The SMH has a look at the recent appearance of mysterious giant craters in Siberia - Scientists may have solved the giant Siberian crater mystery - and the news isn't good.

Researchers have long contended that the epicentre of global warming is also farthest from the reach of humanity. It’s in the barren landscapes of the frozen north, where red-cheeked children wear fur, the sun barely rises in the winter and temperatures can plunge to 50 degrees below zero. Such a place is the Yamal Peninsula in Siberia, translated as “the ends of the Earth”, a desolate spit of land where a group called the Nenets live.

By now, you’ve heard of the crater on the Yamal Peninsula. It’s the one that suddenly appeared, yawning nearly 60 metres in diameter, and made several rounds in the global viral media machine. The adjectives most often used to describe it: giant, mysterious, curious. Scientists were subsequently “baffled”. Locals were “mystified”. There were whispers that aliens were responsible. Nearby residents peddled theories of “bright flashes” and “celestial bodies”.

There’s now a substantiated theory about what created the crater. And the news isn’t so good.

It may be methane gas, released by the thawing of frozen ground. According to a recent Nature article, “air near the bottom of the crater contained unusually high concentrations of methane — up to 9.6 per cent — in tests conducted at the site on 16 July, says Andrei Plekhanov, an archaeologist at the Scientific Centre of Arctic Studies in Salekhard, Russia. Plekhanov, who led an expedition to the crater, says that air normally contains just 0.000179 per cent methane.”

The scientist said the methane release may be related to Yamal’s unusually hot summers in 2012 and 2013, which were warmer by an average of 5 degrees Celsius. “As temperatures rose, the researchers suggest, permafrost thawed and collapsed, releasing methane that had been trapped in the icy ground,” the report stated.

The Guardian reports that methane emission from Siberia are accelerating - Arctic permafrost leaking methane at record levels, figures show.

Scientists have recorded a massive spike in the amount of a powerful greenhouse gas seeping from Arctic permafrost, in a discovery that highlights the risks of a dangerous climate tipping point.

Experts say methane emissions from the Arctic have risen by almost one-third in just five years, and that sharply rising temperatures are to blame.

The discovery follows a string of reports from the region in recent years that previously frozen boggy soils are melting and releasing methane in greater quantities. Such Arctic soils currently lock away billions of tonnes of methane, a far more potent greenhouse gas than carbon dioxide, leading some scientists to describe melting permafrost as a ticking time bomb that could overwhelm efforts to tackle climate change.

They fear the warming caused by increased methane emissions will itself release yet more methane and lock the region into a destructive cycle that forces temperatures to rise faster than predicted.

Paul Palmer, a scientist at Edinburgh University who worked on the new study, said: "High latitude wetlands are currently only a small source of methane but for these emissions to increase by a third in just five years is very significant. It shows that even a relatively small amount of warming can cause a large increase in the amount of methane emissions."

Global warming is occuring twice as fast in the Arctic than anywhere else on Earth. Some regions have already warmed by 2.5C, and temperatures there are projected to increase by more than 10C by 2100 if carbon emissions continue to rise at current rates.

Palmer said: "This study does not show the Arctic has passed a tipping point, but it should open people's eyes. It shows there is a positive feedback and that higher temperatures bring higher emissions and faster warming."

The change in the Arctic is enough to explain a recent increase in global methane levels in the atmosphere, he said. Global levels have risen steadily since 2007, after a decade or so holding steady.

The new study, published in the journal Science, shows that methane emissions from the Arctic increased by 31% from 2003-07. The increase represents about 1m extra tonnes of methane each year. Palmer cautioned that the five-year increase was too short to call a definitive trend.

The Guardian also has an article from George Monbiot on a "national outpouring of idiocy" in Britain in the wake of the recent cold snap - Britain's cold snap does not prove climate science wrong.

It's as predictable a feature of the British winter as log fires and roasting chestnuts: a national outpouring of idiocy every time some snow falls.

Here's what Martyn Brown says in today's Express:

As one of the worst winters in 100 years grips the country, climate experts are still trying to claim the world is growing warmer.

