Brownlee: Coal Seam Gas Industry Briefing

Speech – New Zealand Government

It’s great to be here today for what I hope will be the first of many conferences in New Zealand dedicated to coal seam gas. Coal seam gas has the potential to make a sizeable contribution to New Zealand’s energy security, our economic growth rate, …

Gerry Brownlee

30 June, 2009
Address to Inaugural Coal Seam Gas Industry Briefing

Introduction

It’s great to be here today for what I hope will be the first of many conferences in New Zealand dedicated to coal seam gas.

Coal seam gas has the potential to make a sizeable contribution to New Zealand’s energy security, our economic growth rate, and our prosperity.

In my speech today I’ve been asked to address the outlook for New Zealand’s energy industry, with an emphasis on the opportunities for coal seam gas.

I’ll start by talking briefly about the government’s general approach to our natural resources, before turning to coal seam gas developments in New Zealand, its treatment under New Zealand’s petroleum regime, the potential benefits for New Zealand from coal seam gas, and some work we’ve got planned which we hope will allow the industry to grow over the next few years.

Government’s approach to natural resources

Let me start by talking briefly about how this government views our natural resources.

The Government believes that our natural resources have the potential to make a significant contribution to our prosperity and our economic development.

The contribution that the resources sector could make to our growth rate, levels of employment, and quality of life, has been neglected in the last few years.

Other resource-rich countries, like Australia, have worked hard to maximise the return from their resource endowment and have reaped the rewards.

Australia is often called the “lucky country” because of its natural resources endowment.

Indeed, in a recent newspaper interview, the former Finance Minister, the Hon Michael Cullen explained that one of the reasons Australia is more prosperous than New Zealand is because of their endowment of natural resources.

New Zealanders need to know that this country is similarly endowed. We just haven’t made the most of the resources we do have.

It’s clear from the economic contribution the resources sector already makes that it can play a more significant role in lifting our living standards.

We’re currently revising the New Zealand Energy Strategy so that it better reflects the priority this government places on the development of our energy resources. The new strategy will be released toward the end of this year.

Coal Seam Gas – international context

So with those remarks in mind, let me turn to coal seam gas.

The last few decades have seen an explosion in interest in coal seam gas around the world.

In Australia, the home of coal seam gas sector is Queensland, primarily in the Surat and Bowen basins.

Coal Seam gas currently accounts for around 15% of gas production in the eastern states of Australia and over 70% of production in Queensland. Production is growing rapidly, as are proven and probable reserves.

The US produced around 1700 petajoules in 2007 (which represents around 7% of domestic dry gas production) and it is also an important fuel source in Canada.

Coal Seam Gas in New Zealand

Looking at New Zealand, it’s fair to say that in comparison with the rest of the world, our coal seam gas industry is in its infancy.

Exploration for Coal Seam Gas actually began in New Zealand in the early eighties when RC Macdonald Ltd initiated the Southgas project in the Ohai coalfield and subsequently the Westgas project in the Greymouth Coalfield, although these projects did not yield any commercial quantities of CSG.

There are currently 17 petroleum permits granted which include the exploration of coal seam gas, with one permit granted solely for commercial mining of coal seam gas.

In 2008 only Solid Energy produced any meaningful quantities of CSG – which even then was only enough to power a 1 MW turbine, and this production was part of an exploration permit.

However, there is little doubt that the potential for coal seam gas production in New Zealand is definitely there.

It’s estimated that New Zealand has over 15 billion tonnes of
in-ground coal resource, and although not all of this will be conducive to coal seam gas production, a lot of it will be.

That is a considerable resource by any measure.

The limited current coal seam gas activity is more a reflection of the under-explored nature of New Zealand’s petroleum and mineral basins rather than a perceived lack of resource.

For many years, thanks to Maui, there was little incentive to explore for new gas sources in New Zealand.

With Maui running down and the price of gas subsequently rising, coal seam gas now looks more attractive.

Coal Seam Gas Developments

I would like to acknowledge some exciting and interesting developments occurring around the country:

In Southland, L&M Petroleum has confirmed the presence of gas in the first well of its 2009 coal seam gas exploration drilling campaign.

Their initial analysis indicates their permits may hold collectively up to 300 PJ of CSG potential resources.

In the Waikato, a pilot coal seam gas field has been developed through a joint venture between Solid Energy and US oil and gas company, Resource Development Technologies.

Initial work has indicated a methane resource in the North Huntly Coalfield could contain gas between 25 and 200 petajoules of energy.

Solid Energy recently launched a 1MW power station at Huntly, fired by coal seam gas from the pilot field.

On the West Coast, Chartwell Energy has two core wells scheduled for the third quarter of this year in their West Coast license.

The wells are to be drilled in advance of a planned pilot programme kicking off in the first quarter of 2010.

Also on the West Coast, Pike River Coal is carrying out exploration work on the coal seam gas potential at its West Coast mine, and has indicated it could potentially look at establishing small-scale on-site electricity generation.

Following on from these developments, I expect the number of permit applications for coal seam gas exploration and activity to grow in the coming years.

Regulatory regime

In New Zealand, CSG falls within the definition of petroleum for the purposes of the Crown Minerals Act and as such royalty regimes for natural gas apply.

The royalty regime for any coal seam gas discovery made between 30 June 2004 and 31 December 2009 comprises an ad valorem royalty component of 1 percent on natural gas; and an accounting profits royalty component of 15 percent on the first $250 million of cumulative gross sales for an onshore discovery and a 20 percent accounting profits royalty on additional production.

