Posted by ERCE on Sun, 05/10/2020 - 12:02

The presence of gas in coals is a long and well-known phenomenon, dating back to unfortunate mining accidents as far back as the early 1800s. By the early 1900s it was common to degas coals prior to mining operations, but it was not until large tax reforms in the 1970s, pushing for the development of unconventional resources in the United States that coal seam gas (CSG) was explored for commercial development.

By the early 1980s, production began from the Black Warrior and San Juan Basins in Alabama and New Mexico respectively. Hosting the world’s 5th largest coal reserves(1) and with a booming mining industry, Australian companies kept a keen eye on the development of these CSG fields across the Pacific Ocean. Drawing parallels between these American Fields and the Bowen Basin of Queensland, a number of exploration projects begun. By 1996, 160 wells were drilled, and production started to serve the growing domestic market of south-east Queensland(2).

From 2000 onward, the push for natural gas as a cleaner source of electricity, in comparison to the dominating coal-fired power plants, accelerated the development of CSG projects. In 2005, the Queensland Government introduced a law requiring 13% of electricity generation to be sourced from gas, rising to 15% by 2011(3). This led to further exploration in the Surat Basin, a younger basin overlying the Bowen Basin, pictured in Figure 1. Today, nearly 99% of all petroleum activity in Queensland is related to CSG projects.

Figure 1 - Queensland Coal Seam Gas Development Zones - Source: Australian Resource Assessment 2012 (4)

Coal Seam Gas Characteristics

The unique properties of coal differentiate the production of CSG and conventional gas reservoirs. Gas is held in coals by adsorption, with the gas molecules adhering to the pore surfaces, rather than being held as free gas in pore volumes. The gas storage capacity is therefore a function of pore surface area. Furthermore, up to 96%(5) of the gas may be found on the surface of micropores (with diameters <2 nanometres). With one gram of coal having a surface area of up to 100m2(6), equal volumes of coal can hold as much as seven times more gas than an equal volume of 25% porosity sandstone.

The maximum gas storage capacity of a coal is modelled by Langmuir’s isotherm, demonstrating the increase in storage capacity with increasing pressure. A coal’s Langmuir profile varies depending on coal composition, and can be determined through adsorption testing. Generally, at a given pressure, the maximum storage capacity will increase with coal maturity.

Gas generation occurs throughout coalification process, increasing with temperature and depth. However, the gas content of a coal, measured by desorption testing, is typically lower than the maximum storage capacity. In this case, the coals are considered undersaturated.  

Gas production requires coals to reach saturation. Pressure must be reduced to a critical desorption point, at which the pressure lies on the Langmuir profile. Figure 2 shows a typical Langmuir Isotherm for a coal. In this example, the pressure of the undersaturated coal must be reduced by 2000kPa to reach the critical desorption pressure and stimulate gas production. In order to reduce the pressure, the hydrostatic pressure exerted by water present in the coal seams or adjacent aquifers must be reduced. Wells are drilled in order to ‘de-water’ a well, effectively producing water until the critical desorption pressure of the gas is reached. This process can vary in duration from months to years.

Figure 2 - Langmuir's Isotherm Source: Methodologies for Investigating Gas in Water Bores(7)

Coals are both brittle and compressible in comparison to conventional reservoir rocks. As such, coal reservoir properties are highly dependant on pressure.

Due to their brittle nature, coals exhibit natural bound fracturing, or cleats. The frequency of cleating increases with burial depth, due to increasing pressures.

Conversely, the compressible nature of coals will cause the cleats to close with increasing pressure. With burial depths increasing, confining pressure increases, compressing the cleats.

Coal cleats entirely control the permeability of a coal reservoir, with the matrix permeability considered negligible. Decreasing cleat width with depth causes permeability decreases, leading to relatively shallow permeability cut-offs. The exact depth of the permeability cut-off depends on both coal maturity and seam width. Larger seams can be targeted by fracture stimulation in order to increase initial permeability. 

Figure 3 - Typical Production Profile of (A) conventional gas reservoirs and (B) CSG reservoirs – Source: Coalbed Methane: A Review(8)

Importantly, the permeability of coals is a dynamic function. As gas is produced, in-situ pressure on the coals increases as pore pressure decreases, causing the cleats to compress. Conversely, as gas is desorbed from the pore surface, the matrix shrinks, allowing cleats to open. These two processes counteract each other, but generally permeability will increase during production. This leads to a slowing of decline in gas rates with production, resulting in different production behaviour relative to conventional reservoirs.