There's a clue as to where he might have gone wrong in that sentence: "country" has a slightly different meaning to "world". Buried at the bottom of the same article is the admission that " ... other areas including Alaska, Canada and the Mediterranean were warmer than usual." But that didn't stop Brown from using the occasion to note that "critics of the global warming lobby said the public were no longer prepared to be conned into believing that man-made emissions were adding to the problem."

The ability to distinguish trends from complex random events is one of the traits that separates humans from the rest of the animal kingdom. It is also the basis of all science; detecting patterns, distinguishing between signal and noise, and the means by which the laws of physics, chemistry and biology are determined. Now we are being asked to commit ourselves to the wilful stupidity of extrapolating a long-term trend from a single event.

The Express would have us return to the days in which the future course of human affairs could be predicted by solar eclipses and the appearance of comets. It has clearly made a calculated decision in recent months that climate scepticism plays to its readership - and therefore shifts papers - just as the daily drip-feed of conspiracy theories about Princess Diana and Madeleine McCann has done in the past.

Brown is by no means alone in his idiocy. On Sunday, the Telegraph and the Mail published almost identical articles; one by Christopher Booker, the other by his long-term collaborator, Richard North. Both claimed that the Met Office had predicted a mild winter, and that it had made this prediction because it has been "hijacked" by a group of fanatics - led first by its former chief executive Sir John Houghton, now by the current boss Robert Napier - who stand accused of seeking to to corrupt forecasts to make them conform to their theories on climate change.

If this story were true, it would be huge: the UK's official weather forecasting service is deliberately changing its forecasts to make them fit a political agenda. It would also be fantastically stupid, as forecasts can always be checked against delivery. Booker and North offer no evidence to support this humongous conspiracy theory, just a load of unrelated facts cobbled together in the usual fashion.

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)

Jamais Cascio has another post on geoengineering, this time looking at recent reports on methane emissions from the melting permafrost - Methane: It's Not Just From Your Cheeseburger. The interesting new take out is that most CO2 oriented geoengineering approaches won't work to mitigate large volumes of methane released into the atmosphere, which narrows the solution space considerably.

So that 50 gigatons of methane? That's the equivalent of 3600 gigatons of carbon dioxide, in terms of greenhouse effect.

To put that into comparison: the Earth's atmosphere holds a total of about 3000 metric gigatons of carbon dioxide.

This would more than double the concentration of CO2e in the atmosphere.

So this is not just huge, it's really freaking huge.

There's still nothing conclusive showing an overall increase in atmospheric concentration at this point, though, so hopefully that means that we haven't seen a catastrophic level of release (yet).

As I said, we still don't know if this is the methane hydrates beginning to melt. If it is, then even going to zero CO2 emissions now won't do a damn thing. Ocean thermal inertia will keep the temperatures up undersea for a good while, even if we stopped all carbon outputs now. Thermal inertia alone would keep us warming on land for a couple of decades, too, after we zero out, but that's comparatively less catastrophic than the hydrates.

Albedo-modification geoengineering (stratospheric sulfates, "space mirrors," that sort of thing) won't do much to change ocean temperatures in a short enough period to stop hydrate melts. At best, it would moderate atmospheric temperatures enough to stave off some of the most disastrous effects of a temperature spike. It seems highly likely to me that this is going to be a major point of political and scientific debate in the next few years, and we'll probably see some early attempts by early in the next decade.

CO2 sequestration geo (iron or urea dumps in the ocean, bioengineered supertrees, that sort of thing) won't do a damn thing about methane, even if it worked.

Probably the only possible geoengineering response with a direct impact on the methane would be some kind of in-situ methane conversion to CO2, either with chemistry or with methanotrophic bacteria.

It's hard to imagine a geoengineering project gone wrong that would be worse than a methane hydrate melt; a big methane hydrate event appears to be connected to one of the largest extinctions in geological history (bigger than the KT event killing the dinosaurs). 90+% of all species gone.

I've made it abundantly clear that I don't think geo is a good idea. It's a pretty damn crazy idea, in a lot of ways. But if this methane report is as bad as it looks to be, crazy ideas may be all that we have left.

The Independent has an article on melting permafroist in the Arctic and the methane being emitted as it melts - The methane time bomb.

