Under pressure

Published 17 May 2012 05:06, Updated 17 May 2012 08:57

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At the beginning of this century, the renewable energy movement backed gas as the acceptable alternative to oil and coal power. It was, however, to be a short-term transitional energy source as the world shifted towards more renewable, clean energies.

That was because there were not enough accessible reserves of gas to rely on for the long term and technology seemed to be rapidly transforming the viability of alternative energy sources such as solar, wind and tidal.

But then these assumptions shifted. Alternative energies have failed to make electricity as cheaply as hydrocarbon sources such as coal, oil and gas. Then it became clear that vast quantities of gas were available as technologies to access and tap shale and coal seam gas (CSG) improved.

CSG is gas, normally methane, trapped within the pores and fractured lines of coal seams. Shale gas is similar but whereas CSG is typically found at depths no greater than 1000 metres, shale gas is generally much deeper at 3000-5000 metres. The existence of gas within these structures has been known for decades but it’s only recently that technological improvements have allowed the gas to be extracted in large quantities commercially and in competition with other energy sources. Liquified natural gas (LNG) is achieved by cooling the gas till it goes into a liquid form, which allows far greater quantities to be stored and is particularly viable for export as it can be stored in specially designed ships for transport to Asian and European markets for regassification before use in power generation.

The result of all this “new” gas has been a change in the energy landscape.

The United States, which has worried about its reliance on foreign energy sources for a long time, is suddenly looking at the prospect of being an energy exporter, thanks to the discovery of huge reserves of shale gas across the US and Canada.

The original finds were in the Appalachian and Illinois basins where production has been on and off over the past 100 years. Due to poor regulation, a lot of damage has been done to the environment from these original finds and were the subject of the very successful documentary Gaslands in 2010.

The documentary has galvanised action by environmentalist groups but nonetheless shale gas production is forecast to meet 50 per cent of US domestic gas usage by 2020. In Australia, the development of coal seam gas has been a big game changer – and no less controversial. Today conventional gas reserves off the coast of Western Australia have climbed from 100 trillion cubic feet of gas (tcf) in the late 1990s to 164tcf, while CSG has added another 153tcf of reserves on the east coast and the as yet untapped shale gas across Australia contains another 400tcf of estimated reserves. These estimates may even be conservative, as the CSIRO suspects CSG resources in the east to be more than 250 tcf.

Australia consumes about 1tcf of gas in total a year and exports a similar amount. By 2020, after the expenditure of some $180 billion on new gas developments, 2.2tcf a year will be exported and 1.8tcf used domestically.

This means that even before shale gas is taken into account, there is enough gas for at least 80 years of domestic and export supply.

Opponents to shale fracking (a process used to get gas out of the ground) claim that coal seam gas (CSG) extraction endangers underground aquifers, while the industry itself says it is possible to set up protective measures to ensure that coal seam and shale gas can be safely extracted.

As the energy landscape has shifted towards gas, new opportunities – and threats – have become apparent.

Getting CSG out of the ground is controversial as chemicals – along with sand and water – need to be pumped into the coal seams to release the gas. The gas then has to travel up a drill hole through layers of sediment including those that trap underground water (aquifers) and there are fears the process will contaminate the water and create salination issues as salt is also extracted from the water.

In a small portion of wells hydraulic fracturing (fracking) is also used and that further exacerbates fears of aquifer contamination as the coal seam is split using specially designed liquid “bullets” that allow gas to flow into the well from areas that have insufficient pressure to allow natural seepage to work.

Dewatering the coal seams also raises fears that the water table will drop in some areas and shallow aquifers will drain away.

Origin Energy is shaping up as an emerging giant in the gas sector and its managing director, Grant King, has a lot to gain or lose depending how the CSG debate evolves.

He’s cognitive of the concerns of environmental groups and the wider community.

“The carbon debate has been there at least 10 years and there is quite sensibly a part of the community that is concerned about carbon emissions and the impact on the environment and climate change,” he tells BRW.

“For some, fossil fuels are seen as the root cause of [global warming] and should be eliminated from the system and some of the targets environmental groups have set for reducing greenhouse emissions could only be achieved by eliminating fossil fuels from the system.”

