BHP BILLITON is forecasting massive production growth by its petroleum division courtesy of its $US20 billion investment earlier this year in the environmentally controversial US shale gas business.
But because of weak US gas prices, the market remains uncertain on the financial returns from the shale gas foray - one that underpins projected production growth from 159 million barrels of oil equivalent (boe) in 2011 to a forecast 225 million boe in 2012.
In a briefing to investors last night by the petroleum division's chief executive, Michael Yeager, BHP disclosed that daily group production could grow to 1 million boe (365 million boe annually) in less than five years, with annual capital expenditure of more than $US5 billion on the US shale gas business behind the surge.
That would firmly establish BHP as one of the world's biggest (independent) oil and gas groups. But again, the market has concerns that the shale business is not the high margin business that BHP's ''conventional'' oil and gas is.
Last night's briefing gave little near-term joy on the likely returns from the shale gas business.
Mr Yeager reported expected cash costs over the next two years averaging $US1.90 per million cubic feet of gas equivalent (Mcfe) and non-cash costs of $US2.60 a Mcfe.
Due mainly to the rapid growth in the US shale gas industry and the sluggish US economy, gas prices are languishing at prices roughly half the level analysts consider needed by the industry to generate sufficient returns.
BHP's presentation included a gas futures graph that has gas rising steadily to more than $US6 per Mcfe by 2020. Mr Yeager said that like elsewhere in the world, natural gas was a preferred fuel in the US to reduce carbon emissions.
There has also been a backlash in the US to the environmental impact of the hydraulic fracturing (fracking) used in the shale gas business to liberate the gas and the industry's high water use in the drilling phase.
Mr Yeager dismissed the potential of the backlash to choke the industry. ''It is an irrefutable fact that the shale gas industry is a game changer in the US [the world's biggest gas market] for the next 50 years,'' he said.He estimated that shale gas production could account for almost 50 per cent of total US gas production by 2020.
But he also acknowledged that the industry faced several areas of concern, including the quantity of water used during fracking, the chemicals used in fracking, seismic activity, aquifer protection and general air and noise pollution.
Mr Yeager said there was no doubt a more robust regulatory regime surrounding the industry was developing in response to the concerns. As a result, investors could be comfortable that BHP's long-term ambitions in the industry were ''executable''.
He also differentiated the shale gas industry from the equally controversial coal seam gas industry, which is planning a $50 billion export investment boom in Queensland.
Mr Yeager said coal seam gas developments were typically much shallower than shale, creating a greater potential interaction with groundwater resources
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