More coal seam gas mergers in the pipeline  

Posted by Big Gav in , ,

The SMH has an article on the possibility of further mergers and acquisitions in the Australian coal seam gas industry in the wake of the recent bif for Arrow Energy by Shell and PetroChina - More gas mergers in the pipeline.

WOODSIDE'S Don Voelte is a sceptic. The Nebraskan-born oil and gas devotee has been one of the most vocal doubters of the potential of coal seam gas as feedstock for the liquefied natural gas export market.

Voelte believes the handful of projects proposed for the Queensland coal seam gas market will prove uneconomic. In his view, the low calorific value of the gas, which is 98 per cent methane, and the absence of oil and condensate, puts these projects at a comparative disadvantage to conventional LNG projects.

''Selling gas from Pluto or the North-West Shelf from Woodside is different than a newbie that has never proven themselves, and your sophisticated customers in Japan, Korea, Taiwan and other places certainly look for that,'' Voelte said last year.

''What I'm waiting for is the front-end engineering and economic analysis of this gas to get to the stage where a board of directors have to make $10 billion and $15 billion commitments to build. What are the economics of this lean gas? Where's the marketplace for it?''

PetroChina helped answer Voelte's question earlier this week when it announced it would join Royal Dutch Shell in a proposed $3.3 billion acquisition of Arrow Energy. The deal, which Arrow is considering, is a pure coal seam gas play, excludes Arrow's international assets, and appears to be all about Shell securing enough gas for its proposed 16 million tonnes a year Curtis Island development. Shell would provide the technical expertise while PetroChina's involvement creates a market for the gas.

It is an embarrassment for Voelte, who saw PetroChina walk away from a potential $45 billion deal to receive 2 million to 3 million tonnes a year of gas from Woodside's $30 billion Browse Basin development due to a project delay.

His view on coal seam gas is one that has been shared by many oil and gas veterans. For many years, coal seam gas was referred to by many in the industry as ''girly gas''.

US farmers, who discovered coal seam gas in the 1970s, had little understanding of how to extract it, or interest in doing so. But the subsequent oil crisis led to some crucial early work. In Australia, BHP was a pioneer in the 1980s and '90s but the gas proved uneconomic to extract. In fact, before Origin Energy started buying Queensland acreage in the Spring Gully and Fairview basins in 2002, total Australian production was about five petajoules and was not expected to increase.

But depleting oil reserves around the world and the ever-present focus on developing cleaner energy sources prompted a coal seam gas boom in 2008.

Graeme Bethune, chief executive of independent adviser Energy Quest, compares the flood of interest in coal seam gas two years ago to an ageing actor who becomes an overnight star.

''Now the whole sector is in the execution and implementation phase,'' he said.

''There is no escaping the fact that oil is getting harder to find and the national oil companies have a large chunk of those reserves.

''Remember, the Western oil majors have only about 10 per cent of the world's oil reserves,'' Bethune said. ''So we are seeing them diversify into gas. LNG is a market that is growing and it has the added environmental advantage for them as well.''


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