Export fears as gas wells fall short MATT CHAMBERSTHE AUSTRALIANNOVEMBER 19, 2013 12:00AM
CSG Source: TheAustralian DOUBTS about the ability of Queensland's coal seams to produce enough gas to feed Gladstone's LNG export plants are growing, with claims that many wells are not producing as expected and that more gas could be needed.
The concerns, which have been rejected by the three proponents spending $70 billion on projects to export gas through Gladstone's Curtis Island, have now been backed up by Houston-based drilling supplier Superior Energy Services.
SES, which has turnover of more than $US4bn ($4.2bn) and employs more than 14,000 people around the globe, says its foresees growth in its eastern Australian business because poor well performance means more drilling in Queensland and South Australia.
"When we are talking to the operators in Queensland, we hear from them that the coal-seam gas (wells) that currently have been drilled are actually not meeting the production expectations," SES head of Asia Pacific, Ruud Boendermaker, told investors in Houston last week.
"So what they have to do is to drill a lot more CSG wells in the next few years because of the commitments to the LNG trains that they are currently building in the north of Queensland."
Mr Boendermaker, a former Halliburton executive, said one of the main reasons for the poor well performance was that the coal was not as homogeneous as expected, and less permeable than expected.
SES has a Toowoomba office and is believed to contract to drillers rather than directly to the LNG proponents. It did not say which projects needed more wells, nor which areas of the state had problems.
Each of the three LNG projects on Curtis Island, led by Santos, BG Group and Origin Energy/ConocoPhillips, will need thousands of onshore CSG wells to feed them.
Above the ground, drilling has already been hampered by weather and community and environmental hurdles, but all the projects have stated they are on time and not experiencing any negative surprises.
If the wells do not produce as expected it will put further pressure on the east coast market, which is already expected to be short of gas and facing huge price rises as the LNG plants start.
A fourth LNG project, run by Shell and PetroChina's Arrow Energy joint venture, has been held back after more than $7bn of investment (including $5bn of acquisition costs), with owners saying costs must fall if it is to go ahead.
Origin, Santos and BG rejected Mr Boendermaker's claims.
The statements from SES, and the denials from the projects, come amid growing industry speculation that some wells are not performing as hoped.
A former executive on one of the projects told The Australian that the "sweet spots" were not as large as had been hoped.
Another industry source said one of the projects had returned a series of dry wells after moving off a sweet spot.
Analysts say Santos or Origin have released nothing to indicate wells have not performed as expected. But they also say the statements do not reveal much about the quality of the coal seams.
Another problem is that the best ground is being drilled first, meaning there is no way of knowing if the results will be replicated.
A Santos spokesman said the drilling program for the Santos Gladstone LNG project was on track and was delivering results consistent with expectations.
"We have a good understanding of the geology and there are no surprises," he said.
Origin, whose Australia Pacific LNG joint venture with Conoco is regarded as having the nation's best CSG ground, pointed to recent statements that its seams were showing high permeability, thickness and gas content. "The project has a sufficient resource base to meet its gas requirements to service both domestic contracts and international LNG offtake agreements," a spokeswoman said.
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