station"s using for cooling is coming from your own water. A Scottish frugality I think we"d call it.

Ian Townsend: You"ve still got to push the energy out, though, into the grid if you want to build big power stations and supply a large proportion of the state, or even in New South Wales; is it more efficient to have a power station on top of the gas and push the electricity out?

Richard Cottee: Obviously it depends where the gas is discovered. In the past everyone had assumed that whoever made the gas had a wry sense of humour, and they put it in the worst possible location, whether it was Bass Strait, North West Shelf or the centre of Australia. So therefore you couldn"t possibly build an industry in situ, but with coal seam gas, it"s where the coal is. And coal is the predominant fuel source of the 1800s, and therefore is the place where the industrialisation occurred. It doesn"t matter whether you"re talking about the Ruhr or Pennsylvania or Newcastle in Australia, or Ipswich in Queensland, the population centres went where the coal was. And the industrialisation occurred where the coal was. So therefore you"ve suddenly got capturing this new source of energy that was always there, called coal seam gas, where the demand is. The Queensland-New South Wales interconnector goes straight through our acreage, so it makes eminent sense.

Ian Townsend: Gas power stations are starting to pop up all across the Darling Downs.

The Darling Downs is one of Australia"s big food bowls but there"s also this sense that there"s an industrial revolution under way here.

Just off a side road near Dalby, tucked behind some scrub, is another power station.

Man: Well to tell you the truth he"s putting in about 30 megawatts but it does the local area, ...

Ian Townsend: The Daandine Power Station"s run by just two people. It"s a series of big generators set up by Clark Energy, and it basically runs itself. The gas comes out of the ground; it"s fed into these big motors, and out the other side comes electricity, enough to power the town of Dalby, with a bit for the grid.

Down the road, bigger power stations are being built.

Other recently built or under construction gas fired power plants include:

* Origin is building a 630 MW air cooled, combined cycle power station at Darling Downs using CSG.

* Origin is also planning a 1000 MW combined cycle power station at Spring Gully, colocated with a CSG development.

* Anglo Coal has opened a 32MW CSG fired power station at its German Creek mine in Queensland.

* QGC is building a 135 MW plant at Condamine,

* QGC is planning a gas-fired power station in the Hunter Valley (and an accompanying $850 million pipeline to bring gas down from Queensland).

* Energy Developments is building a 40 MW plant at the Monanbah North colliery, using coal mine methane.

* Various other CSG companies, including Arrow and Eastern Star Gas, own or operate smaller power stations using CSG as feedstock.

* Metgasco is building a 30 MW CSG fired power plant at Casino in northern NSW.

* Delta Energy is building the 667 MW Colongra plant at the existing Munmorah coal fired plant site in NSW. This plant is an open cycle peaking plant rather than a (significantly more efficient) closed cycle plant than can run continuously - apparently because gas supplies in NSW are so limited that they couldn"t obtain the necessary gas volumes for full time operation (the plant can operate around 5 hours per day, with gas stored in a giant pipe that snakes around the complex).

* TRUenergy is building the 400 MW Tallawarra combined cycle gas power plant near Wollongong in NSW.

* Babcock & Brown has built a 640 MW open cycle gas power plant at Uranquinty, near Wagga Wagga in NSW.

At one point Santos had a project proposed called Fairview which would have used coal seam gas to run a power station at Injune in Queensland, which was to sequester the carbon dioxide produced in order to qualify for funding from the Federal Government"s low emissions demonstration fund, however this development has fallen through on economic grounds (like many other proposed clean coal initiatives over the years).

The Business Spectator claims that one problem with drilling for CSG is that once the gas is flowing, you need to use it, which is a positive for power generation until the planned LNG plants are online.

The major issue not getting much attention is the big difference between CSG and regular natural gas is that with the latter, once discovered and proved up, you just turn off the tap until you want to go into production. With CSG that"s not possible. You can tweak a bit, but essentially the gas will continue to flow whether you can use it or not. All but one of the LNG/CSG plays have a looming issue with ALL the gas they"re proving up for their large LNG trains will be next to useless to them until those trains come onstream. Arrow is best placed as it has under capacity in it"s electricity plants, with more being added, so it can divert the gas that will eventually go to LNG to the electricity plants. They will probably be able to buy some of the useless gas off the others as well. This is why they went the smaller model route. They will be in production well before any of the bigger players and they don"t have to prove up as much gas on the way.

