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Shale Gas in Australia an Interesting Prospect

February 27, 2012

Australian stock promoters and newswires have recently been picking up a new story to promote: there are huge potential shale gas resource opportunities in Australia.  Shale gas is apparently set to change energy and geopolitics, according to the World Energy Outlook of the International Energy Agency.   In Asia-Pacific, recoverable shale gas accounts for nearly as much as all types of other (tight, conventional, and CBM) gas resources combined.  There needs to be a little tempering of enthusiasm, however.

Australia has lots of natural gas.  We know about the Coal Bed Methane resources for which the LNG trains in Queensland are being developed, and the massive investment in the Surat and Bowen basins this is involving.  The existence of large conventional gas sources are also common knowledge – in particular the extraction and LNG trains under development off the north-west shelf.

However, the shale gas prospect stands to deliver even more.

Total Proved Natural Gas Reserves in Australia stands at 110 trillion cubic feet.

Technically Recoverable Shale Gas Reserves in Australia stands at 396 trillion cubic feet from four main basins – five major shale gas formations.  Shale Gas Formations in Place points to a far larger potential resource – 1,381 trillion cubic feet (EIA/ARI) to 2,313 trillion cubic feet (H-H Rogner).

Source: EIA (2011)

The EIA report from 2011 provides the following overview of the four main basins reviewed:

The Cooper Basin, Australia’s main -onshore gas-producing basin, could be the first to develop, although its Permian-age shales have a non-marine (lacustrine) depositional origin and the gas has elevated CO2.  Other prospective shale basins in Australia include the small, scarcely explored Maryborough Basin in coastal Queensland, which contains prospective Cretaceous-age marine shales that are over-pressured and appear gas saturated. The Perth Basin in Western Australia, undergoing initial testing by AWE and Norwest Energy, has prospective marine shale targets of Triassic and Permian age. Finally, the large Canning Basin in Western Australia has deep, Ordovician-age marine shale that is roughly correlative with the Bakken, Michigan, and Baltic basins.

Today, an article in The Bull discusses the prospects for some ASX-listed companies involved in Cooper Basin exploration and production.  It points out that there is existing infrastructure to transport gas to markets on the east coast, and that the remote environment is potentially a positive in terms of reduced environmental constraints.  It’s not like environmental constraints have really reduced the exploitation of minerals exploitation in many places in Australia in any case.  The EIA assesses the recoverable equivalent in the Cooper Basin as being 85 trillion cubic feet.  In another article, the shale gas investment at one tenement by Icon Energy and Beach Energy is discussed.  There are several other small players involved in exploration and spudding.

There needs to be some realism, however, in assessing the potentiality.  Revenue per well is lower with shale gas, so you need a large number of wells operating – it’s a scale issue.  There needs to be a good rhythm to the drilling, with lots of people working in these remote areas, lots of spare drill rig capacity and specialist contractors.  There needs to be a critical mass of work in any one region happening.  Most of the shale gas equipment is in the United States – which is also where much of the expertise is.  The Bull article is of the view that the US firms will enter the Australian shale gas market for these resources to be successfully exploited.  This is likely a necessary fact, without which the opportunity will remain unrealised in the near future.  Perhaps there’s enough seismic and geological information already undertaken in parts of the Cooper Basin to make it the nearest-term option.  Surely it will be quite some time before there’s full commercial exploitation of the Canning Basin, given its remoteness and lack of development.

The other issue is that, as US explorers and producers are discovering, the more investment in shale gas there is, returns become ever-diminishing as gas prices decline in response to the production glut.

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