As world oil supplies run inexorably lower the lesser energy-dense hydrocarbons become worth drilling for. We are seeing rapid changes in the story at present. Remember the energy return on energy invested is much lower than it was in the ‘oil rush’ because oil is such a remarkably energy-dense material.
http://upload.wikimedia.org/wikipedia/commons/9/97/EIA_World_Shale_Gas_Map.png
One of the buzzwords at this week’s Australian Petroleum Producer and Explorer Association (APPEA) conference is ‘Shale’. Shale gas.
If you’re not familiar with it shale gas is gas that’s trapped within deep shale rock formations. Until recently it was almost impossible to recover this gas.
But technological advances mean gas companies can now access this gas. To the extent that it’s now revolutionising the energy world right before your eyes.
Nowhere has it had a bigger impact than in the United States. Less than 10 years ago the US faced an energy crisis. Today they have more gas than they know what to do with.
Based on this week at the ‘oil and gas show’ Australia has a chance to follow the same path.
Shale gas already makes up 30% of the US gas supply. By the end of the decade it could reach 50%.
The rapid success of shale gas exploration and production means cheap natural gas for the US. Really cheap!
Just four years ago gas was USD$14 per million British thermal units (mmBtu). Last month it fell below USD$2 mmBtu. This cheap energy can make life tough for the producers but is a gift for the US economy.
The benefits go beyond affordable heating transport and more competitive manufacturing. It also creates jobs.
According to J. Michael Jaeger the CEO of BHP Billiton Petroleum ‘the unconventional energy sector has been responsible for 600000 new jobs in recent years and this is set to increase to 850000.’
And by his estimates the sector adds USD$100 billion to the US economy each year.
But this American energy revolution didn’t come easy.
In North America between 2008 and 2011 explorers drilled 15000 shale gas wells. That takes a lot of investment a lot of time and a lot of risk.
Shale basins all over the world. Canada Brazil Argentina South Africa Europe China and Australia.
But in the time the North Americans drilled 15000 wells and ensured cheap gas for decades to come what has the rest of the world done?
Less than 100 wells drilled.
Australia is making tracks.
The market has embraced the story. Aussie shale stocks like Buru Energy (ASX: BRU) have gone up eight-fold in the last two years.
There’s still a long way to go for the Aussie shale industry.
In 2005 the US produced less than two billion cubic feet (bcf) of shale gas per day.
This year the US is set to produce nearly 25 bcf of shale gas per day.
But the real billion-dollar-question is what will happen here in Australia?
We have the potential but there are some big differences between Australia and the US.
Shale Gas With an Oil Kicker?
Research and Consulting Service Wood Mackenzie asked this question at the conference this week. They reckon it can be done.
But a number of stars need to align first.
First explorers need to do much more drilling to see if the geology is right and whether it’s possible to produce gas commercially.
Then there’s the issue of support services. It’s still a new game here and unlike in other resources sectors we don’t have all the players expertise and equipment to get the job done.
Remote locations and the wet season add an extra challenge.
We also need to ask the question — does Australia even need shale gas?
We have plenty of conventional gas already. Then we have the Coal Seam Gas industry which is still growing and now meets 40% of East Coast Australia’s gas needs. And as I mentioned yesterday the LNG industry is already set to triple production in the next six years.
So where does shale gas fit in to the Australian energy mix?
As with everything it depends on the production cost. If it’s cheap enough Australia can enjoy even more affordable gas and could turn it into another export revenue stream.
But shale gas isn’t the only opportunity. The real money-spinner could be in ‘shale oil’.
They call shale ‘liquids rich’ when it contains oil. Oil is more profitable and easier to export. Finding it in Aussie shale plays could help kick-start the development of a profitable Aussie shale industry.
The biggest opportunities for shale oil are in the Canning Cooper and Georgina basins. They each have ‘liquids’ potential but so far no-one has struck shale oil yet only shale gas.
There’s a lot of Australian shale exploration planned this year. Joint ventures between small Aussie companies and giant overseas firms are drilling the better-known ‘Canning basin’ in WA and ‘Cooper Basin’ in South East QLD.
Drilling and hydraulic fracturing (fracking) is also taking place in the Georgina Basin in the Northern Territory Gippsland in Victoria and Galilee Basin in Queensland.
Back when the US shale boom was at this early stage land was cheap.
Today US shale acreage valuations are through the roof. Early investors in the right projects scored big.
This is probably why you see big players like Mitsubishi (TYO: 8058) BG Group (LON: BG) ConocoPhillips (NYSE: COP) and Hess Corp. (NYSE: HES) moving in early on the Aussie shale gas story.
With big companies getting in at the ground floor — and with so much focus on the sector at Australia’s largest oil and gas conference — it already looks like the shale sector is set to be Australia’s next resources boom.