Figure 3 shows the typical production profiles of both conventional (A) and CSG (B) reservoirs. Notable differences include the de-watering period, during which gas rates are low and water rates are high, and a gentler post peak gas decline rate. Decreasing water rates will lead to favourable relative permeability conditions for late life gas production.

Gas desorption tests and Drill Stem Tests are performed early in the project life to find gas content and permeability respectively, to test the viability of a project.

Queensland Basins

Nearly all of Australia’s CSG production occurs in the Surat and Bowen Basin, with the nearby Galilee Basin’s potential being currently explored. While these basins partially overlap, the target coals demonstrate very different properties.

Bowen Basin (Early Permian – Middle Jurassic)

The Bowen Basin spans roughly 160,000 km2, with the southern extremity underlying the Surat Basin. The Early Permian to Middle Triassic coals are considered mature, demonstrating strong heterogeneities throughout the basin. Three main areas are targeted for CSG production. The northern end of the Basin hosts thick coal seams of relatively low permeabilities (often less than 10mD) but high gas content. The thicker coal seams are targeted by horizontal wells, at a depth of 200-500m.

Coals in the anticlinal plays at the Southern end of the Denison Trough and the Eastern edge of the Taroom Trough show higher permeabilities (up to 50mD) and higher gas contents. These plays are slightly deeper, usually between 500-800m.

Figure 4 - Structural Features of the Bowen and Surat Basins - Source: An overview of the coal seam gas developments in Queensland(2)

Surat Basin (Early Jurassic – Early Cretaceous)

The Younger Surat Basin overlies the Bowen Basin, spanning 300,000 km2 of Southern Queensland and Northern New South Wales. The younger Jurassic coals are generally less mature, showing higher permeabilities but lower gas content. The coals form thin, laterally discontinuous seams, and vertical wells are able to penetrate numerous seams. General targets are between 200-600m deep, with the thin beds limiting production deeper than 800m.

Galilee Basin (Late Carboniferous to Middle Triassic)

The Galilee Basin is found further inland in Central Queensland, spanning 247000 km2. The CSG targets are thick Permian coals, with both intermediate permeability (averaging 30mD) and gas content. Targets are relatively deep, up to 1200m, with the thick coals suiting horizontal well production.

Table 1 - Target Coal Seams of the Queensland Basins

Table 1 lists the target coal seams of each of the Queensland Basins.

Using publicly available data, ERCE has created contour maps of permeability and gas content around the Bowen, Surat and Galilee Basins. The data confirms the general rules of CSG, wherein permeability decreases with depth and gas content increases with coal rank.

Figure 5 – Gas Content (Upper) and Permeability (Lower) Contour Maps for onshore Queensland, Australia(35)

Note -   Lack of data points can cause erroneous results away from main development areas

ERCE has compiled publicly available data to create an interactive database. Figure 6 shows a capture from this database. All wellbores with either gas content (red) or permeability (green) information are mapped. The following statistics can be calculated for a given location:

  • Average Gas Content
  • Average Permeability
  • Gas Content – Depth Trends
  • Permeability – Depth Trends
  • Wells in selected region

Figure 7 shows data for an area centred on Latitude: -22, Longitude: 148 +/- 0.5 degree.

The coal permeability and gas content statistics and trends can be calculated by entering a location (in this example – Latitude: -22, Longitude: 148). The expected trends of gas content decreasing and permeability increasing with depth can be noted.

Figure 6 - All Coal Seam Gas wells containing either Gas Content (Red) or Permeability (Green) data(35)

Figure 7 - Gas Content (Left) and Permeability (Right) Trends with Depth centred Latitude: -22, Longitude: 148 +/- 0.5 degree

Similarly, the data can be analysed for all target coal seams. Figure 8 shows information about the Taroom Coal Measures.

Figure 8 - Gas Content (Left) and Permeability (Right) Trends with Depth of the Taroom Coal Measures

Current Developments

Following the initial success in the Bowen Basin, commercial production from the Surat Basin begun in 2006. The higher permeability coals of the Surat Basin led to higher flow rates than in the Bowen Basin. The development of the Surat Basin saw CSG production exceed that of conventional gas by 2007.

