Coal seam gas exploration is not a new industry in Australia, with exploration in Queensland dating back to 1976. However, it was not until the mid 1980s that explorers experienced notable success, when a number of oil and gas explorers commenced exploration in Queensland’s Bowen Basin and New South Wales’ Sydney Basin.

The development of the industry continued through the 1990s and came about largely due to an obvious natural gas shortfall from known east coast gas sources, predicted to take place from around 2010.

As forecasts increasingly predict that in the coming decades, demand for natural gas in Australia will outstrip supply, the coal seam gas industry is establishing itself as a key future source of gas for Australian markets, with companies currently actively involved in exploration, production and gas sales.

The association between methane and coal seams has long been known, with methane explosions a constant cause for concern in coal mining operations. Now, developments in technology have allowed what was once an annoying by-product of the coal mining process to be extracted from coal seams for use as a fuel, first in the United States and now in a number of locations worldwide.

In Australia, the mid 1990s brought success with the discovery of the Fairview, Peat/Scotia, Dawson Valley, Spring Gully, Moranbah and Camden CSG fields. By the late 1990s, production from the Bowen-Sydney Basin had become a reality, leading to the continually increasing development of other fields in and around these basins.

These fields are now producing and supplying gas to a number of buyers. Meanwhile, as concern regarding the expected long-term shortage in domestic gas for east coast markets has continued to escalate, new fields, including Argyle, South Berwyndale, Kogan and Tipton are either currently or about to be developed. Exploration is continuing in both the Permian and Mesozoic basins and further discoveries and developments are expected.

The role of CSG in meeting Australian demand

Up until fairly recently, the credibility and reliability of CSG in Australia has been perceived to be a significant hurdle explorers and producers have had to face – despite the fact that CSG has proved itself to be a reliable source of gas in the United States for more than twenty years. However, confidence is starting to build and at present, gas sales contracts for over 1,000 PJ of CSG have been signed.

The success of a number of CSG-based projects, such as the North Queensland Gas pipeline, the Spring Gully pipeline and a variety of producing fields in Queensland including Peat and Scotia have in part contributed to this, as has the growing realisation that the east coast of Australia needs to firm up its future gas supplies.

The eastern seaboard states – Queensland, New South Wales, Victoria and South Australia – consume approximately 14 per cent of their energy in the form of natural gas. During 2001-02, these states consumed approximately 602 PJ of gas and with the Australian Bureau of Agricultural and Resource Economics (ABARE) predicting that demand for gas in these states will grow to 1050 PJ/a by 2019-20, it is clear that new sources of supply will be necessary.

Between the three competing sources for this growing gas market – ‘conventional’ gas (natural gas and ethane from Eastern State basins), coal seam gas and piped natural gas through the proposed PNG Queensland pipeline – ABARE is predicting that demand will be sufficient for all three sources to take a share of the market. In fact, demand is expected to outstrip supply from all three sources.

Estimated Queensland CSG reserves are rising at a rapid rate and companies are constantly revising up their reserves, to the point where reserves have risen ten fold in the last five years. The general consensus across several industry sources appears to be that the actual amount of proved CSG reserves in Queensland currently stands somewhere in the vicinity of 40-42 PJ, which equates to between 25-30 per cent of Queensland’s market forecast for 2005.

The amount of CSG consumed in all of the eastern states of Australia will rise as the number of projects producing gas and the demands of industry and residential users continue to climb.

How does the pipeline industry fit in?

The development of the CSG industry across Queensland and other Australian states will have a positive flow on effect for the pipeline industry, through the construction of new pipelines to transport the gas both from fields to processing units and to customers themselves.

The first dedicated CSG transmission pipeline, the North Queensland Gas Pipeline, has already been built and first commissioning gas was put through the pipeline in September 2004.

More transmission pipelines look set to follow, with Enertrade looking at the construction of a new 420 km pipeline from Moranbah to Gladstone which will service the growing market in this region.

