By Rebekah Kebede
PERTH, April 1 Shale prospectors in Australia's
vast Outback are homing in on oil as the lucrative prize that is
easier and cheaper to exploit than gas.
Initial hopes had been to replicate a U.S. shale gas boom,
but the economics of targeting oil rather than gas derived from
shale formations, once considered a mere by-product, look
increasingly compelling in Australia.
Gas, with no large domestic customer base, needs costly
pipelines and plants to chill the fuel for export. In contrast,
oil can be trucked to rail lines and ports, so is potentially
more immediately profitable, and large finds could reverse more
than a decade of declining Australian output.
Australia also already has sufficient conventional and coal
seam gas reserves to feed enough liquefied natural gas projects
to make it the biggest LNG exporter by the end of the decade, so
a U.S. shale gas boom that has freed up abundant, previously
unrecoverable reserves and brought prices down 40 percent since
November 2008 looks a less attractive development model.
"Oil is easy," said Peter Bond, the managing director of
Linc Energy, which recently said it could be sitting on
resources that could rival the Bakken shale, one of the main
drivers of the United States' surge in oil production.
"It's $5 to $6 per barrel to get it to a road train from
where you are to a port, with a $100 plus price per barrel of
oil, that's not hard to do."
Australia's potential as a big shale gas or shale oil
producer is not yet clear, with large-scale commercial
production up to 10 years away by the industry's own estimates.
That has not stopped some optimistic claims of the potential
from emerging, with Linc Energy saying its shale acreage may
hold 233 billion barrels of oil equivalent, almost as much as
The company estimates, however, only a fraction of that -
about 3.5 billion barrels - is likely to be recoverable.
Still, it's hard for developers like Linc Energy to ignore
that U.S. shale discoveries may help lift oil production there
to its highest level in 26 years in 2014.
New Standard Energy and Buru Energy have
both said they are looking for oil rather than gas in the
Canning Basin, a desert area in northwestern Australia with no
Late in 2012, New Standard abandoned the first well drilled
at its Goldwyer project in the Canning Basin after finding gas
without the liquids that would make development profitable.
"If you've got liquids associated with your gas, the
economics of developing that field are significantly enhanced.
The gas becomes more of a byproduct than a mainstream revenue
driver," Sam Willis, director of New Standard, said in a
Oil output in Australia was 484,000 barrels per day (bpd) in
2011, down 36 percent from 2001, according to data from the BP
Statistical Review of World Energy. The country is a net
importer and its output makes up just 0.5 percent of the world's
total oil production.
NEED FOR EXPORTS
While oil is the focus for firms exploring in the furthest
reaches of the Outback, those exploring shale reserves near
existing gas pipelines and export infrastructure have more
reason to be hopeful about gas.
Australia's government says shale could double the country's
gas reserves and the sector has attracted the interest of some
of the world's top oil companies. Chevron Corp was the
latest to jump in with a $349 million investment in February.
Others that have farmed into Australian shale plays include
ConocoPhillips, Total, Japan's Mitsubishi Corp
and India's Bharat Petroleum. Australia's
richest person, iron ore magnate Gina Rinehart, has also entered
the business, buying into Lakes Oil early this year.
Big energy firms are getting involved now to avoid the risk
of having to pay a lot more for acreage should reserves prove up
and production begin in earnest.
Australia is already well on its way to becoming the world's
top LNG exporter, with $190 billion of projects under
development. Those projects rely on gas from conventional fields
or from coal beds, rather than from shale.
So many plants being built at the same time has led to
billions of dollars of cost overruns, so for now developers have
little appetite for more export projects - but some would
welcome a top-up in gas supplies from nearby shale fields.
"In the current environment, where you have all the projects
being built that are getting hamstrung by their costs, it's not
a real hotbed of development for further export projects to take
shale out," said Noelle Leonard, an analyst with FACTSGlobal
Energy in Perth.
REPLACE COAL SEAM GAS
Australia's relatively small population means there is a
limited domestic appetite for more gas, so producers need access
to the export market to make gas development worthwhile.
"If there wasn't the view of an export market going forward,
we would not be drilling these wells," said James Baulderstone,
Santos' vice president of Eastern Australia, after the
firm brought its first commercial shale gas online.
Santos plans to feed its shale gas into nearby pipelines
linked to its LNG export plant on the east coast which is due to
start shipments in 2015. The shale gas will likely help
compensate for Santos' shortage of coal seam gas to fuel its LNG
plant in eastern Australia.
Some other shale gas explorers, such as Beach Energy
, are also counting on shale as a replacement for the
disappointing performance of coal seam gas.
"Coal seam gas has not quite lived up to expectations, so
everyone is watching this shale unconventional play quite
closely," Chris Jamieson, general manager of investor relations
at Beach Energy in Adelaide, said.