Gas Week

EWN Publishing

How to account for coal seam gas assets in SE Australia

Posted by gasweek on 18 September, 2007

Wood Mackenzie told the NSW Owen Review, 55 per cent (4,935PJ) of SE Australia Additional Potential gas resource can be developed and produced in the period out to 2030.  Wood Mackenzie said CSG projects tend to expand capacity incrementally and 2P reserves growth increases over time, until an economic plateau in production is reached and maintained.

Great leap forward: Wood Mackenzie  said this can be seen from a comparison of the Eastern Australia coal seam gas (CSG) reserves over time;

• In 2002, CSG 2P reserves were less than 500PJ; but

• by 2007, CSG 2P reserves are ~4000PJ.

The details were in the Wood Mackenzie paper commissioned by the NSW Owen Review; Availability and Cost of Gas for NSW Baseload Generation 31st July 2007.

Eastern Australia

Early stages of CSG development: The paper said,  during the early stages of CSG development, the initial focus of activities was establishing the economic basis for future production. This involved pilot projects which test the production capabilities of the coal seams. The completion techniques of the wells may also be tested to optimise the production rates relative to the well costs. Additional drilling may  begin to establish a 2P reserves base to enable sales contracts to be executed once economic production has been established. The 3P resource was high in this initial period, but the 2P resource was generally low. Only though further drilling could the 2P reserves be increased.

Negative effect on cash flow: With relative low production rates early on in a CSG projects development, drilling to establish 2P reserves can have a negative effect on cash flow. The conversion to 2P reserves therefore needs to be balanced against the expected rate of production growth (and commercialisation of the reserves through supporting contracts), particularly with smaller companies with limited financial resources.

As CSG projects begin commercial production, they can incrementally add capacity (pipelines, processing plant and compression) to increase production. The ultimate plateau rate for a project will depend on the available market, the costs of development, the production profile and ultimate recovery per well. As a result, CSG projects tend to expand capacity incrementally and 2P reserves growth increases over time until an economic plateau in production is reached and maintained.

How to account for coal seam gas assets: The criteria Wood Mackenzie used for the Additional Potential resources for SE Australia was:

• The ultimate Additional Potential reserves quantity used for a given project was limited to less than 80 per cent of the Possible reserves for the project;

• A modelled production plateau of at least ten years was required to support the level of capacity expansion.

This took into account the different production profiles of wells between projects. The number and timing of wells required (both production and work-overs) together with supporting infrastructure (pipelines, plant and compression) was analysed to determine the forecast production level. The production expansion of each CSG project was required to be economically viable at current gas prices.

• The Additional Potential gas resource represents a significant volume (8,578PJ) of potential gas for future development and production.

Note, this does not represent the ultimate 3P CSG resource potential of Eastern Australia, rather it is Wood Mackenzies view of the current 3P resource that we believe is capable of being economically developed in the period to 2030.

4,935PJ to 2030: Within the parameters set out above, we have forecast that 55 per cent (4,935PJ) of this Additional Potential gas resource can be developed and produced in the period out to 2030. The addition of further 3P reserves are likely over the forecast period as exploration continues and new projects are assessed

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