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Australia shale gas market analysis


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The report published by Kuick Research, ‘Australia Shale Gas Market Analysis’, gives a bird’s eye view of the Australian shale gas market in its nascence. The future of the Australian shale gas, according to the report, is bright and large with large investments planned for the coming years. Australia is set to take the top position in LNG exports with the start of production of shale gas. The report also gives an insight on the issues that Australia might face during the development of its reserves.

‘Australia Shale Gas Market Analysis’ research report is a factual text on the present and future of the nascent Australian shale gas market with an overview of the technology used and the domestic and international companies giving all their resources to make it a success.

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Australia shale gas market analysis

  1. 1. Australia Shale Gas MarketAnalysisJuly’2012©KuicK Research
  2. 2. KuicK Research Table of Contents1. Executive Summary2. Australia Shale Gas Reserves 2.1 Cooper Basin 2.2 Perth Basin 2.3 Canning Basin 2.4 Otway Basin3. Shale Gas Investments In Australia4. Shale Gas Opportunities & Challenges In Australia5. Government Regulation & Policies For Exploration & Development Of Shale Gas Reserves 5.1 Energy Resource Knowledge Base 5.2 Onshore Exploration & Development Policies 5.3 Offshore Exploration & Development Policies 5.4 Domestic & International Market Development6. Natural Gas Market Landscape 6.1 Production 6.2 Domestic Consumption 6.3 LNG – Export7. Future Outlook For Shale Gas Exploration & Production In Australia8. PEST Analysis8.1 Political Factors 8.2 Economic Factors8.3 Social Factors8.4 Technological factorsAustralia Shale Gas Market Analysis - Sample ©KuicK Research 2
  3. 3. KuicK Research9. Technologies For Shale Gas Exploration 9.1 Horizontal Drilling 9.2 Hydraulic Fracturing 9.3 Measurement While Drilling (MWD) Tools and Logging While Drilling (LWD) Tools 9.4 Pad Drilling10. Competitive Landscape 10.1 Domestic Companies Having Shale Gas Basin Exposures 10.1.1 Beach Energy 10.1.2 Santos Energy 10.1.3 AWE Energy 10.1.4 Drillsearch Energy 10.1.5 Senex Energy 10.1.6 Norwest Energy 10.1.7 Cooper Energy 10.2 International CompaniesAustralia Shale Gas Market Analysis - Sample ©KuicK Research 3
  4. 4. KuicK Research List of FiguresFigure 2-1: Shale Gas Reserves by Basin (Trillion Cubic Feet)Figure 2-2: Share of Cooper Basin in Australia Shale Gas ReservesFigure 2-3: Share of Perth Basin Australia Shale Gas ReservesFigure 2-4: Share of Canning Basin in Australia Shale Gas ReservesFigure 2-5: Share of Otway Basin Australia Shale Gas ReservesFigure 3-1: Shale Gas Investment by CompanyFigure 6-1: Natural Gas Reserves (Trillion Cubic Feet), 2006-2011Figure 6-2: Natural Gas Production (Billion Cubic Feet), 2006-2011Figure 6-3: Natural Gas Consumption (Billion Cubic Feet), 2006-2011Figure 6-4: Share of Natural Gas in Electricity GenerationFigure 6-5: LNG Exports by Country, 2010Figure 6-6: LNG Exports (Million Tones), 2011-12 & 2016-17Figure 6-7: LNG Exports (Billion AUD), 2011-12 & 2016-17Australia Shale Gas Market Analysis - Sample ©KuicK Research 4
  5. 5. KuicK Research2. Australia Shale Gas ReservesAustralia is sitting on nearly 6% of the world’s shale gas reserves, i.e. 396 Trillion Cubic Feet.These are in addition to its already proven natural gas and oil reserves that make it one of thefew distinguished energy rich nations. These shale gas reserves, though found a little late,have the proper Total Organic Content and the perfect environment of the depth of gas burialand requisite amount of temperature for its maturation.Australia has a geological edge over other nations with shale gas reserves, the presence ofsource rocks which is evident by its huge conventional natural gas reserves. Australia haslarge natural gas reserves and even though it has been exploiting them for decades, they havenot disappointed the world. Source rocks are rocks where the oil and gas mature or are‘cooked’. The organic matter is buried in between the sediments deposited over hundreds ofthousands of years on which temperature and pressure have acted to change that organicmatter into kerogen, an intermediate product in the process of oil and gas formation. Thesekerogen deposits, with more time and action, are converted into liquid and gaseous state wecall oil and gas, which is called ‘cooking’. When oil and gas is found in shale rocks, it is calledshale oil or gas. Figure 2-1: Shale Gas Reserves by Basin (Trillion Cubic Feet) Canning Basin Cooper Basin Perth Basin Otway BasinSource: EIA & Geoscience AustraliaAustralia Shale Gas Market Analysis - Sample ©KuicK Research 5
