20/06/2013 - 12:15

Extraction costs no deterrent for shale

20/06/2013 - 12:15

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Extraction costs no deterrent for shale
Investment: Alcoa has invested more than $100 million in several unconventional gas projects, such as Empire Oil & Gas' Red Gully gas and condensate processing facility in the Perth basin.

Shale gas in the US contributed around $80 billion to its GDP and created more than 900,000 jobs, but a new financial analysis has shown developing Australia’s vast shale gas resources will cost up to twice as much as it has in the US.

According to the Australian Council of Learned Academies (ACOLA), which recently released a report on shale gas, Australian drilling and completion costs, operating costs, and costs associated with infrastructure are likely to be up to double those in the US.

Despite this warning many WA companies view unconventional gas, including shale gas which Australia has a vast supply of, as commercially viable.

Buru Energy executive director Eric Streitberg said his oil and gas exploration company will be working hard to translate the potential it sees in unconventional gas resources in the Canning Basin into economic production. He described the resources as amazing and said he was very confident of developing projects that would give his company a good rate of return.

Alumina producer Alcoa business development and marketing director Michael Parker said Alcoa has invested more than $100 million so far with energy companies to develop unconventional gas and secure its own long-term gas supplies.

Vast reserves

ACOLA estimates Australia has 396 trillion cubic feet (tcf) of shale gas resources in four basins, which includes WA’s Perth and Canning basins.

WA currently uses 0.33tcf of gas per year, or 1000 terajoules per day.

To access unconventional gas in shale formations, horizontal drilling or hydraulic fracturing is used, which costs more than extracting conventional gas.

ACOLA’s financial analysis found the “required gas price” for shale gas to be economic in Australia ranges from $5.30-$8.65/gigajoule with a mean price of $7.10/GJ.

This matches national energy player Santos’s own calculations that required gas prices will need to be between $6-9/GJ for shale gas to be financially viable.

Within WA, the development of shale gas is likely to cost less in the Perth Basin, which has the commercial advantage of existing infrastructure, than in the more remote, but potentially larger resource in Canning Basin.

“The existence of domestic gas prices at levels around expected export netback prices would be sufficient to encourage the development of shale gas resources located near existing infrastructure. Higher prices and or liquids credit would probably be required to justify the development of more remote shale gas resources in Australia,” the ACOLA report said.

Alcoa has invested in several WA unconventional gas developments, prepaying $40million against future gas supplies with Buru for their Canning Basin developments, partnering with Transerv Energy in the Perth Basin to develop the Warro gas field, and prepaying $25million against future gas supplies to Empire Oil & Gas and ERM Power for a joint venture to develop gas from the Perth Basin to be processed at the Red Gully facility.

Outside of WA, in the Cooper Basin, a Santos spokesperson said for its Moomba-191 gas field, its estimated drill, complete and connect costs for producing Cooper Basin unconventional vertical wells was approximately $10 million per well

A gas price of $6/GJ would make the project economically viable, the company says.

This compares with the US where drilling and completion costs range from $3.5-5million per well.

Possibilities

WA is estimated to have the fifth largest shale gas resources in the world, which could be extracted to secure domestic gas supply as current supplies from the offshore North West Shelf venture and the Varanus Island hub drop off.

Mines and Petroleum Minister Bill Marmion said significant build-up and investment in equipment and infrastructure would be required before natural gas from shale could be an important source of energy for WA.

“Importantly, natural gas from shale could ensure the state’s energy security with our domestic gas supply expected to fall below demand by as early as 2016,” Mr Marmion said.

“While natural gas from shale is very much in its infancy here in Western Australia, it could potentially provide significant economic benefits to the state,” Mr Marmion said.

Deloitte national oil & gas leader for Australia, Michael Lynn, said the Australian shale gas industry could develop quicker if industry members banded together.

“By identifying where an organisation has true competitive advantage, waste can be eliminated from other areas through potentially leveraging joint infrastructure like pipelines or ports and support services like research and marketing.  Community engagement, government relations and safety and environmental concerns would also benefit from collaborative activities,” Mr Lynn said.

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