It has been a year of significant growth for Australia’s CSG industry, in which production rose 85 per cent to 53 PJ, and CSG consumption came to represent 10 per cent of the gas consumed in Australia’s eastern states.

There are several significant CSG projects in Australia that have been building in the past few years and are now beginning to reach production. While ‘traditional’ oil and gas companies such as Origin, BHP Billiton and Santos are involved in the industry, there are also several newer companies such as Queensland Gas Company (QGC), Arrow and Sydney Gas which are focused solely on the production and sale of CSG, while others such as Sunshine Gas have a strategy that balances both CSG and traditional oil and gas resources.

The move by Santos to acquire US owned Tipperary Corporation in July 2005 for $612 million highlighted that the potential value of CSG ventures was being recognised. The agreement provided Santos with an approximate 75 per cent operated working interest in the producing Fairview coal seam gas field, located north of Roma in Queensland, and pushed Santos ahead of Origin as Australia’s biggest coal seam gas producer. Santos is currently expanding the Fairview field, and production is expected to reach 45 TJ/d by the end of the year.

More recently, Santos expanded its CSG interests further, signing an HoA with Sunshine Gas for the sale of its stake in the Roma Shelf. The 15 per cent stake has been exchanged for an $10 million consideration. However, Sunshine Gas has retained the prospective oil interests in the Alton area in the southern Surat Basin.

The recent announcement that Arrow Energy and CH4 Gas will merge their businesses in a move that will create Australia’s largest independent coal seam gas company cements this growth in CSG. The new company will combine Arrow’s CSG projects in Southeast Queensland including the Kogan North project, with CH4’s gas projects in the Bowen Basin in Northeast Queensland, including the Moranbah Gas Project.

The largest CSG project in Australia, CH4’s Moranbah Gas Project, delivered almost 13 PJ in its initial calendar year of commercial operations and at the end of 2005 was maintaining a production rate in excess of 41 TJ/d, meeting full contract sales volumes to Enertrade and Ergon, and will be the centrepiece of the new company.

In fact it has been a busy few months for Arrow, who have also signed a Heads of Agreement between the Tipton West joint venture and Australian Pipeline Trust (APA) for APA to fund, own and operate the Tipton West central gas processing facilities and associated lateral pipelines. proven and probable reserves in the Tipton West field, located 20 km south of Dalby in Queensland’s Surat Basin, have been increased by 50 PJ to 174 PJ, of which 25 PJ are proven.

In October 2005, Arrow also signed power and green energy purchase agreements for the Daandine field - co-located with the Kogan North Compression Facilities - with Country Energy. During the December quarter of 2005, Arrow received reserve certification at the Daandine field of 24 Bcf of probable reserves and 337 Bcf of possible reserves, a great increase on previous estimates.

The company has also signed an Engineering, Procurement and Construction agreement for the 27.4 MW Daandine power station, located in Queensland’s Surat Basin, with Clarke Energy (see page 71). Work on the project has commenced, with a view to achieving first electricity sales by the end of 2006.

Arrow Energy CEO Nick Davies has said that the company is on track to meet its targeted gas production of 45 PJ/a by 2010, following sales of the first gas from its Kogan North gas field to government owned CS Energy.

In August last year, Arrow signed an agreement to supply a minimum 6 PJ/a for 15 years to the 450 MW gas-fired Braemar Power Project being developed by ERM in association with Babcock and Brown.

Meanwhile, another CSG producer, QGC has commenced gas sales from the Berwyndale South gas field to CS Energy, signalling its emergence as a CSG producer.

During the year, reserves doubled at the company’s Argyle Gas Field which is due to begin production in September 2007. Overall, QGC gas production is scheduled to increase to a minimum of 15.4 PJ/a by September 2007 with all commitments covered by existing proved reserves.

QGC’s sales are expected to double to around 30 PJ/a in 2008/2009 with the commitment to supply an on-site 200 MW power station proposed by the company at Chinchilla.

Recently, QGC became embroiled in a takeover bid for Sydney Gas. However, the company abandoned its proposed takeover, stating that it no longer considered the takeover a value proposition for QGC shareholders.

Explaining the decision to allow the offer to lapse on May 12, Managing Director Richard Cottee said QGC would create more value for its shareholders by focusing on its existing assets.

Sydney Gas was able to fend of the bid through a recapitalisation plan to raise up to $50 million with the establishment of a new convertible notes facility through Babcock & Brown.

Approximately $20 million of the money raised will be used to fund the repayment of Sydney Gas’ current convertible notes. The remainder of the funds raised will be used to pay Sydney Gas’ share of development and exploration costs under its coal seam gas joint venture with AGL, Camden.

Camden’s first set of 21 wells started producing in January 2005 and since then production and sales have grown by almost 400 per cent. Since completion, more than 1.15 PJ of sales gas has been delivered to AGL.

Sydney Gas’ other significant development, the Hunter Gas Project in NSW, was named as a potentially large CSG source in October 2005, with estimates stating there could be as much as 600 Bcf in the area. Work is continuing on the project, with two Production Test Wells being drilled and completed late last year which are now undergoing appraisal. Gas flow from the first well, HB01, is already showing strong signs that commercial volumes are achievable.

Recently, Molopo recommenced drilling on the CSG corehole LMGC1 in the Gloucester Basin, 100 km north of Newcastle. The decision followed the success of the LMG03 production test, which reached 667,000 cf/d of gas. It is anticipated that resumption of drilling will significantly increase the current estimated 90 PJ of gas in place at the Stratford Prospect, a 5 sq km area which has been the initial focus of development.

“The Gloucester project clearly has the potential to become a substantial commercial gas field. As previously announced, the Joint Venture partners are currently drilling two new coal seam gas wells to extrapolate the resource base and provide guidance on the location of further production test wells expected to be drilled later this year,” said Molopo Managing Director Stephen Mitchell.

In October last year CSG developer Molopo announced a major upgrade to gas reserves at its Mungi field in Queensland’s Bowen Basin. An independent report was produced certifying 143 Bcf, where previous estimates were approximately 50.7 PJ. The report also records a 235 per cent increase in proved and probable reserves in Mungi, from 17.3 PJ to 58.0 PJ.

In September, Molopo signed a Term Sheet to supply gas to Ergon Energy from the Mungi field. The term sheet provides for Molopo and joint venture partner Helm Energy to supply up to 2.5 PJ/a of gas for 15 years from 2007 to a potential new power generation project that would be established by Ergon.

Metgasco’s developments are also progressing, with the company receiving an independent certification of significant volumes of gas in a northern New South Wales field in March this year.

At the South Casino gas field, 70 km from the Gold Coast, possible reserves of 1,080 Bcf and probable reserves of 21 Bcf were established, the largest independent certification of gas reserves in New South Wales.

There is little doubt that with the CSG industry moving between an emerging to a mature industry that the next twelve months will contain as much excitement and developments as the last twelve.