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.
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.
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. 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.
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.
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