Current Challenges and Way Ahead for Shale Gas in Australia

Author: Izwan Rasul

Currently, US is the only country with commercially available shale resource. Taking cue from the US, countries with shale resources are beginning to realize its potential, in particular Australia that has begun exploring its shale resources to supply it to the market once production begins.

Australia also has a large coal seam gas (CSG) reserves identified in the eastern region and is committed to meet CSG-LNG export requirements over the next twenty years. However, there has been a decline in conventional gas production which would impact the rising gas prices with significant flow-on effects to domestic retail electricity. Such scenario provides ample opportunities for the cost competitive shale gas to contribute to domestic and export requirements in Australia.

Ongoing Shale Gas Development
Currently, there are three shale wells in production in the Cooper Basins.

• Moomba-191 - producing 65 mcm/d (million cubic metres per day)
• Encounter- 1 - producing 59.4 mcm/d
• Moonta- 1 - producing 45.3 mcm/d

Shale gas industry has been gaining traction in Australia with an estimate of $500 million investment on shale exploration and completion works in the Cooper- Eromanga Basin over the next 1-2 years. But as in any other nascent market, challenges faced by Australia in realizing its shale gas potential is abound. They include infrastructure issues, geological understanding, water availability and operating cost. This is mainly because most of the prospective shale gas areas are in remote locations namely the Canning, Cooper and Georgina Basins. Compared to the US, pipeline and road networks are undeveloped impacting the rate of shale gas development.

Figure 1: Existing Oil and Gas infrastructure in Australia

Source: DMITRE, SA,2012; US Energy Information Administration (EIA,2011b)

Infrastructure Challenges
The Cooper basin has a well equipped infrastructure with existing gas and liquid lines to the relevant east coast market. It is the only place which is ready for further development as it can rely on current connection to gas consumers. Besides, the Perth and Otway basins are well positioned for rapid development due to existing demand and transportation infrastructure can be expanded easily. Pipeline infrastructure in the Canning basin does not currently exist. A plan on the Great Northern Pipeline infrastructure will be able to connect gas supply to the Western Australia (WA) domestic market. However, before any pipeline is constructed, WA should have a demand of at least 50 PJ per annum which will make a pipeline economically feasible. Sufficient reserves are required to be constructed over a period of time before a financially risky exploration and appraisal process takes place. Local market needs to be established as a first step and gas have to be delivered via road until there is a bigger demand justifying the construction of a pipeline.

Skilled Workforce Shortages
One of the major obstacles is workforce shortage in Australia. An estimate of 450 staff is required for a 50 PJ project with an additional of 75 operational staff. Furthermore, labor is required for road construction, accommodation and transmission pipelines. Such workforce with a required skill set is limited locally and there could be a possibility in transfer of workers from CSG projects but only when CSG development slows down.

Figure 2: Shale production labor requirements for a 50 PJ development

Source: Sinclair Knight Merz, 2013

Environmental Impact
Shale gas production contaminates landscape and environment where some of the possible impacts include:

• Aquatic ecosystem gets affected due to contamination of land and surface water as a result of spillage of hydraulic fracturing additives and overflow. Tank rupture from its liquid waste storage also affects the ecosystem.
• Wellbore failure and subsurface migration will raise an impact on subsurface fauna, vegetation and landscape function indirectly.
• Noise, light pollution and local traffic may be impacted during ongoing construction and pre-production activities.
• Increased air emissions of methane and volatile compounds coming from drilling, hydraulic fracturing and high pressure compressors.

However, in Queensland and New South Wales, much work is being done on raising awareness on the difference between CSG and Shale fracking and working with local communities in order minimize any potential environmental impacts. Especially in NSW, drilling companies has to adhere with strict rules and regulation as cited in the South Australia Petroleum and Geothermal Energy Act 2000. Furthermore, the case in Western Australia is different as shale resources are very deep in the rural areas where no occupants exist.
Effective and timely addressal of the challenges above can propel shale gas revolution in Australia. In addition, issues pertaining fracking regulations, property rights, licensing restrictions and lack of investment need to be considered.

Australia's Shale Future Shows Positive Growth Signs
The main market for shale gas exports from the US is Asia. This is one of the primary reasons behind Australia's intention to develop its shale resources and begin production to cater to Asia's future gas demand. Although production has begun in the Cooper Basins due to the commercially ready infrastructure, other basins with low to zero population density are yet to be developed by the government. Currently, Australia ranks six in global shale resources with an estimated of 417 trillion cubic feet of recoverable shale.
High cost for extracting shale gas are making it difficult for existing companies but export market opportunities are huge if Australia pursues in realizing its potential with the backing of  government incentives. In addition, carbon pricing implementation in 2012 has made consumers to divert its focus to natural gas.

Currently, companies operating in the booming US shale market have ventured into the nascent Australian market. This is likely to increase the momentum in exploration and production of shale gas. Tapping the shale gas will not only propel Australia's economy but will also help to maintain its competitiveness in the global energy market. Nevertheless, the country needs to build a robust infrastructure, acquire skill sets, and assess ecosystem management and investment requirements thoroughly.