One issue facing CSG based power generators is a lack of transmission capacity, with Queensland grid company Powerlink estimating that $2.9 billion will need to be spent extending the grid over the next five years to handle CSG and renewables powered generation (expansion of the grid - and generation capacity - in Queensland and NSW in particular is urgently required after decades of under-investment and rapidly rising demand).

If some of the geothermal power projects in outback South Australia are successful, this additional grid investment could be the first step towards a Queensland - South Australia interconnector and eventually a national electricity grid (ideally linking in some large scale solar thermal power stations as well, like the ones proposed by Worley Parsons, and perhaps some ocean energy plants like the ones proposed by Carnegie Corp).

Waste Water From CSG

The process of extracting coal seam gas produces large amounts of (non-potable) water as a by-product - as an example, QGC estimates that it will be producing 100 megalitres of water a day at its Condamine field in south east Queensland within a decade.

Waste water is often one of the drivers for groups opposing the development of CSG projects. The Queensland government has commissioned a feasibility study into the use of this water for agriculture and industry purposes, looking at treatment and transmission costs.

Queensland farming lobby group Agforce has been unenthused by the prospect of using CSG waste water for agriculture - and warns that salt and other contaminants could do serious environmental damage if not treated properly.

AgForce water spokesman, Kim Bremner, says an environmental disaster is also waiting to happen and the companies chasing the gas need to be held accountable and responsible for ensuring this is averted.

"The prime agricultural land on the Darling Downs is essential for Queensland"s future food supplies and should not be compromised by an extractive industry that is building multiple pipelines and vast evaporation ponds across the landscape but may only be around for 20-30 years," Mr Bremner said.

"The evaporation ponds popping up all over the Downs will have long-term ramifications on farmland availability as well as the quality of soils, ground water in aquifers and flood plain areas. Condamine Alliance figures predict that if all proposed coal seam gas development goes ahead, there will be 50,000 hectares of evaporation ponds. This will result in millions of tonnes of salt across the landscape. From just one small field south of Dalby, it has been estimated more than 400,000 tonnes of salt will be brought to the surface with the associated water."

According to AgForce, each megalitre of coal-seam gas water has between 1300 and 9000ppm salt, compared with normal river water which is 250ppm. Cattle cannot drink water with more than 2000ppm and on certain soils that level of salts can destroy the land.

Origin has opened a reverse osmosis desalination plant at Spring Gully which can process nine megalitres per day, which should overcome some of the fears, but there are still questions about what will be done with the salt and other impurities.

Origin is also planning to use water produced at the site to cool its Spring Gully power plant, which seems to be a way of solving both the waste water problem and the problems obtaining water experienced by other Queensland power stations in recent years.

The Dutch Disease

In my post on Australian natural gas reserves I noted that fossil fuel exports form a large and growing proportion of the Australian economy, and that we are at risk of contracting what is known as "the dutch disease".

Another impact of the LNG export industry is that it will further increase the nation"s dependence on income from fossil fuel exports.

Coal is currently our major export earner, which has prompted concern about Australia suffering from what is known as "The Dutch Disease" - the theory that an increase in revenues from natural resources will deindustrialise a nation’s economy by raising the exchange rate, which makes the manufacturing sector less competitive. The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of natural gas in the 1960s.

With the value of gas exports likely to rise to a similar level to that of coal if all the planned LNG projects go ahead, we could see more than a quarter of national GNP coming from these 2 industries.

A large Queensland LNG export industry based on coal seam gas will obviously further exacerbate this risk, as the economy becomes even more heavily weighted towards resources.

CSG vs UCG

Another process for extracting energy from coal seams is known as underground coal gasification (UCG). UCG is being trialled at Chinchilla on Queensland"s Darling Downs by a company called Linc Energy, which is using the process to produce syngas, then converting the syngas into liquids using the Fischer Tropsch process (ie. a coal to liquids project).

