In Moranbah, about 200 kilometres inland from Mackay, the fourth of the Australian coal seam joint-venture companies is shifting its plans to export coal seam gas to emerging world markets into top gear.
Moranbah, with a population of 7300 — of which about one-third are fly-in, fly-out workers — sits in typical cattle grazing country, surrounded by brigalow scrub.
It is on the western edge of the Bowen coal basin and
Arrows’ Moranbah gas compressions supervisor Mark McGuire. Photo: Supplied
home to the Goonyella coalmine and former rugby league stars Josh Hannay, Travis Norton and Clinton Schifcofske. Contrary to earlier reports, the town’s main shopping centre is not characterised by empty shops and lonely, discouraged people.
However, the housing heat has largely gone off the boil for mine staff, many of whom work two weeks on and two weeks off. Seven years ago, mining companies were subsidising the $2500-a-week rents for the scarce houses as the population boomed. Today mine workers can find three-bedroom houses for between $500 and $1000 a week.
It is from here that Arrow Energy, formed in 1997 to explore for coal seam gas in the Northern Territory, will push ahead with its plan to build a $20 billion export processing facility to liquefy natural gas and ship it to the world.
Since August 2010, Arrow has been wholly owned by two global energy giants: Royal Dutch Shell and PetroChina. Arrow has major reserves in Queensland’s Surat and Bowen basins.
Its joint venture company rivals Santos/Petronas, Origin/Australia Pacific and British Gas/Queensland Gas Corporation are further down the complex project path to building pipelines to a liquification plant at Curtis Island, near Gladstone, to cool the natural gas to a liquid so it can be shipped. Arrow does not mind finishing the race fourth.
In Moranbah on Thursday, Arrow chief executive Andrew Faulkner gave the strongest indication to date that the company was planning to go it alone and ship gas from 8000 planned wells from its own plant.
Faulkner said rising drilling and exploration costs were a fact of life for mining companies approaching a final investment decision from shareholders. For Arrow, that decision would be made in late 2013, he said, and the shareholders were global companies.
The former Shell vice-president said he remained confident about Arrow’s plan to export from its own Curtis Island facilities.
“And I guess the only credible fact I can give you is that the shareholders will spend about a $1 billion a year,” he said. “Now we are pre-FID, but that sure doesn’t mean that we are not spending money and standing still. And our budget for the year is larger than that. So again, assuming that they approve next year’s budget — and I don’t doubt that — there is evidence of two shareholders that will spend $5 billion acquiring Arrow Energy.
“And roughly $3 billion over the last couple of years and next year maturing the project. Clearly they have high expectations that this is the right way to spend their money.”
Rising production costs had not changed the minds of Arrow’s shareholders, Faulkner said, standing beside a gas wellhead that has provided 400 cubic metres of gas an hour since 2004. Concentrating purely on domestic gas supply — Arrow provides 20 per cent of Queensland’s gas needs — is not a long-term answer.
“The domestic demand in the relative sense is extremely small,” Faulkner said.
Contracts with Townsville Power Station, to Daandine, Braemer and Kogan North power stations and to Queensland Nickel are dwarfed by the potential for natural gas for export, he said.
Arrow’s initial advice statement for the pipeline indicates that Australia’s LNG exports are predicted to grow from 19 million tonnes in 2010-11 to 41 million tonnes by 2015-16, according to Australian government statistics. New markets are emerging in India, Thailand, Taiwan and Singapore.
Faulkner said some Arrow gas would be sold to competitors but only before Arrow finalised its own Curtis Island plant.
“I would emphasise that our base case, which remains unchanged, is for our own project …”
Arrow estimates it has about 48,000 petajoules of gas in its Bowen and Surat basins. It is possible to provide roughly all the electricity for a city of 1 million for three weeks on one petajoule of natural gas.
Arrow has submitted the environmental impact statement for its Bowen Gas Project to the Queensland government and is running stakeholder and community sessions.
Tony Knight, the company’s vice-president of exploration, spoke with the Gasfields Commission recently about Arrow’s plans. He and Faulkner know companies need to find a solution to the salty water waste that comes from coal seam gas mining.
Methane trapped in coal seams is captured when water is pumped into the seams under pressure. In some coal seams, hydraulic fracturing, or fracking, “excites” the seam and increases the flow of gas in the water that comes from the seam. Fracking means pumping water and sand, and in some cases chemicals, into the coal seam. The concern for farmers is that it could impact on their groundwater supplies.
The Queensland Water Commission has ordered drilling companies to purify the water they extract, which they in turn offer to local councils, farmers and other companies. Santos has already developed a recycling scheme for its coal seam gas water.
Faulkner says Arrow does not use fracking in its Bowen basin gas fields because the gas is easily accessible.
The company is also exploring ways of using the salty brine from its eventual 8000 wells for dust suppression, irrigation and coal washing. The brine is classed as a controlled waste by the Department of Environment and Resource Management, but testing to allow it to be reused is under way.
Isaac Regional Council, which covers 58,000 square kilometres including the towns of Clermont, and Middlemount as well as Moranbah, has asked to be able to use the brine after it is treated.
“You will eventually have a portfolio of solutions,” Faulkner said. Water treatment is a sizeable component of Arrow’s costs, he said. He sees tremendous opportunity for Arrow in this area.
“So it is actually a tremendous opportunity to use a resource that otherwise wouldn’t be usable to a populace that generally cries out for water in some form or another. “If we can get this one right then that is a tremendous attribute of the industry rather than a threat from the industry.”
Arrow cleans the brine – with about one-eighth of the salt concentrate of seawater — through a reverse osmosis system. The water is being set aside in a “treated water” dam while the company waits for advice from the state government on how it can be sold to third parties.
That testing is being negotiated now, Faulkner said. After further testing, the water could even be used for drinking.