Another Shale Gas article our JV parnter AWE get a mention
Explorers target shale gas for Australia's next energy boom Ross Kelly From: Dow Jones Newswires April 27, 2010 11:36AM
A POTENTIALLY vast gas resource trapped in Australia's outback by dense rock formations could fuel another boom in the energy sector, at least according to companies like Beach Petroleum and Santos with acreage there.
But others are skeptical that shale gas locked in Australia's Cooper Basin can be produced economically like the Barnett and Haynesville shales in the US, or coal seam gas in Australia's northeast.
Innovative drilling techniques that can shatter rock with high-pressure bursts of water have made shale gas competitive with more conventional supplies in North America, where people typically pay more for gas. Citigroup says shale gas accounts for 13 per cent of the US's proven gas reserves and energy companies are staking out positions in European deposits.
They're being driven to unconventional fuels by a shortage of oil in countries that are politically stable and open to private investment.
Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. Rough estimates suggest there are tens of trillions of cubic feet of shale gas in the Cooper Basin, which straddles Queensland and South Australia. Shale gas deposits are present in other regions like Western Australia, where AWE has plans to drill a test well.
While there's plenty of shale gas to plunder, the cost equation in Australia may not stack up for decades.
"We remain unconvinced that the economics of the play will be able to compete with the significant coal seam gas volumes consistently being proven up in Eastern Australia," Merrill Lynch analyst Mark Hume says of Beach's Cooper resource.
Paul Balfe, managing director of energy consultancy ACIL Tasman, says coal seam gas costs about $2-$4 per gigajoule to produce, comparing favourably with Australian east coast domestic gas prices of $3-$4 a gigajoule and at least $7 a gigajoule in Western Australia.
The most optimistic cost estimates for shale gas are around $5 a gigajoule, with the more pessimistic at $8.
Mr Balfe says a lack of drilling technology and expertise in mining shale gas in Australia may push production costs higher.
"I suspect that $5-$8 might look more like $7.50-$10 here," Mr Balfe says.
Other energy analysts agree Australia has other energy sources that aren't as far along the cost curve as shale gas, including conventional gas supplies offshore Western Australia or the Bass Strait offshore Victoria that can be piped to land.
"Australia is, if not the lowest, one of the lowest-priced gas markets in the world, and there's no shortage of coal seam gas out there either," one of the analysts says.
Mr Balfe, however, adds "the guys who are working on it obviously have a better handle on the technology and the likely costs".
Adelaide-based Beach appears to be trying to become a pioneer in tapping shale gas in Australia. It is committing $20 million-$30m this year to develop its shale gas plans and expects to drill a test well around July, with a view to running a pilot plant next year and commercializing the resource by 2015.
Beach Chief Executive Reg Nelson says South Australia's enthusiasm for wind power means it will increasingly need a back-up energy source when the wind stops blowing. He's confident Beach's shale gas could be used to produce industrial chemicals or liquid fuels to power vehicles or aircraft.
"We believe we'll be able to target the sweet spots similar to the Barnett, where the cost structure is very much lower," Mr Nelson says.
Santos Chief Executive David Knox said last year its shale and tight gas in the Cooper could be "very, very big indeed".
Mr Knox concedes domestic gas prices are too low. However, the centre-left Labor government's proposed emissions trading scheme could push them above A$6.00 a gigajoule.
Unconventional gas has a role to play if North Asian customers continue to snap up Australia's liquefied natural gas exports and projects are built on time.
"If we get a lot of LNG then maybe you'll get a bit of an acceleration in the timeline for shale gas. But if you get some delay and there's a whole pile of coal seam gas looking to find a home, then shale gas might be the poor cousin," says Credit Suisse energy analyst Andrew Williams.
WGP Price at posting:
2.5¢ Sentiment: Buy Disclosure: Held
