aust tipped to overtake china in shale boom

Australia tipped to overtake China in shale boom

MATT CHAMBERS |
The Australian |
January 20, 2014 12:00AM

AUSTRALIA is being touted as the place most able to replicate the shale gas and oil success of the US, overtaking China, where exploration is struggling to gain traction, and other nations that pose too much regulatory risk.

Boston consultant Lux Research has issued a study declaring Australia "the next big energy market" for shale ahead of China, which was once seen as having similar potential to the US.

Australia beats other nations with potential shale and other unconventional resources because of know-how and government stability, Lux says. The use of horizontal oil and gas drilling and hydraulic fracturing (or fracking, where pressure is used to crack the shale to release gas) has provided access to previously unattainable oil and gas, turning a gas shortage in the US into a glut and taking the globe's biggest oil user towards self-sufficiency.

While no one is tipping that Australia's shale will be as productive as that of the US, enthusiasm about its potential has been backed up by recent sector entrant Magnum Hunter Resources, a Houston-based shale producer that scoured the world for opportunities.

It decided Australia, through ventures with New Standard Energy and Ambassador Oil and Gas, was the best option.

Lux analyst Daniel Choi said Australia's shale and tight oil and gas resources (which both required fracking to flow) were complemented by external factors unique outside the US.

"Existing infrastructure, low population density in resource-rich regions and a welcoming government position Australia at the forefront of shale development," Mr Choi said.

Poorer than expected drilling results in China, where Shell, Chevron and Exxon Mobil have tested their luck trying to extract gas resources estimated to be twice that of the US, have helped Australia move to pole position.

"The majority of the country (China) has struggled to access its vast reserves due to unforeseen technical challenges caused by depth and geology," Mr Choi said.

"Other problems delaying development include poor infrastructure and local turf wars."

US oil major Chevron shone an international light on Australia's shale potential early last year when it announced a deal to spend up to $350 million exploring for shale gas with Beach Energy in the Cooper Basin, which crosses the South Australia and Queensland border.

Beach has drilled the Holdfast-2 horizontal well and fracked it but is yet to reveal results to an expectant market keen to understand how well the Cooper Basin's shale responds to the horizontal drilling practices that revolutionised the US energy market.

BG Group has also entered the basin, where smaller local players Senex Energy, DrillSearch, Ambassador and Strike Energy are also targeting unconventional gas.

Other onshore regions are being targeted outside the Cooper, such as the Perth Basin -- where Norwest Energy and AWE Energy are active -- and various basins in the Northern Territory, where Armour Energy and Central Petroleum (with France's Total) are active.

An expected tripling of east coast gas demand as $70 billion of LNG plants come online at Gladstone in Queensland in the next three years is set to lift traditionally low eastern Australian gas prices to levels that may foster growth in the unconventional sector. There is also a growing feeling that the Queensland coal-seam gas wells will not perform as well as had been hoped.

Magnum Hunter head of exploration Kip Ferguson said Australia had been a more appealing destination than Colombia, Mexico, Argentina and Poland.

He said he expected interest in Australia from US players to grow.

"As North America becomes highly saturated and opportunities become more scarce, companies with broader thinking need to look abroad to find unconventional resources," Mr Ferguson said.

"I think it will pick up and we are trying to be ahead of the game and be the leader of the pack.

"The unconventional potential in Australia is phenomenal. We like other places but Australia has the most potential because of other things like a marketplace, deals and acreage."