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Ready to take centre stage

World Coal,

A new player may be taking centre stage in the energy game in Queensland.

Though coal is the reigning king in these parts, the fossil fuel is about to witness the rise of a rival for its crown.

Following years of planning and construction, the first LNG is being prepared to be shipped from BG Group’s Queensland Curtis LNG (QCLNG) project to supplement Asian energy demand.

QCLNG will be the world’s first project to turn gas from coal seams into LNG.

The capital expenditure for the coalbed methane (CBM) to LNG project is estimated at US$20 billion.

QCLNG is the first of three CBM to LNG plants on Curtis Island off Gladstone to come online. The other two (Origin Energy’s Australia Pacific LNG and the Santos-led Gladstone LNG) are set to come online before the start of 2H15.

Together, the three Curtis Island plants will account for roughly 8% of global LNG production with exports poised for countries including China, Japan, Singapore and Chile.

The conversion of CBM to LNG involves cooling the coal seam gas to below 162°C.

BG’s Tanker, the Methane Rita Andrea, is currently sitting off the coast of Gladstone, ready to come into port to collect its first cargo of LNG.

The specially-designed LNG transporting ship arrived from Singapore with the capacity to carry about 140 000 m2 of this special LNG.

Queensland Curtis Gas Co., a subsidiary of BG Group, has remained tight lipped about the details surrounding the tanker’s arrival, yet the company has confirmed the shipment is expected to leave in the coming days.

The company has also confirmed that mechanical testing of the facility on Curtis Island is now complete and Train 1 and the storage tanks are being cooled, ready to produce and store sales LNG.

A game changer

Many industry analysts and energy traders have already expressed excitement to see the start of LNG shipments from QCLNG.

Experts are interested to see the quality of LNG that has been converted from CBM, while analysts are also watching to see where shipments will be taken to.

The Queensland Government will be hoping for a successful start to operations that could provide the state with substantial benefits.

Professor of regional and economic development at Central Queensland University, John Rolfe, said the finalisation of the plants will provide substantial revenue for the Queensland Government and should experience little impact from the slump in commodity prices this year.

"I think the only real change is that the industry won't grow further in the foreseeable future," he said.

"What's happening is that where we thought we originally might get four or five or six plants being built it Queensland, it's ended up that we've just got the three main major ones. The three companies [...] have essentially been built with the aim of producing [LNG] for the next thirty to fifty years, and they'll ride out any short term dips in prices,” Rolfe added.

"I think the only thing that the low prices at the moment will do is that they'll encourage the company to be very cautious in their expenditure, and it means that they just won't expand as quickly as they previously thought they might,” Rolfe said.

Professor Rolfe also said the completion of the Curtis Island plants could well increase the price of gas domestically, which may not go down so well with domestic consumers.

"Essentially gas in the Eastern side of Australia has been pretty cheap by world standards, and they've remained cheap because it's been impossible to sell off overseas," he said. "So now that those three plants are being built [off] Gladstone suddenly the gas on the Eastern side of Australia can be sold on the domestic market or it can be sold overseas [...] and that competition is going to push up the price of the domestic market.”

"The worst case scenario is that prices could triple from what they've been historically in the few years, but on the better case scenario, because the world prices are dropping and a lot of other factors at play, prices will only creep upwards perhaps 20 to 50% in the next three to five years," Rolfe said.

A changed landscape

The construction of the Curtis Island plants has changed the landscape of Gladstone – almost unrecognisably so.

The coastal town has been transformed into an industrial powerhouse.

The town has seen a massive increase in industry, yet it has also seen unprecedented rises in the cost of housing, road congestion and population growth.

The CBM industry has brought with it huge employment opportunities. In 2Q2014, some 30 700 people were employed by the gas industry.

Eye witnesses report that flying overhead across southern Queensland is a far different experience to what it was fifteen years ago.

A spider’s web of roads link the 6400 CBM wells that have been drilled. By the time all proposed CBM wells are dug there could be about 20 000 wells in Queensland.

CBM tenements cover about 24 000 km2 of Queensland’s Surat Basin – often encroaching on agricultural land.

This has led to a conflict of interest between farmers and CBM companies, yet many farmers have said while they originally had fears over the CBM wells – for example, concerns with water – these have (for the most part) been allayed.

One farmer said that there had “been a lot of concerns along the way with on the ground impacts, these haven't necessarily gone, but I guess we are learning to manage those impacts, we're working with the companies to address those."

"I wouldn't say all fears have gone but maybe the fog has lifted to a degree," he added.

On the cusp of revolution

The CBM industry has brought challenges, as well as benefits. These challenges are far more than the well-publicised debate between pro-CBM players and anti-CBM activists.

The ramp up of CBM production has had huge infrastructure challenges, including road building, housing, accommodation and service.

Now the industry is moving from the construction phase to the production phase.

Mayor Ray Brown of the Western Downs Regional Council – the centre of a lot of the upstream CBM development – hopes the transition from construction to production will be a smooth one.

"Making sure that we have good sustainable infrastructure that's left for the community that's got longevity so things like water, sewerage and road infrastructure," Brown said.

"This is the cusp of an energy revolution across not only Queensland and Australia, this has taken the world by storm," he added.

Written by Sam Dodson

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