The company is claiming it can produce syngas for about 70c a gigajoule, which The Australian claims is "causing some discomfort for Queensland"s coal seam methane producers". The company also claims UCG produces 20 times more gas for a given volume of coal than CSM can.

However, the Queensland state government has concerns that the UCG process may be more environmentally unfriendly than CSG extraction, and is "putting the brakes" on the industry while it asks Linc to prove that its process does not contaminate groundwater.

While some skeptical observers seem to think that this may be a case of the CSG / LNG industry using the state government to minimise competition for coal tenements, it would seem possible that UCG could be performed on coal seams after the CSG has been extracted, thus enabling two bites to be taken of the cherry (which wouldn"t be the case if UCG was performed first). I"m just speculating here though - any better informed comments are welcome.

UCG projects are being considered outside Queensland - one recent proposal talked about using coal deposits offshore from NSW.

Coal Seam Gas In New Zealand

Coal seam gas has appeared in national gas reserve estimates for the first time this year. Solid Energy is exploring for CSG on the North Island, with 300 PJ of gas estimated to be available in the Huntly field. L&M Petroleum has been exploring for gas on the South Island, with encouraging discoveries so far leading to estimates of around 300 PJ of gas.

Coal Seam Gas Elsewhere

Coal seam gas is also produced in the United States and Canada. The US Geological Survey estimates there is more than 700 tcf within the US of which at least 100 tcf is economically viable to produce. The Economist recently noted that American gas production grew 4.3% last year, and by 9% in the first quarter of this year and quoted a CERA spokesman claiming that this spurt will delay America’s emergence as a big importer of LNG by a decade.

One report, "Overview of Unconventional Natural Gas and its Impact on Supply" (pdf) estimates that 300 tcf are technically recoverable and that 110 tcf could be produced by 2020.

Known Canadian resources are of the order of 300 tcf.

There are also reports of Asian reserves of around 2,100 tcf - including 1,000 tcf in China, where the government is looking to rapidly increase production. There is also interest in CSG production emerging in India, with reserves estimated to be around 16 tcf, and in Indonesia (Sumatran resources are estimated to be 240 tcf), where there is talk of building CSG LNG plants in Kalimantan in future.

Old coal mining regions in Europe may also get in on the act, with some people in Wales already talking about setting up a sovereign wealth fund to handle potential revenues from coal seam gas production in the valleys (maybe getting just a little ahead of themselves).

Conclusion

While the idea that the the merchants of coal seam gas will become the new "masters of the universe" seems unlikely, there is no doubt that the past decade has seen a rapid turnaround in the fortunes of the energy compared to those of the financial industry (an event which recurs periodically, if you view history through the right lens) and that coal seam gas is likely to become a significant contributor to the Australian economy.

When I looked at Australian natural gas reserves alone, I concluded that we could ramp up LNG exports, increase domestic gas consumption for power generation and use CNG for vehicles, and still have enough gas to last around 4 decades.

If the estimates for coal seam gas reserves of over 300 tcf are correct, then we may well still be using gas in Australia on a large scale 70 years from now - assuming global warming hasn"t worsened to the point that all carbon emissions are banned entirely of course.

Other countries with large coal resources (particularly the US, China and India) would seem likely to increase CSG production over time as well. It would be interesting to see any studies that have estimated the global potential for CSG and what effect they have on the peak production point for gas, as the gas depletion models I"ve seen seem to focus exclusively on natural gas.

Related posts:

Peak Energy - Australian Natural Gas - How Much Do We Have And How Long Will It Last ?
http://peakenergy.blogspot.com/2008/06/no-post-tonight.html (TOD ANZ)

The Oil Drum - Will Unconventional Natural Gas Save Us?
http://www.theoildrum.com/story/2006/3/8/222920/5485

The Oil Drum - US Natural Gas: The Role of Unconventional Gas
http://www.theoildrum.com/node/3981

The Oil Drum - Can US Natural Gas Production Be Ramped Up?
http://www.theoildrum.com/node/4436

The Oil Drum - Chesapeake"s Cutback of Natural Gas Expenditures
http://www.theoildrum.com/node/4562