  6. 6. KuicK ResearchShales are rocks that can act as both source and reservoir rocks. They have high porosity andultra low permeability. Pores are the gaps between the rocks where gas is originated or held.Shale rocks have bigger and more pores that help the origination of these hydrocarbons.Permeability is the mechanism of connection of these pores through which the gas can flow.In shale rocks, the pores are bigger but loosely connected in an unorganized fashion thus notgiving a channel to the gas to flow out. This makes shale such a good source rock. When gasmigrates from other rock sources and flows and collects in a shale rock, it does not allow thegas to permeate, thus making it a very good reservoir rock. In Australia, there is a largerpresence of source rocks, so the gas that will be extracted from these rocks will be mature atthe origin and no gas will be lost because of the migration.Australian shale gas is divided into four main basins, namely, Cooper Basin, Canning Basin,Perth Basin and Otway Basin. These are the basins which have most of the gas distributedamong them. There are some less explored, remote basins that have shale gas deposits butbecause of the low exploration there, it can’t be confirmed if they are technicallyrecoverable or not.These reserves are ‘risked’, which means that exploration has not properly taken place andthese estimates are based on the preliminary analysis. Australian shale gas reserves are just arough estimate and it is now starting the exploration and assessment. A few wells have beendrilled in some of these basins but nothing conclusive has been found yet. Australian shalereserves are characteristically good with high Total Organic Content and mostly marine shale,making fracking a relatively easier task. In the following sections, each of these basins will bediscussed in detail.2.1 Cooper BasinMajestically spreading to about 130,000 square kilometers, the Cooper basin is the mostpromising of all the Australian Shale gas basins. It has been a centre of conventional oil andgas for the past four decades. It has an extensive network of pipelines connected to the oiland gas production sites. This has made the Cooper basin very lucrative for shale gasdevelopment. Presence of conventional hydrocarbon reserves gives some confidence to theestimates of the shale gas present underneath. Shale gas usually has more probability of beingfound where conventional gas reserves are or have been. The natural gas reserve sits justAustralia Shale Gas Market Analysis - Sample ©KuicK Research 6
  7. 7. KuicK Researchabove the shale rock layer and signifies the presence of the source rock. Cooper basin is richin shale source rock, making it the ideal place to start exploration and later production at. Figure 2-2: Share of Cooper Basin in Australia Shale Gas Reserves Cooper Basin OthersSource: EIA & Geoscience AustraliaShale gas was overlooked till the conventional production was going on with full force in theCooper basin. Once the production started falling, shale gas was suggested as an alternativeto boost the production. A preliminary estimate of the Cooper basin has found shale gasreserves potential to be 85 Trillion Cubic Feet that are potentially recoverable. The geologyof the basin is quite favorable for commercial production.There are four troughs in the Cooper basin that have shale gas potential in recoverablequantities. Recoverable quantity is the amount that can be commercially produced from abasin. The commercial production means that after all the exploration and productionactivities, the gas yielded will be enough to be sold in the market at a price so as to recoverthe costs and make a profit. The four troughs are Nappamerri, Patchawara, Arrabury andTeneppera. These are deep troughs with high organic content. The biggest trough is theNappamerri trough with an extent of 15,000 square kilometers and a depth of 3,000 meters.In the Nappamerri trough most of the shale gas is trapped in the Epsilon formation betweentwo source rocks called the Roseneath and Murteree shales. These are rocks of the Permianera with varying thickness. The Epsilon is a thick sandstone formation with an ultra lowpermeability and a depth of about 50 meters. Its low permeability makes it a good sourcerock and the best prospective shale gas reserve. The Murteree shale is also 50 meters thickand has organic content ranging from 2.5 to 5%. The Roseneath is even deeper with loworganic content. So the target for shale production would be the Epsilon.Australia Shale Gas Market Analysis - Sample ©KuicK Research 7
  8. 8. KuicK ResearchAs the Cooper basin is a major place of activity of conventional natural gas and oil, it hasgood infrastructure support. It is well connected through pipelines to the major Australianmarkets of New South Wales, Victoria, South Australia and Queensland. This makes Cooperbasin the most coveted of all shale plays in Australia.5. Government Regulation & Policies For Exploration &Development Of Shale Gas ReservesThe Australian shale gas development is in its embryonic stage. Companies are just gettinghold of acreages and more are coming in for purchasing of blocks and partnering with theexisting block owners. The government is yet to make policies and regulations for the sale ofshale gas blocks and their development. The Australian administration is not playing a big rolein the shale gas development as of now, but as the reserves become more lucrative, it willhave to intervene with some