Coal-seam gas, the Aussie term for coalbed methane, is poised to transform the gas market Down Under. The size of the resource is staggering: estimated proven and probable reserves are 22 trillion cubic feet (Tcf), out of a resource base of up to 260 Tcf. And companies are pushing to bring these reserves to world consumers.

"We are on the cusp of a profound change," says Jim Underschultz, theme leader, Commonwealth Scientific and Industrial Research Organisation, Australian Resource Research Centre. "We are talking about a significant new industry."

Last year, Australia's total gas production was 1.5 Tcf, and CBM wells supplied 150 billion cubic feet (Bcf). Australia already exports substantial volumes: in 2009, it shipped 856 Bcf of liquefied natural gas (LNG) to Asian markets.

Operators of conventional gas fields offshore Western Australia and the Northern Territory must now contend with onshore Queensland unconventional sources in the export game. Recently, the Queensland government published a blueprint for the LNG industry that estimated that eight proposed projects, if constructed, could collectively process more than 3.4 Tcf of CBM annually. The prime basins being targeted for Australian CBM—Bowen, Galilee, Eromanga and Surat—lie mainly within Queensland's borders.

The economic juggernaut began to roll in earnest in April 2009, when Queensland declared Australia Pacific LNG's project, a massive plan to produce CBM and build a gasification facility at Gladstone, a "significant project." The designation helped speed the venture, a partnership of Origin Energy and ConocoPhillips, through regulatory approvals, says Underschultz. Initially the plant will have capacity of 175 Bcf a year, but it is engineered to be upsized to as much as 750 Bcf annually.

In March 2010, BG Group and China National Offshore Oil Corp. announced the Queensland Curtis LNG project. It will have capacity of 350 Bcf per year. That same month, Shell and a subsidiary of PetroChina offered to purchase Arrow Energy Ltd., a company with significant CBM assets in Queensland. The Arrow project involves building up to four LNG processing plants, each with capacity of 195 Bcf per year.

The following month, Queensland conditionally approved the $7.4-billion Santos Ltd./Petronas Gladstone LNG project. It will feature two trains with capacity of 175 Bcf each. "We're sitting now with target production to start in 2014, and four significant projects," says Underschultz.

Geological challenges include resource characterizations, production performance and reservoir stimulation. Ramp gas is an economic issue: a certain volume of production is required before LNG facilities can come on line, but Australia already produces more gas than it can consume. Potentially, ramp gas could be stored until needed or converted to other fuels by gas-to-liquids technology.

Most recently, environmental challenges have taken front row seats. Citizens and regulators are concerned with disposal of produced formation water and impact of fugitive emissions.

In May 2010, the Queensland government unveiled a new water-management policy. It announced that it would no longer allow evaporation ponds and that produced water would be treated or reinjected. "Despite that, there were still unsettled thoughts in rural areas about the impact of this industry on farming communities," says Underschultz.

The heat was turned up further in July, when tests detected benzene and toluene in groundwater-monitoring wells located close to the Kingaroy underground coal-gasification plant in Queensland. Although coal gasification is quite different from coal-seam gas production, the findings still raised alarms.

"The impact of the Kingaroy incident on the coal-seam gas industry has been profound," he says. Queensland approved a $1.4-million water study, and hired extra staff to monitor coal-seam gas extraction.

The federal government also stepped in. Two of the big projects—Santos' Gladstone and BG's Curtis—had their environmental assessments pushed back by three months so long-term impacts could be considered.

"Coal-seam methane to LNG is an exciting new export industry for Australia," says Underschultz. "The reserves are substantial."