Beware the CSG enfants terrible Robert Gottliebsen Published 8:23 AM, 17 Aug 2011
Australia?s mineral investment boom pivots on four areas ? North-West Shelf gas, Pilbara iron ore, coal mining and coal seam gas. The first three ?booms? are being properly managed by companies and executives, who know what they are doing.
But with one exception, the participants in the $50 billion coal seam gas industry have managed their projects like rank amateurs and their bad management actually threatens the industry. The boards of these companies (two of which are controlled overseas) need to make changes.
There are four major projects which are spearheaded by Santos, Origin, BG Group and Shell. Only Santos grasped the agricultural management issues that would be raised by the industry.
As soon as former Santos chief executive John Ellice-Flint realised that coal seam gas would be about working with farmers, he purchased large areas of agricultural land around Roma covering a significant part of the Santos coal seam gas development.
Santos became a 'farmer', which made the farmer issues much easier to manage ? and Santos can showcase what can be done. The current Santos chief executive, David Knox, is also helped because Santos has been taking natural gas from the Roma area for a long time and knows the farmers.
None of the other consortiums took the farmer issue seriously enough and did not buy major areas of land but rather relied on "miners' rights".
If coal seam gas developments are managed correctly they can be executed with minimum disruption to farmers ? and when extensive disruption takes place it is temporary and can be compensated.
But at least in the public perception, Origin, BG Group and Shell did not give nearly enough consideration to the needs and requirements of big and small farmers. And serious drilling mistakes were made by some of the groups.
In today?s world, you simply can?t do that. We saw in the cattle ban fiasco just how powerful farmers are on television and they have minced Origin, BG and Shell. Worse still, the bad treatment of what might actually be a small number of farmers has led to a debate about the effect of coal seam gas on the Great Artesian Basin.
The public exposure of bad farmer treatment means that all the companies in the industry, including Santos, are on the back foot when putting their water case.
Although he has since retreated, we have had Opposition leader Tony Abbott taking up the farmers' cause.
But the bad management goes beyond farmers. To be even considering four major coal seam gas projects at once is dumb. It will create labour shortages and cost blow-outs. We should have had as a maximum two well-managed projects. We currently have three, with Shell yet to be approved. This gas is a long-term Australian asset. The race to develop the projects quickly may have been one of the reasons for the farmer management mistakes.
Given the controversy, if four projects are approved it is highly unlikely that will make enough gas available to meet the contracts. If there remain three, and Shell gas is sold to the others, there still could be shortages given the controversy. That may mean that there will be a bidding war to take gas from the Australian domestic markets.
If that happens, Australian consumers will get it in the neck. That will spark a new and unpredictable outrage against this industry. Coal seam gas could be a great Australian industry but it will require a much more sophisticated approach to the management issues.
