February 25, 2013 7:46 am

Chevron adds heft to Australian shale

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Australia’s fledging unconventional gas industry received a big vote of confidence on Monday when Chevron, the second-biggest oil company in the US, agreed to pay up to $349m for stakes in two shale prospects being developed by Adelaide-based Beach Energy.

Chevron is the latest international energy company to invest in Australia’s emerging shale gas sector. Earlier this month, PetroChina announced a deal with ConocoPhillips to explore for gas in Western Australia, which is estimated to have the fifth-largest reserves of shale gas in the world, according to the US Energy Information Agency.

In total, international and domestic oil exploration groups are planning to spend more than A$1bn ($1.02bn) over the next couple of years on drilling and testing Australia’s shale reserves. There could be almost 400tn cubic feet (tcf) of shale reserves in Australia as well as 20 tcf of tight gas, another unconventional natural gas, according to Geoscience Australia. To put those figures into perspective, Australia’s annual domestic gas usage is 1 tcf.

The global boom in oil and gas production unleashed by new shale drilling techniques has been a blessing for the US economy, creating thousands of new jobs and reducing the country’s dependence on crude oil imports.

Many wonder if the same could happen in Australia, but the extent to which its unconventional gas resources can be profitably developed is not yet clear. In last year’s Energy White Paper, the Australian government noted the country’s shale resources were lower in liquids, including more profitable crude oil, than the US because of different geology and with one notable exception would require “costly new infrastructure to develop”.

That exception is the Cooper Basin, which straddles the borders of South Australia and Queensland and has produced conventional oil and gas since the 1960s.

“We’ve had thousands of wells in the Cooper,” says Barry Goldstein, the South Australian government’s executive director of Energy Resources. “We know what the rocks are and we have infrastructure overlying all of these shales for the conventional oil and gas. It’s a skip and a jump to connect to processing facilities and pipelines to get it to market.”

Australian oil and gas company Santos has already started producing shale gas from one well in the Cooper basin and is actively searching for more.

According to the EIA, the Cooper Basin could yield 85 tcf of gas – or 85 years of domestic supply based on current consumption.

“The Cooper Basin is a huge potential resource,” says Reg Nelson, managing director of Beach Energy. “This is ground breaking; this is nation building.”

Its development is also important for the economy in the state of South Australia, which is searching for other drivers of growth after BHP Billiton ditched plans for a A$20bn expansion of its Olympic Dam mine last year.

Analysts say the deal between Beach and Chevron, which has significant shale gas assets in the US and Canada, is vindication of the Cooper Basin’s potential. Chevron is already one of the biggest foreign investors in Australia but until now it has been focused on large conventional gas ventures, such as its A$52bn Gorgon LNG project in Western Australia.

But it will be another 12-18 months of drilling before Beach and other explorers such as Santos will know if unconventional gas can be produced commercially from the Cooper Basin.

“People always ask me what price is needed to make the Cooper viable,” says Mr Nelson. “And the answer is we won’t know until we have determined the initial flow rates and the decline curve. Once we know those will be able to determine prices.”

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