With Investment and expansion on the rise, the future is looking up for Queensland’s CSG industry. Nicholas Newman reports.
The future for the state’s coal and coal seam gas (CSG) industries is looking up! Overseas demand for these sectors continues to increase at a steady pace. As a result, there are ambitious plans to invest billions of dollars to dramatically expand capacity. However, the industries’ expansion plans face several obstacles that need to be resolved. They include the recently announced carbon tax, skills shortages and local opposition due to environmental problems.
Queensland coal
Take Queensland’s coal sector, the Geological Survey of Queensland estimates that there is more than 30 billion tonnes of black coal remaining in place in the state with much of it located in the Surat and Bowen basins of the interior. Coal is the state’s single largest foreign export earner, not surprising when much of Australia’s coal is mined in Queensland. In the year 2009/10 the state produced, mostly from open cast pits, 77 MT of thermal coal and 116 MT of coking coal reports the Queensland Resources Outlook – August 2011.
However, this year’s output is likely to be down, because of the last summer’s wet season flooding which had a severe impact on mining production and transport networks. This resulted, reports CEO Queensland Resources Council Michael Roche, in only 15% of the state’s coalmines being in full production, 60% working with some restrictions and a further 25% not in production. Consequently, Michael Roche estimates that the state’s mining sector faced a loss of $2-3 billion in lost sales. The floods caused BHP Billiton Ltd. and Rio Tinto Group to declare force majeure, a legal clause that allows producers to miss deliveries. Nevertheless, the state’s Premier Anna Bligh expects Queensland to increase its coal production by almost 80% by 2020.
However, the Queensland Resources Council makes the claim that the introduction of Prime Minister Julia Gillard’s carbon tax could jeopardise expansion plans, resulting in the loss of 3,000 coal-mining jobs directly and as many as 13,000 indirect jobs servicing the industry.
Coal markets
At present, Queensland provides 20% of the coal traded in international coal markets. In 2009, the State’s 52 coalmines earned some $33.2 billion in export revenues and the QRC’s Roche estimates that Queensland’s State Treasury receives some $8.5 million every day in royalties from coal production. This is not surprising given that in the past year, the price of coking coal has increased by 19% and for thermal by 17%, reports the newly established Bureau of Resources and Energy Economics report on Resources and Energy Statistics – June 2011.
Currently, the domestic market consumes 15% of the state’s output, mostly for power generation, while the rest is exported to mainly power stations and steel mills in some 47 countries, though the main markets are Japan (36%), Korea (15%) and India (13%). Queensland dominates global metallurgical coal exports with 75% of export tonnage.
Expansion plans
As part of efforts to meet continuing increases in demand for both metallurgical and thermal coal from Queensland, investors have announced several projects to not only expand existing mines, but also the development of new mines from scratch. Among the proposed mining schemes being examined by the State government for approval are the following proposals: the Galilee Coal Project, Bowen Basin Coal Growth Project and Wandoan Coal Project. Approval of these would increase Queensland’s coal industry exporting capacity by 40%.
New mines
International mining conglomerates such as Anglo American, Rio Tinto and BHP Billiton dominate much of Queensland’s coal mining sector. Today, Queensland is seeing the entry of new investors from the newly industrialising countries such as China and India. A case in point is the 20 billion tonnes northern Galilee basin field, which is due to start production in 2014. Currently, only US firm, AMCI and Australia’s Bandanna Energy have control of 1.2 billion tonnes in reserves, with the rest equally divided between India’s GVK and Chinese power station interests owning 18.8 billion tonnes of this concession, reports Queensland Green Party.
Currently, the $500 million Bowen Basin Coal Growth Project owned by BHP Billiton Ltd and Mitsubishi Development Pty Ltd has been given approval with some minor restrictions. As for the Wandoan project, its backers Xstrata plan to build what would be the Southern Hemisphere’s largest coalmine. The project will produce about 30 million tonnes a year. In March, Xstrata Coal’s Wandoan Coal Project received conditional environmental approval from the Commonwealth Government. However, the project awaits the decision of a court case brought by Friends of the Earth in August. While the Galilee Coal Project has been given approval by Queensland’s coordinatorgeneral and declared a “significant” project.
However, some of the new existing mines to be expanded include the Kestrel mine in central Queensland and the Acland mine in the south-eastern part of the state. Kestrel Mine, located 40 km northeast of Emerald, is an underground operation supplying world markets with up to 4.2 million tonnes of coking and thermal coal per annum.
Rio Tinto is currently constructing the US$1.1 billion Kestrel Mine extension, a project to access the mine’s existing resources more efficiently. The extension, due for completion in 2012, will extend the life of the mine by 20 years, and increase mine capacity to up to 5.7 million tonnes per annum. Rio Tinto Coal Australia manages the operation on behalf of the joint-venture partners, Queensland Coal Pty Limited (80%) and Mitsui Kestrel Coal Investment (20%).
While New Acland Coal Pty Ltd is planning to expand its opencast mine, which is situated in the Darling Downs of South East Queensland. The proposal is expected to increase output from today’s 4.2 million tonnes of thermal coal to up to 10 million tonnes per annum, once the scheme is completed. Currently, 60% of the coal mined from this pit is exported, with the rest destined for power stations in southeast Queensland. However, it has meant New Acland Coal Pty Ltd buying out the residents of the nearby town of Acland to make way for the mine’s expansion.
New infrastructure investment
In addition, to investing billions in new coal exploration and production, the industry is working with the state government to upgrade and expand the network of railways and ports that connect coal terminals with the mines. These improvements to the coal freight rail network are likely to cost at least $2 billion and are due for completion by 2014. Amongst the existing coal ports due for expansion are Hay Point, Abbot Point, Brisbane and Gladstone. The planned Wiggins Island export coal terminal at the port of Gladstone is expected to cost investors some $3.5 billion and should be ready by 2012. Once complete many of the existing congestion problems that hinder coal exports to the rest of Australia and abroad should be resolved.
