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CBM urgent priority for Australia, says government

Australia’s incoming Liberal-National coalition government has made clear that development of the gas industry, particularly the removal of barriers in the coal-bed methane (CBM) sector, will be an urgent priority

Incoming federal industry minister, Ian Macfarlane, is taking a no-nonsense approach in order to drive the unconventional sector forward. The minister says he will be pushing particularly hard to progress the CBM business in gas-short New South Wales (NSW), where increasing uncertainty surrounding regulations has ground the industry to a halt over the past 18 months.

Locally produced CBM could help counter rising east coast gas prices, predicted to hit A$9 ($8.4) a gigajoule (GJ) by 2017. This compares to A$3-4/GJ just two years ago.

Opposition to CBM operations, as well as regular policy changes, has so far curtailed development in NSW. Community groups cite concerns over land access and use, ground-water treatment and the potential effects of hydraulic fracturing (fracking) operations. 

Macfarlane dismissed opposition to the CBM industry as unscientific and driven by small but vocal interest groups. “I’m not interested in noisy protesters, minority groups, with no interest in the development of regional Australia and the economic progress of agriculture and mining together,” ABC News reported him saying.

The minister was speaking ahead of a summit that will focus on NSW energy policy, or rather lack of it, including its stance on CBM. NSW, which imports 95% of its gas needs from other states, could be verging on an energy crisis.

Some of its supply deals start to expire next year and may not be renewed, particularly as three CBM to liquefied natural gas (LNG) export plants, due to start-up from 2014 in neighboring Queensland, will soak up supplies for export to more lucrative Asian markets.

But Macfarlane’s approach to the environmentally sensitive CBM debate will be welcomed by the industry, at a time when Australia begins serious discussions about its energy policy.  

The election of the business-orientated centre-right Coalition in the country’s recent federal poll has been cautiously welcomed for its pro-industry approach

Nevertheless, analysts say NSW is facing a real supply crisis over the next few years, as even a sudden shift in energy policy will not yield new supplies straight away. The situation could be exacerbated when the LNG export plants start operating at full capacity, expected around 2017.

With LNG fetching premium prices in North Asia – now around $16 per million British thermal unit – NSW, which has traditionally paid about a quarter of that price for its gas, will struggle to compete for supplies.

Santos, the biggest CBM player in the state, has struggled to push ahead with development plans, while smaller unconventional explorers, Metgasco and Dart Energy were forced to suspend operations in the state because of the changing regulatory environment.

But investors are upbeat about the new government’s intention to boost CBM development. The share prices of both Metgasco and Dart have jumped about 30% since Macfarlane aired his views.

For Santos, the largest CBM acreage holder in NSW, stable policy is crucial if it is to invest A$500m on exploration over the next three years in the state.

The Adelaide-based operator, also Australia largest-domestic gas supplier, said that the looming shortages could be avoided by the timely and balanced development of the state’s discovered reserves.

Developing new NSW projects is important as they will increase the security of supply and help alleviate some of the rising gas price pressures in Eastern Australia, says Chris Graham, an Australian specialist at energy research firm Wood Mackenzie.

Macfarlane, who has warned of gas supply shortages if reserves are not tapped, said the federal government would take a “genuinely co-operative approach” to progress on CBM in NSW.

His proposed “one-stop shop” solution to streamline approvals for new projects aims to avoid duplicating federal and state regulations.

Macfarlane also plans to travel NSW to tell farmers first hand how CBM and agriculture coexist with each other in his home state of Queensland.

Australia’s CBM sector, largely driven by Queensland, has witnessed phenomenal growth over the past decade. Production rose 15-fold to 750m cubic feet per day (cf/d) in 2012 from a modest 50m cf/d in 2002.

But this growth story is export-driven and has barely started. Three CBM-to-LNG projects are being built in Queensland and a fourth is working towards its final investment decision. By 2020 over $50bn will have been invested in the sector.

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