However, he believes that with changes to the volume of available gas reserves and technologies to extract it, the thinking about the future energy mix and the part that gas will play must change.

“Gas was supported five years ago as a transitional fuel but the thinking was it, too, would be gone by 2050 as there was a limited resource,” he says.

“Now it is being seen as a plentiful resource as the US has vast resources and there are potential large unconventional gas sources in China and parts of Europe like Poland and offshore United Kingdom. Gas has gone from economically occupying the transitional fuel space to actually being a substitute fuel and playing a far greater role in the way society produces and uses energy.”

Although King understands the ideological argument, that doesn’t extend his tolerance to bringing that debate into business decisions. “The arguments mobilised to support the view that gas has no future are not supported on a factual basis,” King says.

“They are ideological arguments and that’s where these perceptions conflict, as we look from a production basis going forward and say this can be done on a sustainable basis.”

On the other side of the debate are farmers and people in areas potentially likely to be affected by CSG – led by advocates such as Sydney radio personality Alan Jones and organised groups such as Stop CSG, Lock the Gate Alliance and Australians for Animals have made their opposition to CSG production in farming areas very clear.

Many of their claims are legitimate – such as the productivity impact on prime agricultural land, regulatory and monitoring requirements and enforcement to ensure the integrity of aquifers and storage facilities and long-term solutions for salt accumulations.

However, the CSG industry says other claims are emotive and inaccurate. These include claims that CSG mining will drain aquifers, lower the water table, dump salt on farming land and that where fracking is used contaminate vast quantities of fresh water with the chemicals used.

Last year a Galaxy Poll paid for by the Australian Greens claimed 68 per cent of Australians supported a moratorium on CSG extraction until more is known about its environmental impacts, with 18 per cent opposed.

Then last month a survey from the Australian Petroleum Production and Exploration Association showed that during the recent state election in Queensland, CSG barely rated as an issue among voters. The Crosby Texter poll showed the economy, health, cost of living and asset sales were the biggest issues.

The opponents of CSG also claim the scientific knowledge is not yet sufficient to allow large CSG projects to proceed. It is calling for a moratorium on projects proceeding until the science is better understood.

King on the other hand wants to be able to proceed – with caution.

“If we look at unconventional gas more broadly, or CSG more specifically, the key area of the debate is should we wait for perfect knowledge to do something?” he says.

“Or do we use adaptive regulatory processes where industries are allowed to progress but are monitored closely and the learnings are taken through into the regulatory system and come back in terms of conditions and licensing?”

Origin has been producing CSG for 15 years in Queensland without furore. The difference now is the scaling up of the industry as CSG is targeted for LNG export projects.

Not all landowners see CSG as the enemy, for some it is an opportunity.

Simon and Kylie Drury run a beef feedlot station in Condabri in Queensland and will have about 50 wells on their land earning them between $1500 to $4000 a well once Origin’s Australian Pacific LNG joint venture with oil major ConocoPhillips and China’s Sinopec gets into LNG production in 2015, at an initial rate of 9 million tonnes a year.

The Durys already have several wells operatingon their property and look forward to having all 50 in operation by 2015.

Simon Drury sees CSG as another income source for his business. He gets payments for each well placed and in consultation with the gas producers, fits placement of the wells into his farm management plan.

On a few occasions where placement has been an issue, such as one planned well right next to his house, the well position has been changed.

He says there has been no loss to productivity as a result of the drilling and that CSG-extracted water from Origin’s Talinga water treatment facility being pumped into the Condamine River means he now has constant access to water, whereas previously the river sometimes turned into a muddy puddle.

And he is considering additional revenue streams such as taking on well-monitoring activities.

He suspects that once the benefits are understood, CSG wells on a property will increase its value, although as yet its too early to tell if CSG will have a negative or positive effect on land prices.

With the east coast LNG industry joining expanded production in Western Australia, the net result is that by 2020 Australia will be the world’s largest LNG exporter, so the shape of the market is important to future prosperity.

The opportunities are there for business – if they can overcome environmental concerns.

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