Wood Mackenzie: Associated Liquids in Australian Shale Plays Will be Key In Creating Project Value

ADELAIDE, 14th May 2012 – Wood Mackenzie’s Vice President of Australasia Energy Consulting, Andrew McManus, presented at the APPEA 2012 conference today on the development of shale plays in Australia. Mr. McManus says that while investments in shale plays are increasing, a significant growth of investment is still required and shale gas is not expected to materialise till at least the next decade. Meanwhile companies will need to address significant challenges specific to Australia and focus on the liquid-rich plays, in order to commercialise these resources.

Mr. McManus says, “Australia can pick up lessons from the United States (US) shale gas development, where unconventional gas has become the dominant supply source in the US, with shale gas accounting for 40% of that supply. Due to low gas prices the US industry has refocused activity from volume-driven shale gas investment to liquids rich shale and tight oil development to maximising project commerciality for investors. The potential for associated liquids could therefore be key in creating value for producers in Australia although we are still in early days.”

Success in places such as the Eagle Ford and Bakken in the US Lower 48 has led companies to pursue liquids prone plays outside of North America. We have already seen increased levels of activity in places such as the Neuquén Basin in Argentina and, previously, the Paris Basin in France plus growing interest in other basins around the globe. Much of this understanding will go hand in hand with shale/tight gas development.
Mr. McManus says, “After the success of Australia’s Coal Seam Gas (CSG) , growing interest in Australia’s shale plays has already seen a number of international players take early positions in basins across Australia. Small to medium sized companies have secured much of the prospective acreage already but are looking for larger players to help fund the considerable work programs required to prove and develop these plays. Recent deals have committed to fund work programs in the order of US$0.6billion (bn) but for significant development to occur, multiples of this investment are still required as shale plays are technically challenging and capital intensive.”

CSG has become a significant source of gas in Eastern Australia, accounting for approximately 40% of gas supply in 2012. Shale gas developments could add to the longevity of supply from Australia and help existing production from the next decade. However, preliminary analysis suggests that as a result of the challenges, Australia shale/tight gas will come at a higher cost of supply than CSG, with gas prices required in the range of A$6 to A$9per gigajoule (GJ) to be economic. Companies that focus on liquids-rich plays could be competitive in the market.
Australia’s challenges to shale/tight resource developments include: lack of service sector to support shale or tight resource development; an already buoyant resource sector facing skilled labour and cost issues; remote locations; limited subsurface data and limited infrastructure. Other challenges may be specific to particular basins such as the availability of water for fracturing; distance from gas market or LNG facility and wet season impact on activity levels for parts of the year.

In summary, Mr. McManus says, “Although companies have access to large acreage positions at relatively low cost at the concept phase, they will need higher capital investments as hundreds of wells may be required for commerciality. To overcome challenges and maximise economic returns, companies will need to locate the ‘sweet spots’ early rather than being purely volume driven”.