policies to bring order to the chaos that will ensue. Currently,the companies have to work with Australia’s existing energy policies, until separate shale gaspolicies are not released. The shale gas development will largely be governed according tothe ‘Energy Resource Development Policy Framework’, released in 2011 as part of Australiangovernment’s draft paper called ‘Strengthening the Foundations for Australia’s EnergyFuture’.The government identifies four components for resource development, which enables it toconvert its resources to producible reserves. These four components are the parameters onwhich the government exercises its control over its natural resources and their development.It has also segregated and has differentiated policies for onshore and offshore resourcedevelopment. These four components that will help the companies understand and developshale gas resources are: Energy knowledge resource base, Onshore resource exploration anddevelopment policies, Offshore resource exploration and development policies and Domesticand international market development. Shale gas is a new found resource and itsdevelopment is gaining increasing importance for the Australian government to boost up itsLNG exports and energy security. The initial phases of shale gas development will workaccording to these four major components till there are committed policies and regulations inplace for shale gas.Australia Shale Gas Market Analysis - Sample ©KuicK Research 8
  9. 9. KuicK Research5.1 Energy Resource Knowledge BaseThe amount of availability of shale gas in the basins is what attracts the investors at the firstglance. This knowledge must be available to the companies to help them invest intelligentlyin the country’s resources. The Government has given utmost importance to building thereserve knowledge base. Shale gas is currently in a very initial stage and there is littleknowledge available about the basins. The government is trying to consolidate information onits shale gas reserves through different sources which will be made available. The purpose ofthe knowledge base about its reserves will be to attract the investors and companies to takepart in the development. Lack of information about a reserve that any company is looking atcan be detrimental as it will not be able to take an informed decision and the development ofthat reserve will be delayed. The government plans to develop its resources at the earliest forwhich, it needs to get the knowledge about all its basins and provide it to the participatingcompanies. The companies as such are also not very interested in committing their resourcesto get the knowledge about a prospective reserve, which may or may not turn out to beprofitable. The government, thus, will build its resource knowledge on shale plays and makeit available to the interested companies.This move is imperative for the development of shale gas resources in Australia at a fast pace.If the knowledge of basins is readily available, the companies will not waste time and moneyin making preliminary studies just to determine the economic feasibility of the proposition.The companies would rather want to gain the information and spend their time, money andresources on reserves that will yield profitable results on production. The Energy resourceknowledge base is beneficial, particularly for shale gas as there is little information available.The government can build up its resource base by conducting preliminary surveys and makingthe findings public by selling the report and earning revenue on it.The energy resource knowledge base will give the country a consolidated document which willenhance the productivity and profitability by reducing the time taken and money required inmaking these preliminary studies. The main motive would be to negate basins where shale gasis not economically recoverable. This will bring the focus of companies to those basins wheregas is present in commercial quantities and can be recovered. The companies will save timeby not drilling wild cat wells and then abandoning them for the lack of availability. The timeAustralia Shale Gas Market Analysis - Sample ©KuicK Research 9
  10. 10. KuicK Researchtaken in development of pin pointed sure shot resources will also decrease, reducing theoverall time taken for the production of shale gas.The government has focused itself on the right point of making the resource knowledge baseavailable. This will help its target to develop the shale gas resource at the earliest andincrease its gas exports. The building of this knowledge base has been given top priority onthe government’s agenda for shale gas development, a move which will prove to be verybeneficial for not only the government but also the companies that will take advantage of thepre investment information available.Australia Shale Gas Market Analysis - Sample ©KuicK Research 10