The construction of flowlines between fields and processing facilities and transmission pipelines will also prove significant for the pipeline industry. While these pipelines will no doubt be shorter and smaller in diameter than traditional transmission pipelines, the distances will add up, offering significant construction opportunities to contractors in this area.

Already a number of pipeline licences have been sought for a variety of tenements in New South Wales and Queensland, with several of these pipelines already under construction. In particular, Queensland Gas Company has secured pipeline licences for at least four pipelines as part of the development of its reserves in the Surat Basin, varying between gas gathering pipelines and pipelines which will transport sales gas to the closest transmission pipeline, the Roma to Brisbane pipeline.

Taking the industry to the next level

The next step for the coal seam gas industry in Australia is to expand the number of companies moving to the production and gas sales phases in the CSG chain and actually supply clients with gas under contract.

Currently there are only a handful of companies actually supplying CSG to buyers, although this is a fact that looks set to change with a number of explorers – Eastern Star Gas, QGC, Molopo and Planet Gas, to name just a few – currently involved in exploration programs in Queensland and New South Wales, returning results thus far which are looking highly positive. In addition to this, a number of companies such as Arrow Energy and Comet Ridge are about to commence production and have gas sales agreements in place.

As more coal seam gas reserves are discovered and certified, more and more buyers are becoming aware of the viability of coal seam gas for their various applications. At this relatively early stage of the coal seam gas industry, buyers are talking about ways to underwrite the risk associated with signing on to what is an emerging energy source in Australia. In particular, it is not uncommon for buyers to source CSG for contracts they are looking to fill from multiple producers in separate fields. Over time, as these contracts are reliably filled, the need to manage the risk associated with purchasing coal seam gas will gradually be reduced.

John Hattner from Netherland Sewell and Associates, a key firm in CSG reserves certification, says that the key steps in delivering a project that buyers will be confident to purchase gas from are the selection of a reserves classification system; delivering the data to prove resource volumes, produceability and economics; and the integration of all these factors into a bankable project.

According to John the requirements for a successful project are coal volume, gas content, the ability to produce the reserve and economic factors. The relative data requirements for these elements are the thickness of coal seams, desorption tests to prove gas content, successful production tests from pilot wells and potential markets to round out an economically sound potential development.

Exploration for CSG in Queensland is focusing on the Bowen and Surat basins (refer to map page 46), though all coal-bearing basins are considered prospective for CSG. Queensland has led the way in the coal seam gas industry in Australia, and one of the reasons for this is Queensland’s geology, which is highly favourable for CSG entrapment and extraction. The coal seams in Queensland are thick and multiple seams are present in many basins, with vast resources shallower than 1000 m.

However this is not to say that developments in other Australian states do not share similarly bright prospects. Other major sites of CSG development include New South Wales, at Wyong and the Gunnedah basin, and in Western Australia, where the state’s first dedicated CSG exploration project has received approval. Westralian Gas and Power is set to begin drilling operations at the Adina CSG project, following approval from WA’s Department of Industry and Resources.

Aside from the vast level of field exploration and development currently underway, there is also the new Enertrade 420 km CSG pipeline (as mentioned earlier). The Queensland Government issued an Initial Advice Statement regarding the pipeline last year and as a result, the pipeline was granted significant project status, meaning an Environmental Impact Statement and feasibility studies can now be conducted.

With the markets for gas in Australian east coast states expected to rise significantly in the coming years, as evidenced above, and a strong gas pipeline infrastructure system in place across these states, if producers can continue the success seen in their exploration and pilot test results, coal seam gas looks set to have a strong future in supplying part of the future gas needs of these areas.

CH4 - supplying CSG through the North Queensland Gas Pipeline

CH4 was established in May 2000 to explore and develop coal seam gas reserves in the Bowen Basin region of central Queensland, approximately 170 km west of Mackay. In the space of five years CH4 has discovered, contracted, and developed a significant gas resource now estimated to have proved and probable reserves of 384 PJ, the equivalent of nearly four times Queensland’s total annual gas demand.

