Saturday, November 26, 2011

QLD CSG - the race for first gas


*I am now posting a daily column at Macrobusiness under the alias Rumplestatskin. This post first appeared at Macrobusiness on 18 Nov 2011.

While debate continues around land access and groundwater contamination, the coal seam gas industry in Queensland is powering ahead in a race for ‘first gas’.  Which begs the question, why the rush?
It is no secret that government is a few steps behind the resource companies in terms of providing a solid regulatory framework for the industry to operate within.  This is particularly the case for the management of CSG water in river catchments already plagued by their own water management issues (although DERM has released a CSG Water Management Policy and is investigating other beneficial use options).

Making substantial investments ahead of certain regulatory obligations appears a risky move on the part of the gas companies.  After all, the gas will still be under your lease if you wait for some policy certainty, and sunk investments will provide substantial bargaining power to government to expand their wish-list as they finalise their policies.  You won’t walk away from a billion dollar investment because the government makes you spend a little extra on over-the-top sweeteners to local communities.

The frantic pace of investment can be explained by the strategic first-mover advantages on offer to the winner of the race to produce ‘first gas’.  British Gas’s Australian subsidiary QGC is a current favourite to win this race (to have their 'first gas' first), although Santos is a contender.