However, the industry is facing labour problems with its workers, and several strikes have been called to improve wages and conditions. Furthermore, Queensland’s powerful farming lobby has joined with environmental groups to voice concerns about the impact the industry is having on the local environment and on vital water supplies. Lastly, there have been reports in the press that Canberra’s carbon tax proposal could affect investment in the industry in the short term. At a domestic level, it is likely that fewer new coal power stations will be built to replace the country’s fleet of life expired coal power stations.
Queensland gets serious about coal seam gas
In the past decade, the coal seam gas (CSG) industry has gone from obscurity to play a vital role in Queensland’s resources sector. Today coal seam gas is becoming a big business. As Graeme Bethune CEO of EnergyQuest observes, the industry is investing billions in CSG! In fact, much of Queensland’s CSG E&P activities are located in or around the state’s coalfields of the Bowen and Surat basins. Already CSG is supplying 30% of Queensland’s gas requirements, in this rapidly expanding sector. In the future CSG is projected to provide the Queensland state government with some $850 million per annum in much needed royalties. The state has extensive CSG resources with proved probable reserves in excess of 1,000 petajoules (PJ), which is enough to supply the current Queensland market for more than 10 years. There is potentially more than 25,000 PJ of recoverable CSG in Queensland estimates leading domestic energy provider Origin Energy. Many of the discovered CSG fields have good pipeline access to major cities like Brisbane and Sydney. In addition, the introduction of the new carbon tax regime is likely to further increase demand for CSG as power station operators are likely switch away from coal to gas to fuel power stations.
Rapid growth
In 1994, Australian CSG production reached commercial quantities of some 45 PJ, reports Geoscience. Today total annual CSG production has reached 195 PJ per annum reports EnergyQuest. Currently, there are 3,500 wells across Queensland with plans for a total of 40,000, reports AgForce spokesman Drew Wagner. Queensland’s LNG export capacity for CSG output is forecast to reach 25 million tonnes per annum by 2020, forecasts Graeme Bethune. Part of the reason behind this sudden expansion in CSG has been the ever growing thirst for gas from China, but also innovations in CSG technology that have dramatically reduced the cost of gas extraction. Investors have put tens of billions of dollars into projects to export gas from Queensland to markets around the world. There have been applications to develop new wells in the Darling Downs and Cooper Creek Catchment areas. Already, the Queensland Gas Company has been given approval to start exploration in the Darling Downs, and Exoma Energy starts exploration in the Galilee and Eromanga basins. Unfortunately, despite demand remaining strong, discoveries of high quality CSG is becoming more difficult, observes Energy Quest (Australian Coal Seam Gas Report 2011). In addition, in response to public protests the Queensland government is introducing laws to ban CSG E&P in townships of more than a 1000 people.
New export CSG/LNG projects
The Queensland CSG/LNG Industry has four major projects that have the potential to offer as many as 18,000 jobs by the end of the decade. These are the Australia Pacific LNG Project, Gladstone Liquefied Natural Gas Project (GLNG), Gladstone LNG Project – Fisherman’s Landing and Queensland Curtis LNG. The first of these multibillion dollar schemes to come on-line is the Gladstone project in Queensland. The export terminal will be able to export 3.0 million tonne per annum of CSG LNG. Gladstone is a joint venture between the Australian owned Santos, the Malaysian PETRONAS and French Total. The Gladstone project is due to come on-stream in 2014. It is destined to produce 10 million tonnes of gas per annum. Already contracts have been signed for deliveries by LNG tanker to China and Korea.
Rapid expansion problems
CSG rapid expansion has caught many by surprise, and there is evidence of a growing backlash from an unlikely coalition of urban Greens and the rural farming lobby, concerned about potential environmental impacts and disruption to agriculture. This is despite as Graeme Bethune points out that, CSG is more heavily regulated than the country’s uranium mining sector. Graeme is confident that any environmental risks have been minimised. The State is rapidly developing CSG LNG sector is likely to create over 18,000 direct and indirect jobs over the next decade, according to Glenn Porter, CEO of Energy Skills Queensland.
However, like the rest of the country, Queensland’s resources sector is experiencing a boom, which means employers are facing problems finding and keeping skilled-trained staff. As a result, the state is working together with the private sector to proactively develop labour force skills rather than just poach skilled labour from other sectors as they have done in the past.
As to problems facing the industry, the Queensland Gas Commissioner Kay Gardiner is concerned that unless domestic appraisal plans are in place, available gas reserves may not be sufficient to underpin execution of new (domestic) gas sales agreements, he reports in his gas market review. This September, the Weekend Australian reported that big industrial gas users in Queensland were unable to secure long-term contracts, unless they paid double current gas prices or linked their contracts to international oil prices. Already long-term domestic gas prices are said to be about $7 a gigajoule, which is double current spot prices and is roughly the price that a supplier would get for export gas once the cost of freezing and compressing it into LNG for shipment has been deducted. The biggest domestic gas users in Queensland include Rio Tinto, Orica, Xstrata, Incitec Pivot and Amcor.
However, like with coal there is growing domestic opposition to the exploration and production of CSG from the state’s farming lobby and environmental groups due to concerns over the environment and water contamination.
Conclusion
Overall, both coal and CSG are likely to experience rapid expansion in production. However, the speed of development will depend on how well investors, government and local groups can come together to tackle the problems that rapid expansion will pose for Queensland’s economy, environment and politics.
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