  11. 11. KuicK Research9. Technologies For Shale Gas Exploration9.1 Horizontal DrillingThe science of drilling a well at a near 90 degree angle, to a subsurface site just above thetarget point of the reservoir, the kick off position, then differing the well bore from a verticalplane around a curve to cross the reservoir at the entry point. The drill is kept in thereservoir until it reaches the required depth to the bottom hole.Kickoff point is the point under the exterior where the well is redirected from the vertical tohorizontal position.There are five kinds of wells but shale gas extraction uses the horizontal drilling well. • Vertical Well: With less than 10° deviation • High Inclination Well: Between 60° to 85° deviation • Horizontal well: With more than 85° deviation • Extended Reach well: Horizontal or True Vertical Depth displacement greater than 2.5 • Designer Well: With significant turn in the horizontal plane of 30 to 180° and not restricted by inclinationHorizontal drilling wells can be classified as three types: Short Radius, Medium and LongRadius.Account of Horizontal DrillingShort radius drilling goes back to 1891, when the first rotary drill with flexible shafts was usedin the United States. The first recorded horizontal well was drilling in Texas in 1929. Chinatried its hands on horizontal drilling way back in 1957, with the USSR doing it a few yearslater. But until 1980, horizontal drilling was not popular mainly because of the lack of drillingmotors. Post 1980, downhole telemetry and drilling motors were invented and the technologychanged to become economical.Australia Shale Gas Market Analysis - Sample ©KuicK Research 11
  12. 12. KuicK ResearchElf carried out tests to determine the commercial viability of horizontal drilling from 1908 to83. British Petroleum then started using the technology in Prudhoe Bay to reduce the waterand gas production along with oil.Attainable horizontal displacement made medium and long radius drilling possible, givingbirth to second generation horizontal wells. Researchers have been able to increase thehorizontal displacements of second generation horizontal wells up to 8000 Feet. This includedthe drilling of stratigraphic traps, fluid injection wells and heterogeneous reservoirs toincrease recovery rates. There are examples of second generation drilling in North Dakota,USA.As easy oil and gas is depleting, there was a need of much deeper placement of horizontalwells to develop fractured rocks and heat injection wells. This gave rise to third generationhorizontal drilling, currently in use. Bakken play in North Dakota is an example of thirdgeneration horizontal drilling. The horizontal well as opposed to vertical well in the Bakkenshale field is shown below.MethodologyRotary drilling technique, rotation of the drill string, is used to drill the vertical segment ofthe horizontal well. The drill string has many combinations of steel alloy drill pipe, drillcollars and the drill bit. A hydraulic motor is used to drill the horizontal well from the kickoffpoint to the entry point in a curved manner of a radius of 300 to 500 Feet, with the motordriven by drilling fluid and placed just above the drill bit. In this process the drill pipe is notrotated, only the motor rotates through the surface. Navigation is handled by a steerabledownhole motor by positioning the bend in the motor and moving ahead without the rotationof the drill pipe, called slide drilling. The steering can be horizontal, vertical or in either leftor right. The pipe is then rotated gradually along with the motor rotating the drill bit, tocome back to drilling in a straight line. The figure explains the method. It is noteworthy,here, that in a horizontal well, the producing configuration is longer than in a vertical well.The drill bit contains a number of sensors that send azimuth and inclination readings of thedrilling assembly to the drillers through downhole instrument packages. The exact positionalong with coordinates is also relayed by these sensors by additional sensors added to the drillAustralia Shale Gas Market Analysis - Sample ©KuicK Research 12
  13. 13. KuicK Researchbit. The sensors can also provide information on the temperature, pressure, weight, speedand torque of rotation of the drill bit. Modern day sensors can transmit information even onthe radioactivity, resistance etc. in real time.ObjectiveShale gas reservoirs are bigger horizontally than vertically in terms of thickness. A verticalwell is not able to enter the reservoir rock perpendicular to the plane of the surface as muchas horizontal drilling can, parallel to it. But more exposure to the reservoir, leading to moreproducible gas, comes at a price much higher than conventional vertical drilling. Shale gasextraction by horizontal drilling costs more than three times the expense of vertical drilling.Shale gas exploration and production is, therefore, more expensive and the gas will come at ahigher price.Horizontal drilling is especially suitable and recommended when there is low permeability ofthe reservoir rock, as in case of shale which has an ultra low permeability. In such caseshorizontal drilling produces at a rate almost seven times of that of vertical wells.Pay OffsThe first benefit of drilling a horizontal well is that the reservoir can be developed with alesser number of wells as the horizontal well covers a large volume of the reservoir than theusual vertical wells. Horizontal wells are known to produce at a faster pace with betterefficiency. This is important when considering the return on the expenses paid for theextraction. In case of China’s shale gas, this is particularly important as it aims to achievefast paced development of its shale reserves. The density of the drilling mud is alsosignificantly reduced due to the well already drilled in production formation.Australia Shale Gas Market Analysis - Sample ©KuicK Research 13
