This was in the Sydney Morning Herald this morningNever a dull...

This was in the Sydney Morning Herald this morning

Never a dull moment
EVEN the doubters have had trouble ignoring the coal seam gas (CSG) industry following Royal Dutch Shell and PetroChina's $3.3 billion takeover approach for Arrow Energy's domestic operations.

But as if to prove that there's rarely a dull moment in the business of extracting energy from marginal coal seams, some forward-thinking analysts are already encouraging investors to keep an eye on technology that could largely displace the Queensland CSG industry - underground coal gasification (UCG). According to a pre-Christmas note from Southern Cross Equities: "UCG is in its launch phase, however don't delay as lift-off is not too far away."

Talk of the looming demise of CSG may seem premature given that the sector has existed for less than a decade, and the first CSG for LNG plant is yet to be constructed in Gladstone. Nevertheless, Stephen Bartrop, director of Lime Street Capital, sees a big shift towards UCG just around the corner.

UCG is suited to the same coal tenements as CSG, but offers a more efficient process, extracting about 95 per cent of the energy in coal by burning coal with oxygen and steam below the ground. According to Bartrop, the UCG process ''delivers 20 times the energy out of a coal seam than CSG technology''.

While UCG is increasingly garnering interest from investment markets as pioneers prove the viability of the technology, the Queensland licensing regime creates challenges for its rapid deployment. CSG extraction is permitted under petroleum licences while UCG requires a coalmining licence. The major gas companies that have been acquiring or joint-venturing tenements across Queensland typically own only petroleum licences, while coal licences over the same tenements may be owned by third parties.

At present the Queensland government is giving priority to CSG operations, but this could change quickly if the owners of petroleum licences turn their attention to the UCG potential of their tenements and start striking deals with the coal licence owners.

Leaders in the development of UCG include Linc Energy, Cougar Energy and Carbon Energy, with a combined market capitalisation of about $1.1 billion. Developments within each of these companies this year may underpin confidence in UCG technology, making it difficult for the CSG players to ignore the potential untapped energy that they would otherwise leave behind.