Metgasco starts to drill at Glenugie in the Clarence Valley

 

Metgasco appears to be leading a charmed life when it comes to government support as the coal seam gas industry appears to have the NSW Energy and Resources Minister Chris Hartcher and the O’Farrell Government in its corner.

 

The Managing Director's Presentation to the 13 November 2012 Annual General Meeting supplied to the Australian Stock Exchange is littered with favourable quotes from government and Chairman Nicolas Heath told this meeting that the political cloud over coal seam gas in NSW has been removed.

 

As I write Metgasco is said to be clearing land at Glenugie on the NSW North Coast so that yet more exploratory drilling can commence in the face of widespread community opposition.

 

South Grafton firm McLennans Earth Moving is said to be preparing the site and embattled construction company AJ Lucas contracted to undertake the drilling.

 

According to The Daily Examiner  today:

 

COAL seam gas miner Metgasco has downplayed the significance of activity at a site at Glenugie where it is preparing to take rock samples.

A neighbour, George Oxenbridge, was alarmed when he saw trucks and an excavator on the site on Avenue Rd at Glenugie yesterday.

Mr Oxenbridge said Metgasco had promised to notify people in the region before any activity took place, but nothing had been provided.

Late yesterday CSG protesters were considering a blockade of the site.

What is fascinating about this mining company’s relentless drive is that it is already operating at a considerable loss in a period when even it admits that it has been unable to attract a major player to farm in to its project and in a market which it told its shareholders is currently oversupplied with gas on the east coast of Australia.

 

In July 2012 The Australian reported that; UBS analyst Gordon Ramsay said the whole LNG industry was building projects in a high-cost environment. "The issue for the (CSG) industry is that when you get out of the sweet spots, the wells aren't as productive and that means you have to drill more wells or use more technology to drill more horizontal ones or you fracture stimulate and that means higher costs to get the gas out," he said.

By September analysts were downgrading Australian energy company valuations because of expected supply-based pressure on LNG prices and worries over the prospect that LNG export prices may drop dramatically.

 

While in October James Baulderstone, Santos Vice-president for Eastern Australia, in his turn admitted that the return to coal seam gas producers is not growing; The reality is that the price of natural gas has remained essentially flat for the past 10 years.

 

Metgasco’s monthly listed share price has reflected this overall situation – going from above 1.100 in 2008 to below 0.200 in 2012.

 

Despite its rhetoric for media and local government consumption, the company does not appear to have prospective customers knocking down its door and is hardly likely to find a ready market for residential customers given the impact of CSG industry costs on price are predicted to keep network and retailer charges rising.

 

The demand for domestic gas generally will remain relatively flat to slow growing through to 2027 according to the ACCC in its State Of The Energy Market 2009 report.

 

It would appear that Metgasco is likely to join other suppliers in finding that, even in a highly competitive and volatile international market, exporting its product overseas is the more attractive option.

 

That may create yet another headache for the Northern Rivers region as the company is still keeping its options open with regard to a floating LNG facility off the coast.

 

One thing which does stand out is that Metgasco is a small-time player in the Australian gas industry and one has a strong suspicion that local communities will see little benefit from its activities – now or in the future.

 

Metgasco might believe that politics no longer plays a part in its wildly optimistic plans, but all three tiers of government may find that this company’s activities will cause them considerable pain at the ballot box over the next decade.