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Australia new gold rush By Lee Wild
Date: Tuesday 23 Mar 2010
The worlds population is set to top 7 billion within the next few years, a worrying statistic given that global energy stocks are dwindling and exploration companies are struggling to come up with enough new discoveries to fill the gap.
China and Indias thirst for oil and gas raises the prospect of a disastrous energy crunch as big fields dry up and demand from emerging economies grows. Thats why some of the worlds biggest oil companies are swarming all over Queensland in a race to exploit its huge unconventional gas resources.
All the attention is on coal seam gas (CSG), a naturally occurring and highly dangerous form of methane found in coal seams, also referred to as coal seam methane (CSM) and coal bed methane (CBM).
CSG is the new buzz word, say traders who call it the new tar sands.
Britains BG Group, ConocoPhilips from America, Anglo-Dutch giant Shell and Malaysias Petronas are fighting over the spoils with local firms Arrow Energy, Origin Energy and Santos, throwing billions of dollars at potentially lucrative projects on Australias east coast.
A whole bunch of explorers are now on the radar and the perceived wisdom is that most of them will fall to the majors over the next few years. Its not so much a matter of if, but when.
Last year, the US Energy Information Administration published a report on the global energy outlook for the next 20 years. China and India almost doubled their share of the worlds total energy consumption between 1990 and 2006 to 19%, and thats expected to hit 28% in 2030.
Forecasters reckon 153 trillion cubic feet (tcf) of gas will be burnt up in 2030, almost 50% more than today, and that the worlds natural gas producers will have to boost supplies by 48 trillion cubic feet by then. Thats where Australia comes in.
Global CSG resources are put at more than 1,000 trillion cubic feet. Using a current natural gas price of US$4.35 per million BTU that volume is worth $4.4trn (A$4.8trn). Queensland alone boasts proved plus probable reserves (2P) in excess of 1 tcf, enough to supply the local market for more than 10 years. Potential recoverable CSG reserves (3P) are put at more than 25 tcf.
The latest data available from Geoscience Australia, a government agency, estimates CSG economic demonstrated resources (EDR) at almost 16 tcf, with over 44 tcf of demonstrated resources, and inferred resources of 111 tcf.
Others, including many of the local players, think that in-ground potential CSG resources could be between 250 and 300 tcf, worth up to $1.3trn (A$1.4trn) at current gas prices, most of which will come from the Galilee, Bowen and Surat basins in eastern Queensland.
Oil companies are suffering from a lack of access so CSG can provide a valuable boost to operating profits, says Peter Hitchens, a London-based analyst at Panmure Gordon.
Australia has potentially huge gas resources and a number of big LNG schemes have only served to increase the appeal. Its made a market for the gas and longer-term theres huge growth coming from China. Suddenly companies have seen a chance to monetise these resources.
Origin/Conoco, Santos/Petronas, Arrow/Shell and BG already control most of Australias CSG 2P reserves, but they want more.
I wouldnt be surprised if someone comes in for Santos, says Cenkos.
Australias third-biggest oil and gas producer is currently worth around A$12bn, but the Chinese have deep pockets and are willing to spend what it takes.
Everyone is in play as there hasnt been the widely-anticipated glut of mergers and acquisitions in the sector. Oil prices are now more reasonable and stable, and money to fund big deals is more readily available, so M&A could well hot up again.
Hitchens thinks smaller operators will be mopped up, but believes companies will have to start assessing the market for LNG more closely. Theres no point in buying someone like Santos when there may not be a sufficient market for the product,he says.
Metgasco is exploring the vast gas resources of the Clarence-Moreton basin in northern New South Wales, the southern extension of coal measures found throughout the Surat basin. Its on ASX capitalised at A$140m.
This panic will inevitably spark a wave of consolidation in the exploration sector. Australia is well on its way to becoming the worlds biggest exporter of unconventional gas, and so a key battleground for oil majors determined to own the best acreage.
Whats clear is that whoevers left when the music stops will own a stake in one of the most potentially lucrative resource pools anywhere on earth. Place your bets.
EXE Price at posting:
27.0¢ Sentiment: None Disclosure: Not Held
