australia suspends relations with png, page-2

Neither PNG nor CSM are the answer

Monday, 9 October 2006

GOODBYE PNG gas. Hello Queensland coal seam methane. Is life really that simple, or is Slugcatcher watching the early stages in a bizarre dance that will inevitably lead to the resurrection of the most obvious solution to eastern Australia's gas requirements, a transcontinental pipeline?

Perhaps is the only answer, at this stage. But it is a tentative perhaps because neither the PNG solution nor the coal seam solution seem like dinkum long-term answers to meeting gas demands from Australia's heavily populated and heavily industrialised southeast corner.

For several years, The Slug has argued that PNG gas was a non-starter for a very simple reason: security of supply.

There is no doubt that the companies involved are genuine and serious players in the petroleum game. There is equally no doubt that the tribes of PNG (rural and urban) are among the dodgiest in the world – perhaps even more dodgy than the tribe that currently runs the Kremlin.

And if that obscure remark goes over your head, consider what happened in the last northern winter when the Kremlin tribe turned off Russia's gas tap and left much of western Europe to freeze in the snow.

Russia's fun and games with gas supply, far more than cost blow-outs, did irreparable damage to the chances of the PNG pipeline being developed in The Slug's lifetime. If there's one thing industry cannot tolerate, it's erratic energy supplies.

Once the Russian experience rumbled through the media and made its way into the boardrooms of potential PNG gas customers, the pipeline was dead as a dead dingo's you-know-what – and a fall-back search started.

Coal seam methane, we are being told, is the only viable alternative to the missing PNG pipeline. That's why Santos was happy to pay $612 million last year for Tipperary and its Fairview project, and bid $600 million last week for Queensland Gas.

In theory, and said quickly, Santos sees CSM as a major future source of supply for its eastern seaboard customers.

The Slug has no reason to challenge the wisdom of his betters who run Santos (yes, that is a tongue stuck firmly in a cheek) but reckons CSM is a mighty poor relation to conventional natural gas.

Technology is improving in the CSM industry but the simple truth about gas from coal fields is that getting it out remains the equivalent of sucking through a straw – and a very thin straw at that.

Expediency seems to be the real reason behind Santos moving full tilt into CSM because it is a company that has failed to build on its birthright, the once great (but rapidly declining) gas fields of the Cooper Basin.

Having failed to succeed with exploration, failed to play a role in the PNG project, and failed to win the takeover battle for Delhi and its share of the Cooper, Santos is now pinning its hopes on securing future gas supply for its customers on straw-sucking in the Surat.

Meanwhile, in a grave somewhere, stirs the ghost of the late RFX Connor, the poor chap who was rubbished mercilessly for suggesting 30 years ago that Australia ought to invest in a transcontinental gas pipeline linking the North West Shelf with Sydney and Melbourne.

The Slug, who was one of those who laughed at Rex, can now see the wisdom of what the old boy was proposing.

It might not be long before a few other political and industry leaders also call for a fresh look at the transcontinental pipeline.

There is no doubt that it would be enormously expensive but not technically complex.

There is also no doubt that it could deliver the vast amounts of gas required, and be infinitely more reliable and secure than a pipeline crossing the Torres Strait.

And given the PNG flop and doubts about CSM meeting future demand in an energy-hungry southeastern Australia, it might not be long before someone says Rex's time has come.

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