The Queensland coal bed methane rush

Shell and PetroChina’s A$3.3bn bid for Australian coal bed methane (or coal seam gas, as it’s called there) producer Arrow is the latest in an ongoing rush for unconventional gas in the north-eastern state of Queensland.

Although CBM production began there more than 20 years ago, it ramped up considerably in the past five years, sparking a race that’s already been exemplified by the battle for small local producer Pure Energy, which was eventually bought by BG which, incidentally, beat a rival bid from Shell for the company one year ago. BG had earlier snapped up one of the biggest producers, Queensland Gas Company.

The latest bid might come as welcome news to those wondering whether the explosion of CBM projects in the state of Queensland will move towards consolidation.

Coal bed methane gets a lot less coverage than shale gas – but it’s a big part of the unconventional  revolution that is getting underway in fossil fuel production.

In the US, interest in CBM – which captures methane generated as a by-product of coal formation – has grown alongside that in the better-known shale gas; the two both require fairly technology-intensive extraction processes and big companies known for their shale gas developments, such as Exxon’s acquisition XTO, are also active in CBM.

As far as exporters go, Australia however could be one of the largest, according to an FT story:

Frank Harris, analyst at Wood Mackenzie, says that Australia is one of the few places that unconventional gas would be used for long-haul export, rather than domestically.

“The beauty of Queensland is that it has large reserves of coal bed methane and a domestic market that is too small to compete with export markets.”

That said, as a large-scale source of energy for export markets, CBM is quite nascent.

Although there are four CBM-to-LNG projects planned in Gladstone, Queensland, no such plant has ever been built before, and analysts are concerned that the industry needs more consolidation. Furthermore ConocoPhillips in October told The Australian newspaper that the profits on its project there would be lower than for a typical natural gas LNG project. There are also worries about Queensland’s capacity to build the infrastructure for such huge exports, the FT reports.

Related links:

Shell, PetroChina and Arrow: The next big resources grab (FT Alphaville)
Coal bed methane: An industry whose time has come? (FT)
Australia set for lead gas exporter role (FT)

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