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Deep in the Waikato, a 3m gas flare is a beacon for what could be a big part of New Zealand's energy future.

Coal seam gas (CSG) now being appraised in test wells west of Huntly could, if commercially viable on a wide scale, provide up to 15 per cent of the country's supply.

In the United States and Australia's eastern states CSG provides 15 per cent of supply and in Queensland the figure is up to 90 per cent, the catalyst for the $15 billion bid by UK-based BG Group, formerly British Gas, for Australia's Origin Energy.

The bid has turned the spotlight on Australia's reserves of CSG, with the east coast estimated to already have about 30 years of current gas consumption locked away with potentially more to be discovered.

Solid Energy estimates its Huntly field could provide 300PJ of gas - about the same volume as the Kupe field.

The state-owned enterprise joined United States company Resource Development Technology (RDT) in 2004 in exploring areas of the north Huntly coal field covered by an exploration permit granted two years earlier.

Solid Energy's manager of new energy, Brett Gamble, said the partners naturally complemented each other.

From decades of mining, Solid Energy brought detailed knowledge of the coal - its composition, methane content and permeability - while RDT brought well extraction and completion knowledge.

Coal seam gas collects in the coal seam by bonding to the surface of coal particles, whereas other natural gas is stored in the pore spaces between grains of sandstone or similar rock.

Seams are generally filled with water, and it is the pressure of the water that keeps the gas absorbed as a thin film on the surface of the coal.

In ideal fields the fracture pathways of coal are interconnected and permeable.

The more permeable, the easier it is for gas and water to flow freely through them.

Gamble said the partners looked around the country and settled on Huntly because the coal seam there was well understood, the North Island gas pipeline runs through the coal field and the Huntly Power Station is nearby.

Gamble said another advantage of the Huntly coal field was the lack of interconnection between the coal seam and aquifers, so there would be no impact on the water table.

Drillers have pumped a "milkshake" of fluid and sand into the seam in a 150m radius to open pathways to allow water and gas to flow.

Since November last year, five test wells have been successful in releasing gas in sufficient quantities to flare. The 400m deep wells were producing enough 98 per cent methane gas to power around 300 homes.

Methane was "clean" when burned, said Gamble.

Unlike traditional gas fields where just one well is needed, CSG extraction requires numerous wells dotted around above the seam, typically around 500m apart.

Gamble said the company had spent millions of dollars - although less than $10 million - on the project so far and had others in the pipeline in Taranaki and the West Coast.

The challenge was establishing what was recoverable and getting the cost of each well down.

"That's what we're trying to get our heads around at the moment. We've done enough to know there's gas there and it's technically feasible to extract it; the next stage is commercial and we would expect to be making a decision on that by the end of the year."