big brother

Santos warns over CSG delay

ANGELA MACDONALD-SMITH, AFR

24 Sep, 2012 10:43 AM

NSW's largest coal seam gas player has warned the almost two-year stalling of exploration in the state means it is too late to avoid gas shortages and higher prices.
Santos, the state's biggest CSG acreage holder, is moving promptly to start its long-planned $500 million exploration and appraisal program, with the aim of getting its first gas flowing in the Pilliga-Narrabri region within the next few years, said Santos' vice-president of eastern Australia, James Baulderstone.

Smaller explorers Dart Energy and Metgasco are also seeking to get drilling going in their permits within the next few months.

But the effective freeze on exploration and drilling permits that had been in place since before the Coalition government took control in the NSW state election in March 2011 will make it difficult to avoid gas shortages and higher prices around the 2014-15 period. The Queensland gas export projects will start to suck up supplies from the eastern states that could ­otherwise have flowed to NSW.

Bernstein Research estimates gas prices in eastern Australia will double to about $8 per gigajoule over the next three to four years. "This last 18 months to two years has been a hiatus," Santos' Mr Baulderstone told The Australian Financial Review.

"When the tightness comes in 2015-16 it will be as a result of the last two years. We can't make that up now," he said.

Under the NSW land-use policy, released this month, proposed CSG projects in identified strategic agricultural land will be subjected to a new "gateway" process, while additional studies will be required on the effects on aquifers and land. But to the satisfaction of the industry, no areas were declared absolutely off-limits to CSG and coal drilling.

The government is also renewing 22 CSG exploration licences now that the moratorium has been lifted.

"We've got the legislation in place, we'll have our licence renewed: now it's time to start getting some action on the ground," Mr Baulderstone said, noting Santos still has to build a new water handling system to support its plans.

NSW Energy minister Chris Hartcher defended the licence renewal efforts of the Liberal government, saying that CSG exploration licences under Labor were "approved and renewed with no community awareness or input, and with no concern for agricultural or environmental impacts". The government was working to ensure supply security. "If we fail to secure future energy supplies, we're going to have supply problems."

Merrill Lynch energy analyst James Bullen said costs and time for exploration approvals would increase as a result of the new measures, a price that would be passed on to consumers.