Coal seam rivals ponder mergers as development costs rise  

The Australian reports that falling energy prices are finally having an impact on the coal seam gas juggernaut - Coal seam rivals ponder mergers as development costs rise.

THE big players in Gladstone's ambitious coal seam gas export schemes have begun talks about merging their multi-billion-dollar projects as crashing energy prices increase the importance of saving development costs.

There are as many as five projects slated to export Queensland's CSG as liquefied natural gas through the industrial port, and the consensus among the industry and industry watchers is that not all of them will get up.

The two multi-billion-dollar Australian companies involved in the plans, Origin and Santos, have reaffirmed their openness to merging at the reserve and project level.

Origin managing director Grant King said the most logical collaborations between the big players was still in the vast onshore coal seam gas fields -- where a scramble for reserves among energy majors has played out in the past year.

He also said early-stage discussions on doing so had started.

"There's a revolving dialogue between participants, but not one I think anybody would say has led to a point where anybody has any public comments to make," Mr King said.

Last year, Origin sold half its Queensland coal seam gas ground to US oil giant ConocoPhillips in a $US8billion deal that blew a hostile takeover bid from British gas major BG Group out of the water and completely rerated the value of the nation's coal seam gas reserves.

Origin/Conoco have the most CSG reserves and the biggest LNG plans in the region, and are targeting a $35 billion, 14 million tonnes a year plant.

The two other large quantifiable projects are owned by Santos/Petronas and BG, which last year paid $5 billion to buy partner Queensland Gas Co and take complete control of its project.

Both groups are planning plants that would produce about 7 million tonnes a year.

As well as the big three, Arrow and LNG Ltd are scheduled to be first out of the blocks, planning a small 1.5 million tonne a year plant. Energy giant Shell is lurking in the background with a 30 per cent stake in Arrow's reserves and unspecified plans for its own plant.

While there could be enough gas in the rich Surat and Bowen basins to feed these plants, LNG projects have been hard to get going in Australia.

Despite myriad plans to export the nation's huge offshore gas reserves, since the North West Shelf opened in 1983 just one new plant, Conoco and Santos's Darwin LNG, has been built and one more, Woodside's Pluto, is under construction.

It is widely viewed that after last year's rush for CSG ground through acquisitions, the next stage will be project consolidation. All the proponents say they do not need to merge but none has said it is not open to it.

Despite recent activity in Queensland's natural gas sector, an analyst says coal will remain the dominant energy export for some time.

Oil and gas specialist Peter Strachen says coal will remain strong until a price is put on carbon emissions. In the past couple of years, a number of companies have been working up projects to turn coal seam methane gas into liquefied natural gas for export.

Mr Strachen says these operations are unlikely to be commercially viable until 2015. "The natural gas itself is a cleaner, more efficient, more flexible fuel for producing electricity, and once carbon is priced into the equation, it becomes more commercially attractive," he says. "But at the moment, coal is so cheap that you can produce power more cheaply with coal, even today."