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Are Santos and Origin running low on coal seam gas?

US drilling service company Superior Energy Services (SES) has reportedly made claims that coal seam gas, which is destined to drive some of the country’s largest LNG projects, is proving more elusive to obtain than initially expected.

The Australian has reported that SES is anticipating growth in its eastern Australian division because more wells need to be drilled to produce the expected volumes of gas. Currently drilled wells are “not meeting the production expectations”, SES Asia Pacific head Ruud Boendermaker is quoted as saying.

And there are a lot of wells to be drilled. British natural gas company BG Group, which owns Queensland Curtis LNG (QCLNG), is drilling 70 new wells per month in order to achieve 2000 by the end of 2014.

The other big projects in the area include Gladstone LNG (GLNG) being undertaken by Santos (ASX: STO) and APLNG which is owned in part by Origin Energy (ASX: ORG). Both projects are targeting coal seams in the Surat and Bowen Basins.

While no specific project was mentioned by SES, it’s worth noting that there are always uncertainties with drilling. They can’t all be winners and targeting coal seam gas in particular is brand new to Australia so hiccups are to be expected.

Though unlikely, if there was a shortage of gas it could represent a huge opportunity for energy producers chasing natural gas in the Cooper Basin, the region that intersects Queensland and South Australia, as an additional source of supply.

Santos already has a gas production plant in Moomba, but several smaller operators including Drillsearch (ASX: DLS) and Senex Energy (ASX: SXY) own considerable prospective acreage, but currently lack the infrastructure to process gas discoveries.

These smaller operators could become prime targets for supply deals or potential targets if the big energy companies running the plants needed to tap into extra supply.

Foolish takeaway

It is extremely unlikely that the companies facilitating Queensland’s giant LNG projects would push ahead with final investment decisions, risking billions of dollars, for less than certain results. Costs may rise if additional wells need to be drilled, but with two huge basins to cover won’t hit success every time.

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Motley Fool contributor Regan Pearson owns shares in Senex Energy.

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