The first evidence that millions of tons of a greenhouse gas 20 times more potent than carbon dioxide is being released into the atmosphere from beneath the Arctic seabed has been discovered by scientists.

The Independent has been passed details of preliminary findings suggesting that massive deposits of sub-sea methane are bubbling to the surface as the Arctic region becomes warmer and its ice retreats.

Underground stores of methane are important because scientists believe their sudden release has in the past been responsible for rapid increases in global temperatures, dramatic changes to the climate, and even the mass extinction of species. Scientists aboard a research ship that has sailed the entire length of Russia's northern coast have discovered intense concentrations of methane – sometimes at up to 100 times background levels – over several areas covering thousands of square miles of the Siberian continental shelf.

In the past few days, the researchers have seen areas of sea foaming with gas bubbling up through "methane chimneys" rising from the sea floor. They believe that the sub-sea layer of permafrost, which has acted like a "lid" to prevent the gas from escaping, has melted away to allow methane to rise from underground deposits formed before the last ice age.

They have warned that this is likely to be linked with the rapid warming that the region has experienced in recent years.

Methane is about 20 times more powerful as a greenhouse gas than carbon dioxide and many scientists fear that its release could accelerate global warming in a giant positive feedback where more atmospheric methane causes higher temperatures, leading to further permafrost melting and the release of yet more methane.

The amount of methane stored beneath the Arctic is calculated to be greater than the total amount of carbon locked up in global coal reserves so there is intense interest in the stability of these deposits as the region warms at a faster rate than other places on earth. ...

The Arctic region as a whole has seen a 4C rise in average temperatures over recent decades and a dramatic decline in the area of the Arctic Ocean covered by summer sea ice. Many scientists fear that the loss of sea ice could accelerate the warming trend because open ocean soaks up more heat from the sun than the reflective surface of an ice-covered sea.

"Engineer Live" has an interesting article on avoiding a Lake Nyos style tragedy in the regions bordering Lake Kivu, between Rwanda and the Congo, and generating a large amount of power while doing so - by extracting methane from the lake water and using it for power generation.

The waters of Lake Kivu have absorbed enormous amounts of gas over the years, estimated to be around 250 billion m3 of carbon dioxide and 55 billion m3 of methane, with the total amount rising 20% since the 1970's. The lake sits at an altitude of almost 1500 metres above sea level and covers an area of about 2400 km2, with a maximum depth of 600 metres. Only two other lakes are known to harbour similar quantities of gases – Lakes Monoun and Nyos in Cameroon. In both of these cases, however, carbon dioxide predominates - the quantities of methane are too small for exploitation to be worthwhile.

The carbon dioxide in the deep waters of the lake mainly derive from volcanic activity, while the methane is produced by bacteria decomposing dead organic matter in the anoxic bottom waters. According to Swiss researcher Martin Schmid from Eawag, the rise in methane concentrations observed over the past 20–30 years is likely attributable to two factors: a huge increase in nutrient inputs, associated with the growing population around the lake, and the introduction of a sardine species that has had a major impact on nutrient cycles.

The gas poses a threat to both the 2 million local inhabitants (in the event of a gas eruption from the lake) and the planet as a whole (methane being a potent greenhouse gas). Analysis of the lake's geological history indicates a periodic biological extinction around the lake around every 1,000 years. The trigger for lake overturns is unknown but scientists hypothesize that sufficient volcanic interaction with the lake's bottom water that has high gas concentrations would heat the water, force the methane out of it, spark a methane explosion, and trigger a nearly simultaneous release of carbon dioxide. The carbon dioxide would then suffocate large numbers of people in the lake basin as the gases roll off the lake surface. It is also possible that the lake could spawn lake tsunamis as gas explodes out of it.

The dissolved methane also provides an opportunity, as the gas can be extracted from the lake and used for power generation and other applications. The value of Lake Kivu’s gas reserves is estimated by experts at around CHF 16 billion (US$14.3 billion).

Extraction of gas has already been done on a small scale, with the extracted gas being used to run boilers at a brewery up until 2004.