While in the early 2000s the rapidly growing east coast population had caused concern about a gas shortage, the production growth from the Surat Basin alleviated this As a result of the Surat Basin discoveries the east coast in fact faced a saturation of the gas market.

Table 2 - LNG project operators

The overproduction led to the proposal of the worlds first CSG to LNG project. Three plants were to be constructed on Curtis Island, just offshore Queensland. With approval in 2010-11, a number of large multinational companies, listed in Table 2, invested in the development of the Bowen and Surat Basin. By 2015, the LNG projects were completed and exports began. Over 5000 wells were drilled between both the Surat and Bowen basin during this period.

These LNG projects remain the largest CSG projects in Australia, with the major LNG players holding over 80% of all 2P reserves in Queensland. While some gas production supplies local demand, the bulk is exported as LNG.

Other smaller commercial projects exist throughout both the Surat and Bowen Basins, focusing on meeting local demand.

The only non-Surat/Bowen based commercial Australian CSG project is AGL’s Camden gas project in the Sydney Basin of New South Wales (NSW). However, citing increasing production costs and limited room for expansion, the project is set to be shut by 2023(9), 12 years earlier than planned.

Figure 9 shows all CSG wells throughout Queensland and NSW. The darker red wells show currently producing wells. The major currently developed projects, and a few exploration projects are highlighted.

Figure 9 - All Australian Coal Seam Gas Wells and Projects - Darker Red Denoting Currently Producing Wells(36)

Modified from references(36 & 38)

Production history

Queensland Government’s open data portal(13) reports bi-annual production and reserves of the Surat and Bowen Basin. Figure 10 shows the historical water and gas production and well count of both Basins. A large increase in well count and subsequent production can be noted following the LNG project approvals in 2012. Recent production drops can be attributed to incomplete reporting in 2018. The water rates of the Surat basin seem to have reached a peak in 2015, with the majority of wells having now passed the de-watering stage.

Figure 10 – Bowen & Surat Basins Production History(37)

Reserves History

Figure 11 shows the historical reserves of both the Bowen and Surat Basins. Large increases in reserves can be seen, particularly in the Surat Basin prior to the LNG project approval. However, 2P Reserves peaked in 2016, shortly after the LNG plants came online. Since then, there has been a decline in reserves. Currently none of the LNG plants are operating above an 80% capacity(14). The initial overestimation of reserves has been in part attributed to underestimated development costs and confirmation bias when seeking project approval(15).

A few examples of write downs are listed below:

  • APLNG $109 million write off of Gilbert Gully Field in Surat Basin due to poor permeability(16)
  • Origin write down 120 Bscf 2P reserves in Ironkbark Field in Surat due to experience in analogous fields (2018)(17)
  • Shell $390m (~565 Bscf) write down across both Bowen and Surat Basins (2017) (18)
  • Arrow Energy reclassification of ~3000 Bscf of Bowen Reserves, stating the need for further technical work to produce from the tighter bowen coals than their surat assets (2018) (19)
  • AGL and Arrow Energy joint venture ~1000Bscf 2P reserves reclassified as 2C in Northern Bowen Basin (2018) (19,20)

Figure 11 – Historical Reserves, Production and Reserve Changes(37)

Production data for Queensland is publicly available on a per-lease basis. This allows comparison of average production trends across leases. Figure 12 is an example showing water and gas production, averaged over well count in the Surat Basin and Bowen Basin lease areas. Both decreasing water rates and increasing gas rates can be identified as per expectation for CSG developments. It should be noted that the heterogenous nature of both basins leads to stark contrasts between adjacent lease areas.

Figure 12 - Gas and Water Production from PL 211 in the Surat Basin and PL 195 in the Bowen Basin(37)

New Developments

Adding to the continual expansion of the LNG projects, there are a number of ongoing exploration and development projects throughout Australia.

The largest of these projects is the Santos Narrabri project, in the last stages of approval(21), targeting the coals of the Gunnedah Basin in New South Wales (NSW). Santos has stated that the project could provide up to 50% of NSW energy demand(22). As of 2015, at least 113 mmboe (approximately 700Bscf) of recoverable volumes were classified as 2C Contingent Resources(23).

