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After a surge of publicity last year around Solid Energy’s test well in the Waikato, coal seam gas exploration fell off the front pages. Now L&M Petroleum has picked up the pace with exciting news in Southland.
The company’s managing director, John Bay (pictured), announced in October that L&M Petroleum was in discussions with its sister company, the privately held L&M CSG, with a view to a new merged entity that would have the largest number of CSG exploration permits in the country. L&M CSG currently has six gas exploration permits in the North and South Island and believes its permits hold the potential to contain up to 1500 petajoules of coal seam gas resource. The company has drilled more than 40 exploration wells, conducted multiple 2D seismic surveys and initial production testing across three permits, and started its first pilot scheme, a five-well project in licence PEP 38219 (Kaitangata). The initials L&M (from Lime and Marble) have a long history in New Zealand, having started in the 1930s with a focus on aggregates in the South Island. Exploration for oil and gas started in earnest during the 1970s, with the company setting up an exploration group and drilling the Urenui discovery well. The establishment of the state oil company Petrocorp in 1987 curtailed L&M’s oil and gas exploration activities for two decades, until, in 2001, L&M Petroleum was created. In 2007 L&M went public raising over $22 million through listing on the New Zealand and Australian stock exchange. The company now holds exploration rights (mostly in joint ventures) in over 5000 square kilometres of exploration acreage in four New Zealand basins, including substantial positions in two frontier basins as well as within the commercially proven Taranaki Basin. Of the initial raised capital, as of September 30, 2009, $7.3million in cash was still available to back the company’s aggressive exploration activities. That funding can go a long way, says Bay, as CSG drilling and testing is a lot less expensive than exploring for conventional oil and gas, at least in the early stages. “CSG well drilling costs are about a tenth of a conventional well.” The combined CSG and oil exploration is also an advantage for a smaller explorer, he adds.
The Blackmount permit expires in July 2011 and, as Bay is quick to acknowledge, the smaller exploration companies in New Zealand, have in the past, have run the risk of running out of time in attracting investors and partners before having to forfeit their permits. “The CSG projects have extended the life of these permits because of the lower risk and expense of exploration,” he says. “We are the only New Zealand company with a portfolio of higher risk drill ready, ‘company maker’ sized conventional prospects and lower risk near term development coal seam gas opportunities. “We feel that now is the time to expand our interests in CSG in New Zealand and the company has been most active in its two Southland permits.” In 2008 two cored wells were drilled (Goodwin and Wairaki) and three more this year – Bogle, Mt Linton and Belmont. The company intended to undertake an aggressive exploration campaign over the summer, with four more wells planned, however the drilling campaign is on hold until the potential merger is complete. The company estimates that the coal trend in the area holds the potential to hold up to 300PJ of coal seam gas from the gas-rich coal seams. However, the drill bit is the ultimate lie detector, says Bay, confirming any difference between potential resources and actual reserves. “The best commercialisation will depend on the resource size,” he adds. Bay runs through a few scenarios of the gas sales potential from different sized CSG reserves with the Southland permits.
“On the medium scale (100PJ) we are looking at possible small petrochemical production such as ammonia urea, and CNG or LNG, where we take the gas and either compress it or chill it to liquid form to be able to transport: which gets around the pipeline question.” Reserves of 500PJ open the door to pipeline reticulation and retail, or large scale petrochemical production such as methanol and DME, or even GTL production making diesel. Bay goes on to paint a positive picture of the Southland region in terms of demand for any of these CSG reserve scenarios. “In term of electricity generation potential, large scale power demand in the region is growing by 50MW per year and the main South Island power distribution system runs directly across LMP permits between Manapouri and Invercargill, and the Rio Tinto Aluminium smelter at Bluff. And in Southland, Fonterra operates the world’s largest dairy factory at Edendale, and is looking to expand.” The use of CNG as transport fuel would result in huge fleet savings, Fonterra, for example has over 400 vehicles in its fleet, says Bay. “In the 1980’s New Zealand was once a world leader in CNG for transport.” CSG could also replace imported LPG. The country uses about 18PJ of LPG every year and demand has been growing by eight percent per year since 2000. Distribution infrastructure is not a problem, says Bay. “We have a good road and rail network with no problem getting CNG out into the market.” And there’s the local gas distribution network. “People say the South island doesn’t have a reticulation network, but that is incorrect. Several cities have existing town gas networks, new LPG networks built into new subdivisions or both.” He uses the UK city Belfast is a good of example of this in practice. “Belfast reticulates 5.2 PJ per year through it old town gas network with inserted plastic pipe.” Last, but not least, there’s the price of LPG. “Typically in New Zealand the gas price is around $7 a gigajoule (GJ), but when you get into the market of supplying gas for the domestic market – LPG, or small industrial, then the prices are high – up to $40 for bottled LPG.” The fizzy drink principleCoal seam gas is generated by microbial (biogenic) or thermal processes stored in the coal seam and is effectively pure methane gas. The gas is trapped by hydraulic overburden pressure contained within the coal matrix and cleat spaces (the fracture network) and held in place by the water that lies above it. It is the pressure of the water that keeps the gas stuck to the surface of the coal. A CSG well taps into the water layer which is drawn up through a submersible pump. Like opening a bottle of frizzy drink, the gas (methane) is released from the liquid and drawn off and piped in one direction while the water is drawn off in another. The water found in the Southland coals is also relatively fresh in terms of there being no harsh minerals that have to be extracted from the de-gassed water before it can be disposed of.
Energy NZ No.10 Spring 2009 |
Over the past year L&M Petroleum has been drilling a lot of coal seam gas (CSG) wells in Southland, aimed to delineate CSG resources in the area of its PEP 38226 (Waiau) and PEP38238 (Blackmount) permits in western Southland.
“Under the Crown Minerals Act there is no differentiation between conventional oil and gas and coal seam gas exploration, so our work programme commitments in our two Southland permits – PEP 38238 (Blackmount) and 38226 (Waiau) – allow us to retain the permits via exploring for lower cost CSG, while retaining the option on our deeper, conventional targets.”
“If it’s a small discovery, say 10PJ, you have the potential for onsite power generation,” he says in much the same way up to 20MW of power is already collected from landfill methane and sold into the grid.