By Paddy Manning*

Coal Seam Gas was once hailed as a clean and green form of energy. But there are now very serious economic and environmental questions for
both communities and governments hanging over the abundant natural resource.

It’s called the energy ‘trilemma’ and governments around the world are grappling with it: how to maximise energy security while minimising the cost of, and greenhouse gas emissions from, energy use. Any technology or policythat can tick those three boxes will be adopted, a no-brainer.

Rio Tinto gave two examples in an interesting presentation at the Australian Institute of Energy conference in Sydney in late November 2012. Nuclear power ticks all three boxes in China, which is building so many reactors that by the end of this decade it will have the second-largest installed nuclear capacity in the world.

Shale gas – extracted from shale rocks deep underground– ticks all three boxes in the US and so over the past 5-10 years its growth has been nothing short of spectacular. The International Energy Agency now expects the US to be the world’s largest gas producer by 2015 and the largest oil producer by 2017, taking it closer to energy self-sufficiency, faster than anyone thought possible.

The so-called US ‘shale gale’ – a storm of cheap oil and gas provided courtesy of hydraulic fracturing (fracking) and directional drilling technologies – has redrawn the world’s energy map and Australia is buffeted too. Developed over decades, mainly from the extraction of coal bed methane, those two technologies combined with high gas prices and Bushera deregulation led to an explosion in gas production from the middle of last decade.

US gas prices have plummeted, emissions have turned down as power plants switch from coal to gas, and North America will soon be exporting significant volumes of liquefied natural gas to Asian markets.

Those same fracking and drilling technologies opened up the possibility of extracting large quantities of coal bed methane in Australia – or coal seam gas, as it is known here – particularly in Queensland and NSW. The implications for Australian energy policy are profound, but does coal seam gas solve our energy trilemma?

The coal seam gas of course has always been there – odourless, colourless methane is a hazard in coal mining – but it wasn’t until the mid-nineties that it became economic to recover and commercial exploitation began in Australia. One of the first producing CSG wells in this country was at Moura in 1996, right near where 11 miners died two years earlier in the infamous explosion at BHP’s No.2 underground mine.

Queensland had some conventional onshore gas fields in the Surat and Bowen Basins, but they were in decline. In 2000 then Premier Peter Beattie decided to diversify the state’s energy supply away from coal.

From 2005 electricity retailers would have to supply 15 per cent of their power from gas (13 per cent) or renewables (2 per cent, consistent with the federal government’s then renewable energy target). Beattie wanted a step change and in 2002 decided a new $500 million gas-fired power station at Townsville would be supplied, not by a pipeline from PNG, but by Queensland’s own CSG. A new industry was born: coal seam gas production in Queensland jumped a hundred-fold in a decade.

But former Howard government energy minister Ian Macfarlane used to say God played a joke on Australia, putting the people on the east coast and the gas on the west coast. With the discovery and development of Queensland’s vast CSG reserves – estimated at some 200 trillion cubic feet, more than is contained in all Australia’s conventional gas fields like the Cooper Basin, North-West Shelf or Bass Strait – the joke is over. It was certainly more gas than Australia’s small domestic market, with abundant coal-fired power, could ever absorb.

Queensland’s CSG would go for export as liquefied natural gas (LNG), shipped out of Gladstone to Asian markets. LNG plants producing millions of tonnes per annum are hungry beasts – nowhere else in the world had they been hooked up to thousands of CSG wells. But in 2010-11 three giant CSG-to-LNG projects worth $60 billion – BG Group’s Queensland Curtis LNG, Santos’ Gladstone LNG and Origin Energy’s Australia-Pacific LNG – were rushed through state and federal government approvals, with 20,000-30,000 wells to be drilled across the Darling Downs over the next two decades.

The LNG plants are under construction and will be up and running from 2014-15. A fourth project, Arrow LNG, proposed by Shell and Petrochina, is hoping for approval.

Queensland’s big CSG-to-LNG projects may enhance Australia’s energy security – we are poised to overtake Qatar as the world’s largest LNG exporter by 2017 – but their impact on domestic energy prices and greenhouse gas emissions is highly debatable.

Domestic gas prices on the east coast are expected to double by around 2015, as they reach ‘export parity’. In simple terms, for the first time Australian gas users – commercial and residential – in the eastern states are competing for gas with energy-hungry Asian nations like Japan, Korea and China.

Manufacturers like Dow Chemical and Incitec Pivot, who use huge amounts of gas and are already struggling with our high dollar, are livid. Households battling rising electricity prices will be shocked to find their gas prices doubling too.

The impact of CSG development on Australia’s greenhouse gas emissions is also contentious. Coal-fired power stations are not switching to gas here – and even at $23 a tonne, well above the international price, the carbon tax is not high enough to incentivise the switch. LNG is incredibly energy-intensive to produce and the industry is already one of the top emitters in the country, even before our production capacity triples.

Gas is cleaner-burning than coal at the point of combustion – the industry claims up to 70 per cent cleaner – but it only lowers emissions if gas substitutes for coal, and there is little evidence that is happening in Asia. Plus, there is a huge debate about the full life-cycle emissions of unconventional gas extraction, particularly once fugitive emissions (or ‘leaks’) from thousands of wells and from seepage – until now considered negligible – are included.

In research which is still subject to peer review, Southern Cross University researchers this month took the first field measurements of fugitive emissions in a coal seam gas field in Queensland. The preliminary findings show there is reason to believe fugitive emissions from CSG extraction here may be much higher than expected and in line with the latest US scientific findings, that 2-4 per cent of the gas may be escaping to the atmosphere.

If fugitive emissions are indeed that high, and are uncontrolled, given methane has much higher warming potential than coal, CSG could turn out to be a worse fossil fuel than coal. As the world faces up to the challenge of getting emissions to peak this decade, and limiting global warming to two degrees, that would undermine the entire premise that gas can be a transitional fuel.

Having watched Queensland’s ‘dash for coal seam gas’, NSW is at a crossroads. CSG is still in its infancy there but the NSW government is convinced that rising gas prices mean the State, which has always piped gas from the Cooper Basin or Bass Strait – both still producing in ample quantities – suddenly needs its own indigenous gas supply. The NSW Government has backflipped on preelection commitments to establish ‘no-go’ areas, protecting prime agricultural land.

In the Gunnedah Basin, Santos wants to develop hundreds of wells across the Pilliga State Forest and Liverpool Plains. AGL, which operates the state’s largest-producing CSG field on Sydney’s south-western fringe, wants to expand into the suburbs near Camden, and also pushing into the Hunter Valley. Hopefuls like Metgasco, Dart Energy, Apex Energy and Planet Gas have contentious projects.

In fact CSG exploration is criss-crossing Australia – from the Kimberley to Victoria’s Gippsland Basin, from the Northern Territory to Tasmania. And coming up behind is shale gas with a resource of as much as 400 trillion cubic feet estimated to lie in places like the Cooper Basin. Ticking
the boxes of our energy trilemma? Not yet.

*Paddy Manning is a senior business writer for the Sydney Morning Herald and The Age and the author of ebook What the Frack? Everything you need to know about coal seam gas, published by NewSouthBooks and available on iTunes, Kindle, bookstores and via NewSouthBooks.com.au , $4.99.