Peak Energy - Coal To Liquids In Australia
http://peakenergy.blogspot.com/2008/04/coal-to-liquids-in-australia.html (TOD ANZ)

Peak Energy - Queensland"s Shale Oil Billions in The Balance ?
http://peakenergy.blogspot.com/2007/12/queensland-shale-oil-billions-in.html (TOD ANZ)

Peak Energy - Gas To Liquids On The North West Shelf
http://peakenergy.blogspot.com/2008/03/gas-to-liquids-plant-for-north-west.html (TOD ANZ)

Peak Energy - Cogeneration At Home: Ceramic Fuel Cells And Bloom Energy
http://peakenergy.blogspot.com/2008/03/cogeneration-at-home-ceramic-fuel-cells.html (TOD ANZ)

Peak Energy - Banana Methane Powered Cars, Pig Poo Power And Other Uses For Biogas
http://peakenergy.blogspot.com/2008/03/banana-methane-powered-cars-pig-poo.html (TOD ANZ)

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PainlessPump.com :: Coal | Articles

2008-10-06T23:24:00Z

Sunday Mail Brisbane
Sunday 21/9/2008 Page: 24

STATE Mines and Energy Minister Geoff Wilson admits a propaganda campaign being put together to boost support for clean coal technology is deceptive. The Clean Coal Council has developed a communications strategy to target key groups, starting with secondary school children, with the message that clean coal technologies are vital to the state"s long-term economic stability and climate change response.

The council is made up of government and industry representatives and chaired by Premier Anna Bligh. A confidential government document, obtained by The Sunday Mail, says renewable energies such as wind, wave, geothermal and solar are also being explored but claims they are efficient only in "certain niche markets" and are still in the "development stages".

Simon Roz, a climate and energy campaigner with Greenpeace, says that is untrue. Renewables were an important and proven source of power in many countries, he said. "The Queensland Government is spending taxpayer money to fund a campaign to deceive the next generation of voters," he said. The Sunday Mail in July revealed that the Government received a CSIRO report last year that said renewable sources could provide all of the state"s electricity needs.

Mr Wilson said the communications strategy was "only a draft at this stage" and "there are differing opinions about some of the content". "For instance, f don"t agree with the description of renewable energy," he said. "To me, renewable energy is absolutely vital in tackling climate change. I"ve got to say I agree with Greenpeace on that score." The Government has committed $300 million for clean coal technology. The secret document says clean coal technology is seen as being in competition with renewables.

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PainlessPump.com :: Coal | Articles

2008-10-03T12:53:01Z

Carbonscape, a company based in Marlborough, New Zealand, has found a new use for microwaves – sequestering carbon dioxide. They have recently developed a way to nuke things like wood chips (and other useless biological wastes) into charcoal. By doing so, carbon dioxide that would otherwise leak into the atmosphere is effectively locked into the charcoal. This charcoal, or “biochar”, is then buried into soil. The benefits of biochar-infused soil include improved soil fertility, fewer soil emissions of greenhouse gases such as methane and nitrous oxide, and the improved ability of soil-dwelling microbes to extract carbon dioxide from the air.

Carbonscape has tested its technology, and is moving to initial batch scale production at its South Island, NZ facility. Once fed with wood debris, each oven can turn 40-50% of it into charcoal, or one ton of charcoal per day, says the company. Of course, the microwave ovens themselves require electricity… which in turn has a carbon dioxide price tag. But Carbonscape claims that, given the amount of carbon sequestered in the charcoal, the overall balance is carbon-negative.

“The application of microwaves to charcoal making is new,” Tim Flannery of Macquarie University in Sydney, Australia - an expert on climate change who is not associated with the company - told New Scientist. “If it increases efficiency in the charcoal-making process it could prove to be a real winner.”

Via New Scientists, New Zealand Herald
Image via Carbonscape

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PainlessPump.com :: Coal | Articles

2008-09-25T12:11:00Z

Red, Green And Blue has a post on Al Gore"s address to the Clinton Global Initiative - Al Gore Calls for “Civil Disobedience” to Stop Construction of New Coal-Fired Power Plants.