From mid-2000, CH4 carried out a range of CSG exploration activities which led to the completion of three pilot production wells near Moranbah in early 2001. These initial wells pioneered the use of surface to in-seam drilling where a hole is drilled from the surface to intersect a vertical well up to 1.5 km away as a commercial CSG extraction technique. The performance of these initial wells, and additional pilot wells by mid-2002 demonstrated that commercial quantities of CSG are able to be economically and competitively produced. Following reserves certification, CH4 contracted to supply up to 290 PJ of gas over 15 years to Enertrade and this contract was used as the basis of Enertrade’s successful tender to supply gas fired base load power into Townsville in June 2002.

With gas reserves and a contract in place, a bankable feasibility study was completed and BHP Billiton, as the original lease holder, exercised a previously agreed option to take a 50 per cent interest in this project and the Moranbah Gas Project (MGP) was born in February 2003. It is operated by CH4 as a 50/50 Joint Venture with BHP Billiton.

The project consists of 50 wells drilled over a 40 km2 area, 80 km of buried flowlines, and 50 km of access roads. It is supplied with electricity by a 12 MW power plant operated by Ergon, which itself uses gas from the project. The MGP is currently delivering as much gas to its customer as is required under the contract. The gas is supplied to Enertrade in Moranbah and Enertrade built a compression facility and the 391 km North Queensland Gas Pipeline to transport the gas to Townsville.

The MGP gas is supplied to fuel Enertrade’s two key customers, the Yabulu Power Station near Townsville and QNI, the largest industrial energy user in Townsville, and the operator of the Yabulu nickel and cobalt refinery.

With the MGP being the only significant supplier of natural gas to the Townsville region, CH4 is committed to proving up more reserves to supply the many potential industrial users in Central Queensland. The Enertrade pipeline to Townsville allows the region access to gas for the first time and provides opportunities for new industrial projects. The potential size of the market in the near to mid-term, according to ACIL Tasman’s January 2005 study, is over 40 PJ/a in Townsville.

Opportunities to grow CH4’s supply beyond the Townsville region to Gladstone will arise if any of a number of plans that have been mooted for constructing a pipeline between Townsville and Gladstone comes to bear.

Comet Ridge - Australia's emerging CSG producer

Comet Ridge has been a participant in the success of the coal seam gas industry since floating on the Australian Stock Exchange in 2004. Following its public listing, Comet Ridge has progressed from having no reserves to now having 406 PJ of proved, probable and possible certified reserves at Tipton in the Surat Basin and up to a further 400 PJ gas in place resource (upon completion of the current earning program) at Mahalo in the Bowen basin.

The Tipton Joint Venture, of which Comet Ridge is a member, has secured initial conditional gas sales contracts for Tipton West, strengthened its management team and closed two transactions related to its permits in New South Wales. The company intends to continue to build on their successes to date and the focus from here is cash flow and leveraging strengths to drive further growth.

The key Tipton West Coal Seam Gas Project in SE Queensland is well on its way to becoming a development with associated cash flow, having recently achieved a major milestone in establishing a significant certified gas reserve after Netherland, Sewell and Associates provided a reserve estimate for the project which listed proven and probable reserves for the project at 143 PJ. This allows the Tipton Joint Venture to continue with negotiations with customers to convert the existing gas sales Memoranda of Understanding into binding agreements. Currently three agreements with contracted sales totalling 123 PJ over the next 15 years are in place with buyers such as Wambo Power Ventures and Ergon Energy. Comet Ridge is planning to become a commercial gas producer by late 2006.

Tipton West is the first project to achieve independent reserves certification but the company has high expectations for the other Queensland projects in which it has interests in, namely Mahalo and Meenawarra.

Further down the track Comet Ridge will look to take operatorship status in coal seam gas projects in Australia and North America to gain more control over their projects.