  14. 14. KuicK Research10. Competitive Landscape10.1 Domestic Companies Having Shale Gas Basin Exposures10.1.1 Beach EnergyConsidered to be the pioneer in the shale gas development game in Australia, Beach energyhas been developing the Cooper basin for quite some time. Beach is a major conventional andunconventional oil and gas company based in Adelaide, South Australia. It has permits to largeconventional oil and gas reserves and is active in almost all the basins. Beach energy was alsoamong the first ones to enter the coal seam gas development in Australia, in the Queenslandbasin. It has permits for shale gas blocks in the Cooper basin, wholly and partially owned andhas entered into a joint venture with Somerton Energy for development in the Otway basin. Ithas increased its acreage in the Cooper basin with the recent acquisition of two companies,Impress energy and Adelaide energy.Beach energy’s presence in the Cooper basin for conventional oil and gas gives it the headstart for development of its shale gas blocks. It was the first company to drill exploratorywells in the basin and has plans to start production after the initial success of its well. Beachenergy has a wholly owned shale gas block in the Nappamerri trough in the Cooper basin,where it will be drilling vertical wells for exploration. Its first well, Moonta – I has producedresults confirming the existence of shale gas over an area of 1 kilometer. The first fracturestimulation program has also ended in the latter half of April 2012 from which maximum flowrate was achieved at 2 mmcf/d. Beach has estimated this block to have 60 Trillion Cubic Feetof recoverable reserves. The company has been counting on the results of this well to investmore and after the success they have plans to produce gas by the end of next year. Also, thecentral idea behind this well is to collect information that will help it drill the horizontalwells necessary for the shale gas production. There are other wells that Beach energy isdeveloping but in partnerships with other companies, where, it is conducting 3D and 2Dsurveys.Australia Shale Gas Market Analysis - Sample ©KuicK Research 14
  15. 15. KuicK ResearchBeach energy is investing a lot of money in developing the shale gas reserves but there arerisks associated to the return on its investment. The price of producing shale gas is high andthe current conventional natural gas prices are low. This poses a problem for Beach energy,which hopes that the market will settle itself before the sale of its shale gas starts. But withBeach all set to start production by next year, its fears are increasing. Beach energy isfocusing on the development of its acreages for now and investing in the purchase of moreassets to have more shale gas to sell at the expected higher prices. But the pricing of gascould play a spoil sport with the development plans of Beach energy. Recently Beach energyhad closed its data base for other companies, looking for prospective partnership for itsCooper basin shale gas acreages. It had opened the data room for sometime but now hasclosed it as it does not expect any more partners until more gas is proven in its acreage.Australia Shale Gas Market Analysis - Sample ©KuicK Research 15
  16. 16. KuicK Research About KuicK ResearchWe Partner With You To Provide Detailed Data And Accurate In-Depth Analysis In A Cost-Effective Manner.KuicK Research is not just another market research firm. We partner with our customers toprovide research and consulting reports in areas appropriate to our customers’ requirements.Our syndicated research team works acts as a knowledge partner for our customers so that wecan provide detailed reports in areas that are relevant for our customers. Our team of highlytrained syndicated research analysts creates reports which provide you with broad technicaland market trends.Our custom research and competitive and market intelligence studies unit provide specific in-depth intelligence to ensure that you, as our customers, succeed in your undertaking. Ouranalysts and consultants define the individual customer requirements for market intelligenceand industry analyses.Our Data Collection Group does primary research in areas that are vital to your marketinginputs. In general, we ensure accuracy by ensuring that data collection is done as per aresearch-oriented paradigm. We handle both qualitative and quantitative research for ourclients.One of our key strengths is technology. We use Web 2.0 technologies to set up feeds and web-based questionnaires that allow the capture of inputs and get hold of end-user feedback toprocess quickly and accurately.Australia Shale Gas Market Analysis - Sample ©KuicK Research 16