The Rwandan government is in negotiations with a number of parties to produce methane from the lake on a larger scale. It recently awarded the South African engineering company Murray & Roberts a contract to construct a power station, with a pilot project to be initiated early this year. Efforts to establish a power station seem to have been underway for a few years now, with various delays being experienced. The BBC has also reported on a company called EcoEnergy looking to build a plant.



Extraction is said to be cost effective and simple because once the gas rich water is pumped up from the depths the dissolved gases bubble out as the pressure falls. The methane in the lake is estimated to be sufficient to meet Rwanda's needs for 200 years and 400 years. Using the gas may mean far less logging in the area since Rwanda currently gets 90 per cent of its energy from wood burning, with forests disappearing at a rate of 4% per year.

Like many other examples of renewable energy sources, this, by itself, is not a solution to the energy problem posed by peak oil - however, it is one more example of the dozens of local alternatives that can be exploited to meet our energy needs - and in an area cursed with trouble that, as Thomas Homer-Dixon pointed out, at least partially stems from competition over resources. This could be considered the aquatic equivalent of generating energy using biogas from landfills or farm waste.

The Guardian has an interesting article about using microbes to generate gas from heavy oil deposits like the tar sands of Alberta. Probably bad news from a global warming point of view (though they speculate microbes could also be used to process carbon dioxide), but good news from the point of view of localised environmental devastation.

A tiny oil-eating bug that lives deep underground may allow the world's oil industry to unlock energy trapped in trillions of barrels of heavy crude, which is costly and dirty to produce using today's methods. British, Canadian and Norwegian researchers have shown how microbes in oil reservoirs break down crude and release methane gas, a discovery that could spur much more environmentally friendly energy production as resources get more scarce.

The trick now will be to pump up the organisms with the equivalent of steroids so they can perform their task in 10 years instead of 10 million, said University of Calgary geologist Steve Larter, who led the team's Canadian contingent. The study is published in the science journal Nature.

The result: the ability to produce natural gas from oil reservoirs, rather than burning it from conventional sources to aid production of gooey heavy crude. "If it can be done economically, that's a game-changer, because the average heavy oil recovery worldwide is 17 percent," Larter said. "If you can suddenly liberate a tiny additional fraction of that as methane rather than as heavy oil, with all of its environmental and cost footprint, then it's a huge thing."

The process of "feeding" the microbes nutrients works in the laboratory, but it is not known yet if it can be done over the expanse of an oil field, he said. Still, some major oil companies, faced with spiraling costs and environmental headaches as they try to coax more of the poorer quality, cheaper crude from the ground, are taking notice, Larter said. He declined to name them.

Over the years, the industry has come close to exhausting reserves of easy-to-find and valuable light oil, which needs the least refining to turn it into gasoline and other fuels. Now, companies are faced with having to pump, or even mine, an estimated 6 trillion barrels of thick heavy oil and oil sands crude, which is far more costly and ecologically damaging to produce but sells for a discount in the market.

It is conceivable that converting 20 percent of a giant, billion-barrel heavy oil field could yield one trillion cubic feet of methane, which would rival some of the largest recent conventional gas finds in size, Larter said.


The team, which includes petroleum geologists, microbiologists and organic geochemists from the University of Newcastle in England and Norway's StatoilHydro ASA , is aiming for field tests within the next year. The western Canadian province of Alberta, with its vast deposits of heavy oil and oil sands, is a prime target.

Scientists have known for decades about the microbes in oil reservoirs, and some researchers have believed biodegradation was caused by aerobic bacteria, which use oxygen. ... The scientists also discovered a step midway through the biodegradation process, in which a separate family of microbes produces carbon dioxide and hydrogen from partly degraded crude, before they turn it into methane. That may lead to using microbes to capture the CO2, which is blamed for global warming, and recycling it into methane fuel in a closed-loop energy system, they said.

Links:

* Sally Odland - Cheap Oil is So Yesterday. Time to Start Writing Expensive Oil into Our Plans?
* Tom Whipple - The peak oil crisis: the NY Times drops the first shoe
* Jamaica Gleaner - Jamaica a victim of record world oil prices?
* The Day - To The Last Drop?