Adtech - the pipe supplier of choice for CSG operations

Adtech’s Centron GRE pipe has been installed in Amoco’s coal seam gas resource in the “4 Corners” area in Durango, Colorado in the United States since the late 1980s.

In 1984, Amoco embarked on a coal seam gas recovery project in the area, with the plan being to build the largest coal seam gas recovery operation at that time in the USA over a period of about 5 years, with the possibility of expansion should the operation become economically attractive.

The methane in this area contains about 3-5 per cent wet carbon dioxide and Amoco decided to dehydrate all gas at a central location rather than at each wellhead. This resulted in the need for a corrosion resistant pipe gathering and trunkline system be installed to transport the wet gas which was resistant to corrosion from the wet carbon dioxide.

Amoco was given the task of selecting the fibreglass/epoxy (GRE) pipe from the perspective of correct epoxy resin system and reliable joint connection type.

After rigorous laboratory and field testing, Amoco ultimately chose Adtech’s Centron connections and the first 4 inch and 6 inch connections were installed in late 1985, with a total of 2,000 km installed by 1991 at the completion of Stage 2. Moderate expansion continued through the 1990s and in 2000, Amoco decided on a major expansion requiring another 150 km of Centron GRE pipe.

Adtech FRP is an Australian company specialising in industrial fibreglass and is the largest company for installation of glass reinforced epoxy pipe in the Australian oil and gas industry. Adtech has developed its business through a variety of successful projects and high standards of customer service.

Adtech are suppliers of fibreglass reinforced epoxy pipes, ranging in size from 38 mm to 1200 mm and fibreglass reinforced epoxy ball and butterfly valves, ranging in size from 25 m to 200 mm. Advantages gained from using fibreglass reinforced plastics include corrosion resistance to internal and external environments, excellent strength to weight ratios, pressure capabilities to 24 MPa in smaller pipes and their light weight which reduces the need for lifting equipment.

Clarke Energy – providing gas power generation solutions

Clarke Energy provides total gas power generation solutions, ranging from the supply of gas generation equipment as the distributor for the GE Jenbacher gas engines, through to design, construction, operation and maintenance.

Clarke Energy’s experience is underpinned through its role as the exclusive distributor for GE Jenbacher equipment in the UK, France, India, Nigeria, Australia and New Zealand, where in these territories alone there is over 1,500 MW of equipment installed and operating. In addition, Clarke Energy operates and maintains on behalf of its clients some 900 MW, increasing and supporting the company’s knowledge bank of experience gained over many years of diverse applications.

Clarke Energy Australia commenced operations in March 1999 in Braeside, Melbourne. All operations for Australia and New Zealand are managed from this office, supported by a dedicated team of engineering professionals in the company’s Adelaide office.

Having completed various power stations in WA, Victoria, New South Wales, New Zealand and Queensland, Clarke Energy is emerging as one of the most experienced gas energy solution providers in this field in Australia.

Commenting on the recent growth of the company and the success of the GE Jenbacher product in the marketplace, Clarke Energy Managing Director for Australia and New Zealand Greg Columbus said “Clarke Energy has an experienced sales, engineering and service team that augments the superb GE Jenbacher product distributed by the company. While the bulk of our customers procure gas engine generators, more and more customers are requiring much more in way of a total solution for their specific circumstances. This is particularly so as the industry searches for alternative renewable fuels on the vast range of gasses becoming more available today.

“GE Jenbacher products are part of the GE Energy engine manufacturing business in Austria and are designed as high-efficiency base load gas engines, renowned for reliability and durability.”

The unique features of the GE Jenbacher product are often able to provide solutions that are not readily available from other like engines. By working with the requirements of their customers, Clarke Energy engineers with GE Jenbacher provide the solutions.

The company’s spares storage area houses a comprehensive range of spare parts which can be shipped to customers at very short notice. With the ever increasing number of engines in Australia and New Zealand and the needs of the customer continuously changing, the office has a program of continual improvement through staff training and recruitment of skilled engineers who can meet the demands of the customer.