Coal Seam Gas - to be or not to be? Part one

By Jeames McKibben*

More than half of Queensland’s electricity is generated from gas and more than half of this from CSG.
The sector’s growth has largely been in response to the State Government’s call for 15 per cent of all domestic electricity production to be derived from natural gas sources by 2010.
Further support has been provided by recent rises in fuel and electricity costs, increased public awareness of environmental issues and solutions, the paucity of viable, low cost energy alternatives and the proximity of abundant coal resources to Australia’s urbanised coastal fringe.
On the export front, Queensland CSG is the requisite source for five LNG development projects, with the LNG product likely to be exported to meet increasing global demand for natural gas, particularly in rapidly industrialising regions of Asia. This will require significant capital resources and regulatory support to ensure the appropriate infrastructure is available to transport and produce the quantities necessary to meet this burgeoning demand.
With numerous domestic and export opportunities this sector has the potential to become a major contributor to local, state and national economies through additional employment, increased tax revenues and flow-on expenditures to other industries.
So what factors are inhibiting CSG’s future growth?

Resources
Although large areas are considered CSG targets, there are currently insufficient Proved CSG Reserves capable of being rapidly exploited to meet global demand. Total 2P (or Probable) CSG Reserves in Queensland are estimated at 12,174 PJ. To put this into perspective, Queensland currently uses approximately 560 PJ/annum, and thus the currently defined 2P Reserves equate to only 22 years of Queensland’s current requirements, without accounting for increased demand resulting from forecast population growth.
Due to its rapid growth, the sector is stretched in terms of financial resources, labour and equipment and is experiencing difficulties keeping up with present exploration requirements. By way of example, extracting CSG gas requires considerably more drilling (up to five times more) than conventional natural gas.
Furthermore, CSG is essentially a hybrid, requiring expertise in both conventional coal and oil and gas exploration and development technologies. As such there are only a limited number of geologists and engineers with appropriate experience and understanding of these deposits. This impacts on the exploration, development and capital raising activities of many companies operating in this sector.

Groundwater impact
There is potential for reduced groundwater levels within aquifer systems (in particular the Great Artesian Basin) as a result of the extraction of in-situ water from CSG wells. Ground water levels typically need to be lowered in order to release the CSG into planned production wells. There are concerns there may be long term issues which remain to be properly assessed.

Wastewater production
A by-product of CSG production is CSG-bearing water. This water is typically classified as waste water as it has the potential for environmental harm to land and waterways, if released. Although saline and unsuitable for drinking, CSG-bearing waters are useable for coal washing and other purposes.
Until recently this “coal seam gas water” was piped into ponds and allowed to evaporate, but that system has now effectively been banned by the Queensland Government because the ponds were becoming sinks for salt and heavy metals extracted with the gas and water. Concern exists over the long term legacy of these evaporation ponds including the associated salt stored in them.

Impacts on rural communities
The impact on the environment (evaporation ponds, ground water depletion) will need to be addressed if local communities are to accept CSG.
The reduction of land available for primary production in some of Australia’s prime agricultural areas may cause a conflict between these two prime industries.
The visual impact from the associated infrastructure (drill rigs, gas wells, pipelines) is likely to cause anxiety amongst the community which will require proactive communication from the CSG companies.
Increased traffic on rural and/or property roads (noise pollution, degradation of roads) is likely to be of concern to local communities.

Infrastructure requirements
Pipelines from the CSG source to loading facilities or other markets are required and are currently being considered by a number of companies.
Export infrastructure including port facilities is required. As witnessed recently the majority of Queensland ports have limited capacity including available loading facilities and land. The LNG industry will require specialised storage, loading and ship-berthing facilities.

* Written by Jeames McKibben with input from Michelle Clarke - from Xstract Group, a team of specialist mining consultants.
For more information email: jmckibben@xstractgroup.com or visit: www.xstractgroup.com

 To read more about the development of coal seam gas in Queensland's Galilee Basin, click here.

To read the final part of this report click here.

What is CSG?
CSG is a form of natural gas trapped within open fractures (called cleats) and pores within a coal seam and held in place by a combination of water and ground pressure. CSG is a mixture of hydrocarbon gases, (90 to 95 per cent) methane with minor amounts of other gases such as nitrogen and carbon dioxide.
It is important to note that conventional coal technologies do not gain any benefit from CSG, as this is largely burnt off or lost to the atmosphere during mining and processing.
By comparison, CSG technologies enable the gas inherent within coal measures to be captured and processed, thereby monetising a previously unused (and thus worthless) resource.
Once captured CSG can be used to generate electricity or be liquefied to produce Liquefied Natural Gas (LNG). Several companies are currently proposing to pipe Queensland CSG gas to liquefaction plants, where it will be supercooled to create LNG. The LNG product will then be transported around the world in purpose-built LNG tankers. Once the LNG is delivered it undergoes “regasification” which is a process that returns LNG to natural gas.
Within Australia, CSG is a major and increasingly important power source.  CSG is currently used to supply the domestic gas industry and to supply gas-fired electricity generation facilities.
Brown and black coals reportedly generate around 80 per cent of Australia’s current electricity needs. However, the proposed Emissions Trading Scheme (ETS) is likely to result in the rapid conversion of many larger power stations to CSG technologies due to its lower cost and perceived environmental benefits (i.e. lower greenhouse gas emissions) relative to other fossil fuel energy sources such as coal and oil.