Tipping point in shale gas revolution

Successful shale gas tests will have profound implications for Australia’s energy sector.

TO get a glimpse of Australia’s energy future there’s no need to take a trip to a remote offshore oil and gas project. Instead, let your fingers do the walking. First, go to the reports section of the stock exchange, and then to the website of the Australian National Audit Office.

While the Browse Basin project of Woodside and partners off the Kimberley coast was winning headlines last week, there was far more significant news coming from the desert country of South Australia and the coastal plain north of Perth.

As for the ANAO (an organisation most people have never heard of), it was there that a damning report was published about the inefficiencies and incompetence that continue to dog the politically correct, but oh so hopeless, renewable energy sector.

The positive news first; and while it requires a degree of stitching together, the essential message is that Australia’s domestic gas industry is fast approaching the same sort of tipping point that has revolutionised the US gas industry – and not painlessly.

Shale gas is the revolution in question, and last week Australia scored its third significant shale gas hit with oil and gas explorer AWE reporting a successful flow of gas from tight shale rocks in the Senecio No.2 well near Dongara, north of Perth, and Santos reporting plans to start commercial production of shale gas from its Moomba No.191 well in the Cooper Basin.

A fourth shale gas test, the Arrowsmith No.2 well of Norwest Energy and partners, also near Dongara, is continuing.

Added to the previous success of Beach Energy in the Cooper Basin that makes it three successful shale tests, which ought to be sufficient to convince most observers that Australia is following the US lead in shale gas – with all the plusses and minuses implied.

The good news is that shale gas has demolished the cost of energy in the US, driving the gas price in that country down from $US13 per million British thermal units to less than $US3/mbtu – a drop that has also driven coal miners out of business, and driven US coal into the backyard of Australia’s coal exporters, Asia.

Some people with little geological knowledge have doubted that what happened in the US could happen in Australia. It can, and it is.

Shale gas is a global revolution that is changing the way the energy industry functions, not just because technology has unleashed a new and abundant source of cheap fuel, but also because gas is the least polluting of the fossil fuels.

Three shale gas strikes (Beach, Santos and AWE), and a fourth to come (Norwest) is the evidence that will stir the wider Australian energy debate because it almost certainly means:

• cheaper gas across the country, which is good news for consumers but potential trouble for gas producers, as BHP Billiton has discovered in the glutted US gas market;

• competition issues for companies proposing to develop high-cost offshore gasfields, which will find it tough to sell into the Australian domestic market;

• political debate about how much of Australia’s gas should be exported; and

• an even more intense debate about the level of government subsidy for high-cost renewable energy projects, which face an even steeper uphill climb in proving their worth as gas prices fall.

That final point makes a visit to the ANAO website worthwhile, because it is there (http://www.anao.gov.au) that you will find – under the latest publications menu – an audit of the Renewable Energy Demonstration Program.

It would be easy to say what a mess, but it’s just as easy to ask what else could be expected from a government agency dolling out taxpayer funds to projects that can only be called ‘adventures in energy’.

Essentially, the staff of the ANAO found that the Australian government’s key renewable energy funding program is being badly run, with poor accounting and record keeping.

Or, to use ANAO’s wording: “the assessment process administered by the department fell short of the transparent and accountable decision-making processes for grants expected by government with insufficient documentation retained by the department to evidence key aspects of the process.”

Heard that before? Of course you have with the ceiling insulation scandal, the school hall scandal, and other examples of government waste.

This time, however, the waste of taxpayer funds on overpriced wind, wave and solar projects is being met by the shale gas revolution, which will dramatically cut energy costs across Australia over the next 10 years, meaning that renewable subsidies will have to be increased substantially if pet green-energy projects (with, or without accurate paperwork) are to compete.

Prices down

BEFORE irate true believers in green energy write letters of complaint about Bystander’s latest rant against their industry, it’s worth one more visit to the stock exchange to see how renewable energy stocks are trading, and to check on one project in particular.

The general measure of the ASX-listed renewable stocks is summed up in one word – disaster.

All renewable-energy stocks tracked over the past few years are down sharply. Examples include Dyesol from 96 cents to 14 cents over the past two years, and Ceramic Fuel Cells from 23.5 cents to 5.5 cents.

However, the renewable stock to have made the most noise over the past five years is the best example of missing the mark. Geodynamics, the original ‘hot rock’ or geothermal energy explorer, has plunged from 90 cents to 15.5 cents over the past two years – and lost the support of an important backer.

Origin Energy, best known as a conventional gas and electricity producer, had sunk around $200 million into hot rock projects in association with Geodynamics in South Australia. On June 30, it wrote-off its entire investment and stopped contributing to the latest test well, Habanero No.4.

“Fully impaired” is how Origin described its investment in SA hot rocks, adding that the activities “have not met expectations for timely and commercial development of the geothermal resources”.

That comment might give the ANAO something to think about in next year’s audit – as might the promise of cheap gas and its effects on high-cost energy adventures that we’re all paying for.

***

“People never lie so much as after a hunt, during a war, or before an election.” 
Otto von Bismarck