It costs more than digging up a thick seam with little overburden, definitely. You wouldn't bother if you had cheap alternatives. But when "conventional coal" hits a plateau, rising prices will make "unconventional coal" a more attractive proposition. Gasification potentially allows a country like China to increase its total energy use while coal production stagnates.

I've seen CTL projects claim they can be profitable at $30 per barrel. Gasification is cheaper because you skip the liquification step and just burn the syngas in a power plant.
This is 19th century technology, by the way, been done many times before. It isn't common because oil and conventional coal is cheaper and in abundant supply - for now.

Isn't that pretty costly in dollar terms, though? I've only read about coal seam gas in a "carbon sequestration" context. Cost could keep production down, and the cost could restrict consumption - which in practical terms is the same as physical factors, and gives us a peak.

Coal seam gas is a very different thing to gasification (UCG - Underground Coal Gasification).

I agree with the reservations above about total coal resources (probably because I'm Australian as well and am very aware that our coal reserves can jump pretty quickly whenever anyone feels like going out and drilling a few more holes - which they only do when they want to start a new mine up).

One day coal production will peak - but I'm very wary that we'll see a lot more coal produced in Australia, China, Pakistan, South Africa and the US than some people imagine.

For more on the Oz context, check out these posts on coal to liquids and coal seam gas in Australia (note that since these were written the Monash CTL plant has been shelved and the UCG industry has been pushed out of Queensland by the CSG boys and is trying again in South Australia) :

http://anz.theoildrum.com/node/3817
http://anz.theoildrum.com/node/4618

http://peakenergy.blogspot.com/2008/08/csm-vs-ucg-in-queensland.html
http://peakenergy.blogspot.com/2008/11/triumph-of-csm-over-ucg-linc-flee...
http://peakenergy.blogspot.com/2008/12/monash-ctl-project-put-on-hold.html