"weekend australian" -- shale potential -ctp, page-3

Its here

US shale gas success fires up local resources firms
BY: MATT CHAMBERS From: The Australian December 08, 2012 12:00AM
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Source: The Australian
SHALE has been the gift that keeps on giving to the US.

First, the petroleum-rich but hard-to-unlock rock unexpectedly turned a gas shortage into a glut, fuelling hopes of a manufacturing renaissance and export boom. Now it appears the US will regain its long-lost mantle of the world's biggest oil producer through shale oil and will become a gas exporter.

The hype begs the question: can Australia's large but untested shale basins do similar things?

The answer is: probably not on the same scale, but there are big possibilities.

Santos, which three months ago accidentally drilled the nation's first commercial shale production well in the Cooper Basin, says it will take a few years, and hundreds of millions dollars, to find out. "We're pretty confident we're on to something substantially very large," the company's head of eastern Australian operations, James Baulderstone, says.

"We know it's there, the question is, is it going to be 5 trillion cubic feet, or is it going to be 50?"

The nation's biggest domestic gas producing regions, the Cooper Basin in central Australia and Bass Strait, have produced 6-7 trillion cubic feet of gas each over the past 40 years. According to the US Energy Department, Australia has the world's fifth-largest potential shale resource, with about 396 trillion cubic feet.

Santos hit a milestone in August when it drilled what it says has become the nation's first commercial shale well: Moomba 191. The fact that it is just 350m from a gas pipeline and 8km from the big Moomba gas plant means the gas flows from the vertical well can be easily put into the system -- an advantage many shale wells won't have.

"We drilled it as the first well we were going to test," Baulderstone says. "We didn't really think were going to commercialise it, but it flowed so strongly."

Santos plans to spend $200m in the Cooper Basin over the next two or three years to meet a goal of material commercial shale production by 2015. This is part of more than $1 billion worth of potential exploration announced by domestic companies, including Beach Energy, DrillSearch, AWE, Central Petroleum, Strike Energy and New Standard Energy.

Also in the mix are international oil companies such as Hess, BG Group, Total, ConocoPhillips, China National Offshore Oil Corp and Statoil.

Shale is a petroleum-rich rock, usually made up of marine or lake life. Previously, conventional oil and gas have had to be released naturally out of source rocks, like shale, and be trapped by porous sandstone or limestone above it before they could be extracted out of the ground.

But a decade of leaps in fracking technology (where high-pressure fluids crack the non-porous shale to let the gas flow) and horizontal drilling, (where more of the shale is exposed to allow more gas flow), has led to US shales rapidly and unexpectedly becoming big producers.

Unfortunately, shales tend to have different characteristics and even in the US the industry is in the infancy of understanding how they work. This means Santos expects to need 15 or 20 wells in one shale fields to have confidence it can be a big producer.

In the US, where there is a lot more infrastructure and drilling crews, it typically takes three to five years to move a shale field to commercial production.

According to Citi analysts, US drilling contractor Halliburton is hoping to push that timetable to about five years in Australia.

CSIRO senior geologist Neil Sherwood, who heads the science agency's unconventional gas research program for exploration and production, says there is a lot of work to be done on how gas in shale is stored and flows before it can be predicted how many Australian shales will effectively produce. "Even in America, they can drill one well that produces beautifully and just a couple of kilometres away they produce another that doesn't economically produce and they often don't know why," Sherwood says.

He says there are some geological differences between US and Australian shales that point to our nation being less likely to replicate the US success on the same scale. The US has a lot more gas shales, including marine shales. These generally form larger deposits and often have better gas potential than shale that formed in the non-marine conditions, which is more common in central Australia.

Another factor could be the way the shales fracture. In the US, they tend to fracture vertically, which means the horizontal wells can be used to access gas. In Australia, the stresses are often more horizontal, which could limit the effectiveness of horizontal drilling.

"Even within shale plays there are different pockets," says Baulderstone. "Of the three fracks we did, one went as expected -- like in the US -- and the two others were slightly different."

There have been vertical shale wells fracked in Australia, but no horizontal ones. That should change in coming months, with Beach planning to start drilling the nation's first shale-focused horizontal well, known as Holdfast 2, in the Cooper Basin next week.

The well, which will go 3km deep and about 1.5km horizontally, will take two or three months to drill. The results will be available in March or April. Santos plans horizontal wells next year.

Beach and Santos have the most advanced shale plans, largely because their targets are in the Cooper Basin, which has the advantage of being close to pipeline infrastructure and the Moomba gas plant. The Perth Basin also has access to market via pipelines.

In those basins, the target is mostly gas. Other, more remote, fields, are likely to be targeted for shale oil, which can be moved out in trucks once a small plant is built, to make them profitable in the short term.

The Canning Basin, in the north of WA, has liquids potential, as does the Georgina and Amadeus Basins in Queensland and the Northern Territory.

BHP Billiton, which made $US20bn of shale gas and oil acquisitions in the US last year, says there is potential in Australia but that the lack of infrastructure and the need to export it to make a profit has held it back.

"We have looked at every basin there in great detail . . . there are some basins that look to be very favourable," BHP petroleum chief Michael Yeager said recently.

"If we've got more gas there in that Canning Basin in shale, it sure looks like we will have to get it out of the country to make if profitable -- you've got that kind of economics in WA. The transportation to the beaches is a long way."