For all other production, including any production from a discovery made after 31 December 2009, the royalty regime comprises a 5 percent ad valorem royalty component, and a 20 percent accounting profits royalty component.

Because coal seam gas in New Zealand falls under the petroleum regime, you’ll be interested to know that the Government is currently reviewing that regime to ensure it is “fit for purpose”.

The work will include identification of petroleum, industrial, environmental and economic policies that work well in other jurisdictions and the reasons for their success.

The aim of the review will be to recommend measures that ensure NZ continues to have a “fit for purpose” petroleum regime which is attractive to explorers and extractors.

Gas in New Zealand

Gas has been an extremely important fuel in New Zealand since the development of the Maui field from 1979 on.

Our offshore natural gas resources in Taranaki have provided the fuel for gas-fired power stations at New Plymouth, Stratford and Otahuhu, as well as reticulated gas for residential consumers in the North Island.

Gas-fired electricity generation ensures New Zealand has a secure supply of electricity, playing a vital “firming” role in dry years when the lakes run low.

Last winter our gas-fired plants ran around the clock keeping the lights on.

As a government we’re very conscious of the importance of gas to our economy, and we certainly see coal seam gas as part of our energy mix in the future.

CSG is virtually indistinguishable from natural gas and therefore can be used in many of the same applications as natural gas, which mean there are a number of potential uses for it in New Zealand:
* CSG could be injected into natural gas pipelines by direct reticulation to large-scale industrial sites or for supply to cities for domestic gas networks.

* It could be used as a gas feedstock for other energy or chemical feedstock uses.

* It may have a potential for use in onsite electricity generation.

* It could possibly be compressed to CNG for use in local markets including for use as a transport fuel.

* There is also the potential for electricity generation from coal seam gas, if a large enough commercial discovery is made.
Gas from the Huntly wells contains only 1% CO2 and has 98% energy-rich methane.

That means it has a lower carbon footprint than conventionally-produced natural gas, which until now has been New Zealand’s cleanest thermal fuel.

Furthermore, electricity generation from coal seam gas produces around 50 per cent lower greenhouse gas emissions than conventional coal-fired electricity.

The development of CSG would diversify our energy inputs, and therefore have a positive impact on security of supply.

Government policy changes

As I indicated at the start of my speech, the government is keen to encourage the exploration and development of our natural resources, including coal seam gas.

We’ve already made some moves in that direction by repealing the ban on new thermal electricity generation.

We’re also developing better access protocols to Crown-owned land. There is significant mineral potential within Crown-owned land, but access to the minerals estate is often difficult.

There is definitely scope to explore how economic development objectives could be better reconciled with other land values.

Crown Minerals and the Department of Conservation are therefore working on the the implementation of DOC standard operating procedures to provide transparency and clear information requirements for access applicants.

Environmental Responsibility

One thing I always stress when talking about our natural resources is that good economic outcomes must not be inconsistent with good environmental practice.

As a government we know that we need to preserve the environment for future generations.

The Pike River coal project on the West Coast demonstrates how mining can be reconciled with high environmental standards, and can have positive environmental effects.

At Pike River, the mine’s environmental footprint has been kept to a minimum through good design, with little damage to the ancient trees and bush.

Driving through the spectacular Paparoa ranges, you would not know there is a coal mine only a few hundred metres away.

The building of a road through the ranges to get access to the coal mine has actually opened up that area of the country for people who otherwise wouldn’t get to experience it.

There is ample scope for environmental tourism.

The Department of Conservation recently presented Pike River Coal with a certificate recognising the “environmental consideration it demonstrated” in the development of the coal mine.

The Newmont Waihi Gold in Martha Hill is another example of mining co-existing with environmental responsibility.

Rehabilitation of the Martha Mine has been a major part of mine planning and the operation is an acclaimed example of modern mine site progressive rehabilitation.

Currently waste rock embankments and disturbed land are being returned to productive pasture.

When the mine closes it will be turned into a safe, stable, and self-sustaining rehabilitated state.

The pit and surrounds will become a recreational lake and park, and extensive areas of pasture will be established over waste rock stockpiles and other disturbed areas.

A final example is the work of Solid Energy at the Stockton Opencast Mine.

Solid Energy has an environmental policy of reasonably minimising the adverse local environmental affects that may be an unavoidable part of operating coal mines.

As part of this, it spent 13 months between 2006 and 2007 collecting over 6,000 “Augustus” native land snails from the Mt Augustus ridgeline of Stockton Mine.

Following collection of the snails, much of the original habitat was moved 800 metres north.

By the end of 2007, approximately 4,000 snails, and over 1,000 eggs, had been released onto this and other sites.

It’s very important as our coal seam gas resource is explored and developed in New Zealand, that the impact on the environment is minimised, as in the case of these three examples that I’ve mentioned.

Conclusion

I’ll finish by saying that the future for coal seam gas in New Zealand is a bright one.

We have a considerable in-ground coal resource with some interesting developments occurring already.

I’m sure they’ll grow as the years go by and as we learn more about the exact size and nature of the resource in New Zealand.

There would be numerous benefits to New Zealand from the environmentally responsible development of coal seam gas, and so as a government we will watch and support it with interest.

I wish you all the best for the conference today, and I look forward to coming to many more in the future.
ENDS

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