Royal Dutch Shell has teamed up with PetroChina to make a A$3.7 billion (Ôé¼2.4 billion) bid for AustraliaÔÇÖs Arrow Energy.
The bid underlines the two companiesÔÇÖ desire to become major players in AustraliaÔÇÖs coal seam gas sector. Arrow Energy is at the forefront of several projects in the state of Queensland that convert reserves of coal seam methane into liquefied natural gas (LNG).
In particular, PetroChinaÔÇÖs involvement reflects the Chinese companyÔÇÖs interest in securing long-term gas supplies from AustraliaÔÇÖs coal seam methane industry.
Other firms involved in coal seam projects include the UKÔÇÖs BG Group; a joint venture between ConocoPhillips and AustraliaÔÇÖs Origin Energy; and another between AustraliaÔÇÖs Santos and Petronas of Malaysia.
Brisbane, Queensland-based Arrow hopes to make its first shipments of LNG to Asia in 2012.
Over the past 10 years, coal seam gas has become an important source of energy in the US and Australia. Arrow has some of the largest coal seam methane reserves in Queensland, in the Bowen and Surat Basins. The methane is extracted by drilling into the coal seams before it is piped to the port of Gladstone, where it is converted into LNG and transported to Asia.
Coal seam gas is predominantly methane gas which is trapped in the molecular structure of coal seams, in contrast to conventional natural gas which is stored in the gaps between rock formations. Coal seams are therefore able to contain several times more gas than is found in conventional gas reservoirs.
In 2008, Shell, which is based in The Hague, Netherlands, joined forces with Arrow to develop projects in Australia and other locations, agreeing to pay around A$776 million (Ôé¼517 million) to buy 30 per cent of ArrowÔÇÖs coal seam methane acreage in Queensland and 10 per cent of its international assets (held by Arrow International).
Shell also secured a five-year option to acquire up to 50 per cent of individual Arrow projects.
Reports suggested last year that Shell had made an unsuccessful offer for Arrow, worth around A$3 billion (Ôé¼2 billion).
Arrow has recently been planning to list 20 per cent of its Arrow International arm. Shell and PetroChina have now offered Arrow shareholders a stake in a new entity to hold the international operations, thought to be worth an extra A$400 million (Ôé¼266 million) to A$500 million (Ôé¼333 million), on top of their original bid.
Australia's coal seam gas reserves at the end of 2008 were 15.1 trillion cubic feet, with total identified coal seam gas resources estimated at around 153 trillion cubic feet, according to a government report.