The coals of the Gunnedah Basin exhibit typically high gas contents, particularly those having been exposed to igneous intrusions, accelerating gas generation(24). Gas contents between 10-15 m3/t are reported throughout the basin(24). However, the permeability of the coals is low, and fracturing is required. Two early vertical pilot wells utilising horizontal fracturing demonstrated gas rates of 150Mscf/d and 150bbl/d(25).  Generally, the NSW basins demonstrate lower water rates, leading to lower extraction costs(26).

The Galilee basin, in Central Queensland, has some of Australia’s largest coal mining resources, soon to be developed by the Adani Mine. With increasing horizontal well technology, these well documented thick coal resources have lately become a target area for the CSG industry.

Currently three projects are underway in the Galilee Basin. Galilee Energy’s Glenaras project is the furthest developed, with 5 multilateral wells currently in the de-watering stage, with a goal of converting 2364 Bscf of Contingent Resources into Reserves(27). Information about de-watering times and subsequent gas rates will be crucial in the future development of what is currently a near untouched basin with significant potential. Comet Ridge (Gunn Project) and Blue Energy have neighbouring projects.

Figure 13 shows the historical permit areas of the Galilee Basin. Highlighted are the three areas undergoing exploration. All three projects are targeting coals between 800 to 1,200m deep through the Aramac Trough, seen in Figure 14. Publicly available data for Rodney Creek 1 and Vera Park 1 wells in this trough found the coals to have an average permeability of 13.2mD and 5.13 mD respectively. Average Gas Content for these wells were 3.37 and 6.83 m3/t respectively.

Targeting deeper coal seams than those of the Bowen and Surat Basin, commercial flow rates are yet to be demonstrated. Given successful pilots, a 585km pipeline will be necessary to connect the Glenaras Project to the Queensland Gas Pipeline(28).

Figure 13 - Historical Petroleum Leases in the Galilee Basin – Source: Bioregional Assessment(29)

Figure 14 - Top of Permian Coals - Source: Bioregional Assessments(30)

Strike Energy are in the process of evaluating the commerciality of the deep coal seams (up to 2200m depth) of the Cooper Basin(31), straddling Queensland and South Australia. This project targets thick Permian aged coals, requiring extensive fracture stimulation. The Jaws 1 horizontal well was drilled in 2018, and is currently flowing at a rate of 40 mscf/d and 3000bbl/d, which is not yet commercial(31). The gas rate is slowly increasing, and Strike believe that it is yet to peak(32).

The Perth Basin in Western Australia has been earmarked as another potential CSG rich area(33), though no CSG exploration wells have been drilled.

Summary

Despite large growth in production, the CSG gas industry is a relatively new compared to conventional hydrocarbon extraction. Commercial production only occurs in four countries worldwide, but the extent of the globe coal resources hints that the industry has room for growth. Pilot projects are currently occurring in India and Russia.  

Australia is now the leader in global CSG production and has three associated LNG export projects located in Queensland. Based on current gas production, the Australian Energy Market Operator (AEMO) states there is a need for further exploitation in order to meet the gas demands of these LNG projects and the East Coast of Australia(34). The ongoing development of the Surat and Bowen Basins, coupled with CSG exploration and appraisal projects can help meet this demand.  

 

ERCE has worked on a large number of Coal Seam Gas projects in Australia, India and Mongolia. Our client projects have ranged from small exploration companies opening up plays in new countries to large existing production projects. We’ve performed and supported basin studies, commercial studies, economic modelling, M&A due diligence, Reserves & Resources evaluations and assessments, as well as technical project work. We are also experienced in different stages of the CSG development cycle including Exploration, Development and Production.

To find out how ERCE can help guide you or provide technical & commercial support on current or potential CSG projects, please contact us at enquiries.asiapacific@erce.energy.

