KEY POINTS:
It's odourless, invisible and buried deep within the earth and everyone seems to want it.
For the third time in the space of a week, a major oil company has struck a deal to secure rights to Australia's suddenly fashionable coal-seam gas reserves.
Royal Dutch Shell yesterday agreed to pay up to US$776 million ($989.49 million) for a 30 per cent stake in the coal-seam gas assets of Arrow Energy, an Australian energy group.
The deal gives the Shell access to Arrow's 90,000sq km of acreage of coalfields and includes plans to build a liquefied natural gas (LNG) facility to cool it to liquid form so it can be exported by tanker to Asia, where such shipments are fetching eye-watering prices.
Shell, already the world's largest LNG operator, will also take a 10 per cent stake in Arrow's international business, which includes operations in China, India, Indonesia and Vietnam. It will have right to buy the gas produced from the fields.
The deal comes amid a gold-rush-type scramble for Australia's coal-seam gas reserves. Last week, BG Group failed in its attempt to buy Origin Energy, one of the largest players in the sector. Origin turned down the £6.6 billion ($16.5 billion) bid, convinced its ownership of land where gas is trapped deep underground in coal seams is worth "substantially more" than what BG was offering. This was in part based on the US$2.5 billion deal that Malaysia's national oil company, Petronas, struck the day before with Origin's domestic rival Santos to develop a build an LNG facility, also for export to Asia.
For Shell, the Arrow deal is part of its push beyond traditional oil and gas assets that has led it into other areas, such as Canada's tar sands. Jeroen van der Veer, Shell's chief executive, has been among the vociferous proponents of the view that the "easy oil" has largely been found and companies must find different types of resources.
Coal-seam gas is not new. Companies have been exploiting it for at least 15 years in America, where the traditionally higher price of gas made it a viable business. Its extraction involves drilling into coal seams where methane is trapped. Once punctured, the gas either escapes immediately or must be depressurised by removing trapped water from the coal.
The rush to Australia has, in part, been set off by the record-breaking price of oil and gas. Rhodri Thomas, an analyst at Wood Mackenzie, said: "We are in a new price domain, so companies are able to go into increasingly challenging areas or use new technologies."
Australia is on the doorstep of big Asian customers paying record price for shipments of LNG. There is also the promise of great potential. Arrow has only mapped out 2 per cent of its 90,000sq km acreage.
Of the US$776 million Shell has agreed to pay, US$210 million is conditional on a decision on the building of a LNG plant and producing 1 million tonnes of LNG annually.
- INDEPENDENT
