Why shale gas is still the next big thing
Mining companies are increasingly taking an interest in shale after it took off in the US, writes Paddy Manning.
Nobody knows the extent of the shale gas resource in Australia but the potential is big, perhaps big enough to reduce coal seam gas to a sideshow.
The federal agency Geoscience Australia set the theme of this week’s annual Australian Petroleum Production and Exploration Association conference by estimating shale gas could double Australia’s natural gas reserves, from 400 to 800 trillion cubic feet of recoverable gas.
The US shale revolution, spurred by the advent of horizontal drilling and fracture stimulation (or fracking) technology, transformed world energy markets in five years.
Shale gas now accounts for about 23 per cent of the US’s annual gas production, according to the US Energy Information Administration. By contrast, coal seam gas (CSG, or coal bed methane as it is known in the US) provides about 7 to 9 per cent, says the managing director of Beach Energy, Reg Nelson.
What has happened in the US is likely to happen here, he says.
Beach, which gets most of its revenue from oil production, has been a pioneer in unconventional gas. Beach sold an early-stage investment in coal seam gas play Arrow Energy to Shell, at a handsome profit.
Beach has some of the best exploration acreage in Australia’s most prospective shale gas field, the Cooper Basin in South Australia. Beach shares dived this week after a media report suggested the company had shut down a data room opened to potential co-investors, due to a lack of interest. Nelson says Beach terminated the sale process once it got strong gas flows from one of its wells in the Cooper: ”We thought, we’ve got something big here, we can add value to this. And when we sell it, we’re not going to sell it for a small premium. It’s going to be a big one.”
Certainly there is plenty of jockeying going on, with juniors including Senex, Drillsearch and others seeking to prove up their shale reserves and sell on to a larger company. Big oil producers such as BP, Total and Shell are interested; BHP Billiton’s petroleum chief, Mike Yeager, said his team was ”studying every square inch of Australia right now” looking for shale gas.
Australia’s shale gas reserves are not located under prime agricultural country but in the middle of the desert, and there is a gas pipeline nearby at Moomba. Shale gas wells are deeper – generally well below aquifers – and typically recover more gas per well, meaning fewer wells need to be drilled.
Drew Hutton, the president of the anti-coal seam gas group Lock the Gate, warns shale gas production in the Cooper could have implications for Western Queensland’s wild rivers, protected under legislation. ”The nomination of the western rivers came about because the traditional owners, local cattleman and local councils got together with the wilderness society and lobbied for it.”
He says the US experience shows there are still groundwater concerns associated with shale gas extraction, and there would likely be an environmental campaign – though perhaps not a Lock the Gate campaign – against shale gas in the Cooper.
Nelson, a former South Australian mining regulator who spent much time capping uncontrolled flows from bores in the Great Artesian Basin, says he has ”no concerns whatsoever” about groundwater contamination from shale gas.
”The important point is, Cooper Basin gas has been around for 40-50 years. A lot of these reservoirs have been fracked, because the sands are tight. There’s been about 700 wells fracked since 1969.”
If Cooper Basin shale production was safer, could the entire coal seam gas debate be bypassed? The vice-president for eastern Australia at Santos, James Baulderstone, says at an estimated $6 per gigajoule, shale gas is 20 to 30 per cent more expensive to produce than coal seam gas, and technology and capital constraints mean significant shale production is unlikely to be economic this decade. Santos is concentrating on getting more out of the declining conventional gas reserves in the Cooper Basin, with advanced infill drilling, and on developing its coal seam gas fields in the NSW Gunnedah Basin.
”You need a diversity of supply,” he says. ”One of the great things about NSW’s gas resource is its location to market and where it sits on the cost structure. When you model the cost curve, the coal seam gas will be cheaper than shale to start with, it’s easier to develop and we believe that it will fill market demand in the 2015-25 window. Shale would then come on stream towards the end of the 2020 decade, and start to displace coal seam gas as it becomes cheaper over time.”
With a majority stake in the Moomba gas plant, and the most acreage in the Cooper Basin, Santos will play a big role in developing Australia’s shale resource. It has recently drilled its first vertical shale well, and will drill its first horizontal well later this year.
”We’re all very excited about shale but it’s not something you can do overnight,” Baulderstone says.