The industry is fast reaching maturity as a cheaper and closer market alternative to natural gas. CSM volumes have risen from around 5 petajoules (1% of the market) in 1997 to around 40PJ (6% of the market) at present, with Citigoup Smith Barney forecasting demand of 80PJ by 2010.
The major resources of CSM in Australia are in the Bowen, Sydney, Gunnedah and Clarence Moreton Basins. Citigroup Smith Barney said the potential volumes available compare favourably with those in the established producing basins in the USA. The pioneering United States CSM market is more developed than its Australian counterpart and in 2003 accounted for 7% of US domestic supply.
The Bowen Basin is one of the major coal basins of the world and was also the starting point for the CSM industry as far back as the 1970s.
The Sydney-Gunnedah-Bowen Basin and the Clarence-Moreton Basin are the major coal producing basins in NSW and are also exploration targets for CSM. Deposits in NSW have lower development costs and are closer to major markets.
“The incentives for CSM production in NSW include the size of the market and the potential for growth, the existing network of pipelines, the requirement to drain methane from coal prior to coal production to increase safety and the concessions on royalties due over the first five years of production or where CSM is produced in conjunction with coal,” said Citigroup Smith Barney.
Despite what seems a positive future for the industry, Citigroup Smith Barney warns that the growth in CSM may not all be plain sailing. New discoveries of conventional gas deposits in the Otway Basin could be sold into NSW and Queensland and the potential from Papua New Guinea may also limit growth prospects for CSM.
CH4 and Sydney Gas are both companies which were established primarily to develop CSM for sale into NSW and Queensland markets. Both are close to completing development of their first projects and will deliver into sales contracts by early next year.
Citigroup Smith Barney said in both cases the companies potentially have access to considerably more gas resources than would be required to cover contractual commitments.
Both companies have projects in the pipeline along with Origin Energy which has already committed to developing the Spring Gully deposit in the Comet Ridge region of the Bowen Basin. It is using cashflow from its other CSM projects to bring the Spring Gully project online, which will initially have around 50 production wells and a gas production and processing plant.
CH4 has the Moranbah gas project on the production line and is due to start supplying 11-14PJ per annum to the 220MW Townsville Power Station at Yabula in February. CH4 listed in March this year, raising an impressive $37.5 million with a market capitalisation of $100 million.
Institutions had a strong showing on CH4’s shareholder register, representing a turnaround in attitude to the industry. PriceWaterhouseCoopers released a report in 2002 highlighting how hard it was attracting investment to the industry. In the past CSM focused companies have had to use non-conventional forms of financing including long term supply agreements which can provide upfront cash for development of a project, and farm-ins with interested investors.
Diversified minerals explorer Hillgrove Resources holds a 15% stake in the Gunnedah project in NSW. Hillgrove recently raised cash to continue a pilot program at the project where 484kms of seismic surveying has now been completed. It is earning a 32.5% stake in the project from Canadian outfit Gastar Exploration.
Queensland Gas Co also recently raised money to fund further exploration at its Surat Basin CSM project.
Junior explorer Arrow Energy has spun off its conventional oil and gas interests to allow it to concentrate on its CSM interests. It plans to focus on proving up its Kogan North and Tipton West coal seam gas projects in the Surat Basin near Dalby, an area which it argues will emerge as a 'nationally significant' energy province.
Both Queensland Gas Co and Arrow Energy have booked sales from their projects with the latter formalising a 15PJ agreement over five years with BP Refinery.
