It would be nice if Key scored with good old conventional oil like BRU did at Ungani, but that is only a side show (unless some incredibly lucky find)compared to the massive tenement holders Key is rubbing shoulders with ie BRU/Mitsubishi, NSE/Conoco Phillips and their shale gas ambitions.
This puts it nicely -
Probably the hottest sector and theme in the market over the past 6months and one that we have been watching closely is unconventional gas. This morning JPMorgan have released a 43 page comparison between Shale gas and Coal Seam Gas they highlight “Over the last five years focus has been turning to the ‘unconventional’ gas reservoirs of coal seam gas (CSG), shale and tight gas as potential sources of energy and a viable and more environmentally friendly alternative to thermal coal.” JPMorgan continue:
The potential shale gas reservoirs in Australia have been estimated at a minimum of 396Tcf which is equivalent to ~420,000PJ. Based on external estimates of the resource sizes of shale gas and CSG we estimate shale gas could potentially be 5-6x greater than the CSG resource.
Based on our assessment of the potential comparative environmental risks, we think the extraction of shale gas poses a far lower environmental risk in Australia than CSG. We cite the following reasons for our view:-
1. The remoteness of the major shale gas reservoirs in the Canning and Cooper Basins means that the major shale gas operators will not impact major agricultural land users on the eastern seaboard either from the perspective of water usage or potential contamination risks. In comparison, the CSG reservoirs are generally located much closer to high quality agricultural land and population bases.
2. Shale gas extraction does not require the ‘dewatering’ that CSG extraction does. The absence of the ‘dewatering’ risks around contamination and reducing water levels in surrounding aquifers is a significant positive in favour of shale gas.
3. Although all shale gas wells will require hydraulic fracturing, compared with an estimated 10-40% of CSG wells, we estimate the quantity of water required for shale fracking could be significantly lower than the volume of water that may ultimately be extracted from dewatering CSG reservoirs. Further, the freshwater requirement for fracking could be substantially reduced with the use of recycled flow-back water following fracking.
4. Shale is usually considerably deeper than coal seams and is generally well below groundwater aquifers. The depth and the fact that there are substantial layers of impermeable rock between the shale formation and the groundwater reduces any potential risk of groundwater contamination.
Increased scrutiny on the use of hydraulic fracturing with horizontal drilling has revolved around both water and soil contamination risks from toxic chemicals and seismic activity risk. A recent study conducted by the University of Texas concluded that many of the surface contamination issues appear to be related to other aspects of drilling operations, such as poor casing or cement jobs, rather than to hydraulic fracturing itself at reservoir depth.
Regarding hydraulic fracturing and seismic activity, our discussions with industry participants and geologists indicated that it is very rare for a significant induced seismic event to occur and that most induced seismic events are less than 2Md on the Richter scale and are unnoticeable at the surface.
While any mining or drilling activity will involve a degree of potential environmental risk, this can be mitigated by adopting industry best practices, ensuring well design and fracs are soundly engineered, adherence to timely monitoring of operations and the use of trigger systems aimed at avoiding any escalation in risk levels.
Potential environmental risks can also be mitigated by the implementation of environmentally friendly technologies such as frac fluids which use non-toxic materials rather than toxic chemicals and technologies which enabled the recycling of both ‘produced’ water and ‘flow-back’. A shift in the industry toward new green technologies could be accelerated by stricter Government regulations.
There will always be the risk that some companies will not necessarily adopt best practices or may not have the financial resources to ensure that all wells are properly engineered and designed and that operational aspects are properly carried out and monitored.
KEY Price at posting:
3.4¢ Sentiment: Hold Disclosure: Held
(20min delay)