After introductory remarks by former President Bill Clinton, Mayor of New York Michael Bloomberg, and cyclist Lance Armstrong, Al Gore launched a familiar-sounding polemic against carbon-based fuels with an intensified focus on the dishonest - and perhaps illegal - actions of the “carbon lobby.” ...

Gore said for the carbon lobby to be trying to convince their stockholders that renewable energy is risky business and that climate change is a hoax, they are purporting a type of stock fraud that should be addressed by attorneys general across the country.

In terms of the regulatory and legislative actions that would move us towards de-carbonizing our energy infrastructure, Gore reiterated his support for a carbon tax that would move us away from an income tax. “Tax what we burn, not what we earn,” said Gore, to resounding applause.

Mr. Gore’s attack on coal was clear and forceful. “Clean coal is like healthy cigarettes - it does not exist,” he said. But Gore also added that if we can sequester coal, than okay. But since the technology does not exist right now, we shouldn’t be pretending it is a solution.

Gore called on the young people in the United States to reject new coal-fired power plants. “It’s time for civil disobedience to stop the construction of new coal plants,” implored the former Vice-President.

When pushed by President Clinton to elaborate the quickest and most cost-effective way to utilize our vast renewable resources, Gore said that we need to start with expanding what he calls the “electranet.” A focus on expanding our renewable capacity would be centered on growing a smart grid - including an underground transmission infrastructure - that could and should be coupled with an expansion of this country’s lagging broadband infrastructure.

“This should be the number one infrastructure program in this country,” said Gore.

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PainlessPump.com :: Coal | Articles

2008-09-22T03:59:00Z

Daily Telegraph
Wednesday 3/9/2008 Page: 84

AUSTRALIA"S energy landscape is undergoing profound change, with a shift towards coal seam gas and dwindling oil production, according to new research. Investor interest in gas a relatively clean-burning energy source has been piqued by the Federal Government"s planned carbon emissions trading scheme. According to a report released yesterday by energy strategists EnergyQuest, coal seam gas reserves in Queensland and NSW almost doubled to 12,400 petajoules about 20 times annual gas demand on Australia"s east coast in 2007-08.

Coal seam gas production jumped 39 per cent to 133 petajoules, helping to lift total gas production by more than 5 per cent to 1018 petajoules. Oil production fell nearly 12 per cent to 115 million barrels of oil equivalent, despite the first production from BHP Billiton"s Stybarrow field off Western Australia. The Bonaparte Basin off the Northern Territory, the Carnarvon Basin off WA and the Gippsland Basin off Victoria all experienced a drop-off in production, with the Cooper Basin in South Australia was the only major oil region to post an increase.

The fall in local production combined with a record-breaking run in oil prices to blow out Australia"s petroleum trade deficit to a record $10 billion for the year to June 30 more than $30 million per day. Graeme Bethune, chief executive of energy analyst EnergyQuest, said the final quarter of 2007-08 in particular marked a "seachange" in eastern Australia"s gas sector. During the three-month period, Dutch oil giant Shell and Malaysia"s Petronas joined British-based BG Group in the scramble for a slice of Queensland"s rich coal seam gas reserves.

The big international players are vying to put their feet on the energy source to supply planned LNG plants ahead of a predicted surge in Asian energy demand. Professor Ross Garnaut"s Climate Change Review also predicted that domestic gas prices would rise to international levels over the long-term. "The increasing involvement of major international players in east coast LNG projects makes it no longer a question of whether east coast LNG projects will proceed but rather when and how much," Mr Bethune said.

At the same time, a significant increase in gas-fired power generation is probably the most effective way of mitigating growth in greenhouse emissions in the medium term." Australia"s rapidly falling oil production was a worry for the long term, Mr Bethune told The Daily Telegraph. Meanwhile, global oil prices dropped to a four-month low yesterday, as Hurricane Gustav weakened before hitting the oil rich Gulf of Mexico. The storm was downgraded from a Category 3 to Category 1 by the time it reached the Louisiana coast late on Monday, easing concerns that oil rigs and refineries could be damaged. Light, sweet crude for October delivery fell nearly 4 per cent to $US111.40 a barrel.

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