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Arrow Bid Kicks Australian Coal Seam Gas Ventures Into High Gear

Fonte: Asia Pulse Pte Ltd

Date: 12/03/2010 17:20

In May last year a little known entrepreneur called Paul Fudge signed a deal that instantly made him one of Australia's richest men.

Mr Fudge sold his interest in a Queensland coal seam gas permit to Origin Energy.

The US$466 million price tag caught some by surprise, but astute investors knew why Origin snapped up the deal - coal seam gas is booming.

It was not long ago that coal seam gas, known also as coalbed methane or unconventional gas, was seen as an annoying byproduct of coal mining.

Because it is flammable it was a considered a safety risk to miners, and it was vented out into the sky, where it became a damaging greenhouse gas.

But with the search underway for significant gas fields worldwide, coal seam gas got another look over, and some of the biggest energy giants started taking it very seriously.

Coal seam gas typically has fewer impurities than conventional gas sources, making it often require less treatment before it can be utilized.

It has some drawbacks, too.

It requires more wells to be drilled to extract it from the earth than conventional gas, and because it is almost pure methane it doesn't have the same calorific value as natural gas.

But its key benefit is that in Australia, particularly in Queensland and New South Wales, it is plentiful.

Already more than 4,000 kilometers of transmission pipelines have been built to transport it for processing, and proved and probable reserves of 15,714 petajoules have been identified.

That equates to about 15 trillion cubic feet of gas, enough to power a city of one million people for about 300 years.

There are now concrete plans to process Queensland's massive coal seam gas reserves into liquefied natural gas (LNG) for sale overseas, mostly to help fuel China's growth.

While the Western Australia's petroleum-rich North West Shelf usually grabs the headlines, the Queensland-New South Wales coal seam gas could ultimately prove equally as valuable.

State One Stockbroking energy analyst Peter Kopetz thinks Australia's coal seam gas industry has a long way to grow.

"Over the last two years it has become more mainstream as an energy source," Mr Kopetz said.

"It works, and you can make lots of money from it," he said.

Any worries the sector may be a flash in the pan for short-term gains should have been dispelled this week when industry giants Royal Dutch Shell and PetroChina jointly bid more than A$3.3 billion (US$3.02 billion) for gas junior Arrow Energy Ltd (ASX:AOE).

Arrow has Australia's biggest coal seam gas reserves, in Queensland's Bowen and Surat basins, with well developed processing plans at Fisherman's Landing.

"These companies that are getting involved have a longterm plan, they are not just getting in, making a fast buck and getting out," Mr Kopetz said.

Arrow is just the latest in a line of local coal seam gas companies attracting international attention.

In May 2009 China National Offshore Oil Corporation (CNOOC) took a five percent stake in BG Group's interest in coal seam gas tenements in part of the Surat Basin.

In 2008 Malaysia's state-owned Petronas bought a 40 percent stake in Santos' (ASX:STO) Queensland coal seam gas assets for $2.5 billion.

Also in 2008 Origin Energy (ASX:ORI) signed a $9.6 billion coal seam gas joint venture partnership with America's ConocoPhillips.

But some have sounded a word of caution about the spate of gas projects, both conventional and coal seam, due to come online during the next decade.

The chief of Oil Search Ltd (ASX:OSH), Peter Botten, recently warned of a possible glut in future years, and said it would depend on world growth, and the health of Asia.

Mr Kopetz warned a potential oversupply was "inevitable".

"There is no doubt there will come a point where the boom will go up to a crescendo and start petering away once there is enough gas to go around," he said.

One person who needs no convincing on the future of Queensland's coal seam gas reserves is Exoma Energy Ltd (ASX:EXE) director Brian Barker, whose company has acreage in Queensland's Galilee Basin.

He told AAP the basin had bigger coal seam gas reserves than the Bowen and Surat basins put together, but had been overlooked in the past because it was so far from the coast.

"When we applied for the acreage we had a vision, and this was before the big LNG deals started being announced, of taking coal seam gas from the Galilee Basin up to Abbot Point, and taking it into Asia," he said.

Exoma is hoping to achieve first gas from the project in 2018.

Mr Barker said there was still much more room for growth in the local coal seam gas market.

"One of the things that you find when you speak to Asian buyers of LNG is they are looking to diversify, sometimes by their own government's policy, sources of LNG supply away from the Middle East," Mr Barker told AAP.

"Australia is very well placed as a source of LNG, because it has a very large domestic gas reserves and a limited domestic gas market," he said.