Coal-fed LNG: a risk too far?

Summary

It has been reported that Santos in Australia propose to develop a new 3 to 4 Mtpa LNG export facility using coal-bed methane (CBM). Several countries are actively utilising such CBM via pipeline supplies to augment supplies of conventional gas and the CBM industry is growing quite rapidly. However, CBM projects have their own peculiarities and this Santos project is the first case known to the author of a CBM gas supply being proposed to link directly to an LNG export plant.

Analysis

LNG is a long term business and investment in liquefaction plant (by far the most expensive segment of the LNG chain) when designed for export has always been predicated on either a long-term supply of associated gas from a large oil field or from a substantial natural gas field that offers guaranteed supplies for at least 20 years.

CBM is, however, a different kettle of fish. Coal seams are often widely variable in their thickness and properties, and specifically their gas content and permeability. This has always led to difficult projections of a production rate or producing period. CBM projects are also complicated by the fact that in contrast to a normal gas field, where well(s) are drilled at the beginning of the project with a high early production that plateaus for a long period and then declines,   CBM “fields” are usually seen as projects where there is a progressive development of new wells drilled during the project life to continuously access new porous rock – this has been likened to “gas mining”. This fact leads to a larger range of uncertainty in terms of gas reserves. Additionally, CBM projects usually deliver the bulk of their production in the first 10 years or so and then decline in production.

CBM is a very useful and valuable enhancement to gas supplies for many countries but in the opinion of the author this gas is best used as pipeline gas to feed local markets. The Gladstone area of Australia is one the great Australian success stories with much heavy industry present, including an Alumina plant and a an expanding Aluminium Smelter. This CBM gas could be perhaps be used in the local area, either by pipeline or by LNG road tanker for more remote areas, either for industry or for new power generation plant, to augment or replace the current coal-fired plant. For Santos to envisage applying such CBM gas for an LNG project apparently focussed on export to the lucrative North East Asian gas markets, presumably Japan and China, is a totally different and innovative project with considerable risks.