References 

  1. https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-full-report.pdf
  2. https://www.csrm.uq.edu.au/media/docs/1386/1-s20-s1875510016300853-main.pdf
  3. https://www.business.qld.gov.au/industries/mining-energy-water/energy/gas/regulation/legislation
  4. http://www.ga.gov.au/webtemp/image_cache/GA21116.pdf
  5. https://www.jstor.org/stable/36813
  6. https://reader.elsevier.com/reader/sd/pii/S0166516212001760?token=F294C10038D77ACC655707A072ABBCB05613D5A39DC2B553E69D713AE4214B99DFD2DE928968811EE7DF17DB8E0E97A8
  7. https://www.researchgate.net/publication/302559179_Methodologies_for_Investigating_Gas_in_Water_Bores_and_Links_to_Coal_Seam_Gas_Development
  8. https://reader.elsevier.com/reader/sd/pii/S0166516212001760?token=3DB65D522226EA9D8A1EC2859AC1CEA97BBA144C432B281F7C6E22DACC2E1175E3C3943FFFE69662C2237BAA24C31EE7
  9. https://www.agl.com.au/about-agl/how-we-source-energy/camden-gas-project
  10. http://www.landtrakcorp.com/wp-content/uploads/2012/01/coal-seam-gas-2012-facts.pdf
  11. https://www.aplng.com.au/content/dam/aplng/compliance/eis/ExecutiveSummary.pdf
  12. https://www.accc.gov.au/system/files/Gas-Inquiry-December-Interim-Report-2018.pdf
  13. https://www.data.qld.gov.au/dataset/petroleum-gas-production-and-reserve-statistics
  14. https://www.sbs.com.au/news/gas-shortage-to-hit-qld-lng-plants-study
  15. (https://ieefa.org/wp-content/uploads/2017/06/Australias-Export-LNG-Plants-at-Gladstone-The-Risks-Mount-_June-2017.pdf
  16. https://www.originenergy.com.au/content/dam/origin/about/investors-media/180731_June-18-QPR_Final.pdf
  17. https://www.originenergy.com.au/content/dam/origin/about/investors-media/documents/2018-annual-reserves-report
  18. https://reports.shell.com/annual-report/2017/supplements/oil-and-gas-unaudited/natural-gas.php?tabc=1e1
  19. https://www.accc.gov.au/system/files/Gas-Inquiry-December-Interim-Report-2018.pdf
  20. https://www.agl.com.au/-/media/agl/about-agl/documents/media-center/asx-and-media-releases/2015/20150812_agl-annual-reserves-assessment.pdf?la=en&hash=B9AC198688D188AEF527F7E0610C2B50
  21. https://www.nasdaq.com/articles/australias-santos-says-%242-bln-narrabri-project-referred-to-planning-commission-2020-03-12
  22. https://narrabrigasproject.com.au/about/narrabri-gas-project/
  23. https://www.santos.com/wp-content/uploads/2020/02/160219_reserves_statement.pdf
  24. https://www.bioregionalassessments.gov.au/assessments/12-resource-assessment-namoi-subregion/1212-coal-seam-gas
  25. https://www.onepetro.org/conference-paper/SPE-133901-MS
  26. http://www.aph.gov.au/DocumentStore.ashx?id=a23b5101-fe4a-450d-8c5c-a7eb2cf34cd5
  27. https://galilee-energy.com.au/galilee-gas-project
  28. https://jemena.com.au/about/newsroom/media-release/2019/proposed-route-for-the-galilee-gas-pipeline-reveal
  29. https://www.bioregionalassessments.gov.au/assessments/12-resource-assessment-galilee-subregion/12221-exploration-permits-petroleum
  30. https://www.bioregionalassessments.gov.au/assessments/12-resource-assessment-galilee-subregion/12111-aramac-coal-measures
  31. https://www.asx.com.au/asxpdf/20200120/pdf/44dclllnzh09k4.pdf
  32. https://strikeenergy.com.au/cooper-basin/
  33. https://www.ga.gov.au/scientific-topics/energy/resources/petroleum-resources/coal-seam-gas
  34. https://www.aemo.com.au/-/media/Files/Gas/National_Planning_and_Forecasting/GSOO/2019/CORE-Eastern-Australia-Gas-Price-Projections-Report-16-January-2019.pdf
  35. http://qldspatial.information.qld.gov.au/catalogue/custom/search.page?q=%22Queensland%20petroleum%20exploration%20data%20-%20QPED%22 
  36. https://data.gov.au/data/dataset/1d384da2-cf6a-46e9-b521-3c19d8072b63 
  37. https://www.data.qld.gov.au/dataset/petroleum-gas-production-and-reserve-statistics 
  38. https://www.theguardian.com/environment/datablog/ng-interactive/2018/jun/18/an-unconventional-gas-boom-the-rise-of-csg-in-australia