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Santos: Only Way to Meet Eastern Australia Gas Demand is Allow CSG

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The only way to meet a tripling in natural gas demand in eastern Australia is by allowing unconventional gas projects, including CSG, Santos says.

The oil and gas company’s eastern Australia vice president James Baulderstone told a conference that he expected gas prices to more than double within two decades, driven by demand and linking it to oil prices.

Soaring global demand for liquefied natural gas (LNG) is expected to contribute to Australia’s wealth and make it one of the world’s biggest exporters of the commodity.

However the use of fracking to access coal seam gas (CSG) or shale gas is strongly opposed by many Australians and Americans, including farmers, who say it contaminates prime agricultural land.

Santos insists that is false and gas is a safe, low-carbon alternative to coal for providing energy, with eastern Australia potentially having enough gas to supply it for a century.

The five LNG trains already sanctioned, with more planned, represent a quantum change in eastern Australian natural gas demand,” Mr Baulderstone told the Opportunities and Challenges for Australian Gas conference on Monday.

Provided natural gas development activity is allowed to proceed at the right pace, and the market is willing to pay the increased cost of extraction, there is sufficient gas in Eastern Australia to meet this demand.”

But he added that it was not viable to develop much of the gas reserves to meet the new demand at current Australian gas prices of about $4 a gigajoule.

Australian gas prices were some of the cheapest in the developed world, Mr Baulderstone said.

Comparatively modest price increases driven by this anticipated stronger demand will make the development of extensive additional resources economic for the first time.”

Domestic users would be able to absorb such increases as gas prices had been flat for a decade and a rise was long overdue, he said.

He predicted prices would move to $6 to $9 a gigajoule.

Industrial customers like Rio Tinto, BHP and Xstrata have benefited greatly over the past decade from basically flat east coast Australian gas prices while their commodity prices (iron ore, copper, silver, coal) have increased in some instances nearly ten fold during the same period,” Mr Baulderstone said.

Santos is heavily invested in CSG through the $US16 billion ($A15 billion) Gladstone Liquefied Natural Gas (GLNG) project it is leading and is also developing shale gas projects in the Cooper Basin in central Australia.

It is also close to finalizing a $924 million bid for NSW-based Eastern Star Gas, which controls NSW’s largest CSG resource.

Even if the development of Santos’ CSG business in NSW was a third of the size of our Queensland project, $2 billion would be added to NSW state revenues and over 1,000 direct jobs would be created,” he said.

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Australia: BG Still Targets Mid-2012 to Sanction Third QCLNG Train

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Queensland’s recent heavy rains and floods could delay the expansion of BG Group’s $18 billion Queensland Curtis LNG plant at Gladstone because the British gas giant has been unable to shore up gas reserves as quickly as it had hoped.

Speaking to investors in London on Tuesday night, chief executive Frank Chapman said BG was still targeting a mid-2012 sanction of a third LNG production train at Gladstone.

But to do so, BG needed to drill its coal-seam gas ground to increase the level of confidence it had in the 21 trillion cubic feet of what it called gross gas resources and turn them into reserves.

The name of the game at the moment is the maturation of that reserves and resources base within that period,” Mr Chapman said.

That has suffered some impact because of the flooding and the impact that’s had on access to drilling sites, but we’re still focused on moving some of that prospective resource into a more, higher confidence level to underpin a third train.”

Despite the rains, BG was still on track for first LNG exports from Gladstone in 2014, he said.

BG was the first of three big CSG-to-LNG proponents planning exports out of Gladstone from 2014.

Of the other two, the Santos-led Gladstone LNG project has begun construction, while the Origin Energy-ConocoPhillip joint venture is still waiting for board approval of its project.

Mr Chapman joined the chorus of voices touting stronger LNG demand because of the Japanese earthquake and subsequent Fukushima nuclear disaster.

He said the flow-on effect was likely to be long-term. “After (the) Three Mile Island (1979 nuclear accident) in the US, we saw lead times for nuclear projects going out to something like 12 or 13 years, and associated with that will be increased costs associated with more stringent regulatory safety requirements,” he said.

All of this, I think will result in medium to long-term higher gas demand for power, and as a consequence, extra demand for LNG, and this is going to cause a further tightening of a market situation which we already regarded as quite tight.”

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