The document provides an analysis of the shale gas market in Australia. It discusses Australia's shale gas reserves, which are estimated at 396 trillion cubic feet. The reserves are located across four main basins: Cooper Basin, Canning Basin, Perth Basin, and Otway Basin. The Cooper Basin contains the largest reserves at 85 trillion cubic feet. The document also examines the government's policies around shale gas exploration and development, technologies used for shale gas extraction like horizontal drilling and hydraulic fracturing, as well as the competitive landscape of companies involved in Australia's shale gas industry.

1. Australia Shale Gas Market
Analysis
July’2012
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Table of Contents
1. Executive Summary
2. Australia Shale Gas Reserves
2.1 Cooper Basin
2.2 Perth Basin
2.3 Canning Basin
2.4 Otway Basin
3. Shale Gas Investments In Australia
4. Shale Gas Opportunities & Challenges In Australia
5. 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 Development
6. Natural Gas Market Landscape
6.1 Production
6.2 Domestic Consumption
6.3 LNG – Export
7. Future Outlook For Shale Gas Exploration & Production In Australia
8. PEST Analysis
8.1 Political Factors
8.2 Economic Factors
8.3 Social Factors
8.4 Technological factors
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9. 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 Drilling
10. 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 Companies
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List of Figures
Figure 2-1: Shale Gas Reserves by Basin (Trillion Cubic Feet)
Figure 2-2: Share of Cooper Basin in Australia Shale Gas Reserves
Figure 2-3: Share of Perth Basin Australia Shale Gas Reserves
Figure 2-4: Share of Canning Basin in Australia Shale Gas Reserves
Figure 2-5: Share of Otway Basin Australia Shale Gas Reserves
Figure 3-1: Shale Gas Investment by Company
Figure 6-1: Natural Gas Reserves (Trillion Cubic Feet), 2006-2011
Figure 6-2: Natural Gas Production (Billion Cubic Feet), 2006-2011
Figure 6-3: Natural Gas Consumption (Billion Cubic Feet), 2006-2011
Figure 6-4: Share of Natural Gas in Electricity Generation
Figure 6-5: LNG Exports by Country, 2010
Figure 6-6: LNG Exports (Million Tones), 2011-12 & 2016-17
Figure 6-7: LNG Exports (Billion AUD), 2011-12 & 2016-17
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2. Australia Shale Gas Reserves
Australia 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 the
few 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 burial
and requisite amount of temperature for its maturation.
Australia has a geological edge over other nations with shale gas reserves, the presence of
source rocks which is evident by its huge conventional natural gas reserves. Australia has
large natural gas reserves and even though it has been exploiting them for decades, they have
not 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 of
thousands of years on which temperature and pressure have acted to change that organic
matter into kerogen, an intermediate product in the process of oil and gas formation. These
kerogen deposits, with more time and action, are converted into liquid and gaseous state we
call oil and gas, which is called ‘cooking’. When oil and gas is found in shale rocks, it is called
shale oil or gas.
Figure 2-1: Shale Gas Reserves by Basin (Trillion Cubic Feet)
Canning Basin
Cooper Basin
Perth Basin
Otway Basin
Source: EIA & Geoscience Australia
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Shales are rocks that can act as both source and reservoir rocks. They have high porosity and
ultra 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 not
giving a channel to the gas to flow out. This makes shale such a good source rock. When gas
migrates from other rock sources and flows and collects in a shale rock, it does not allow the
gas to permeate, thus making it a very good reservoir rock. In Australia, there is a larger
presence of source rocks, so the gas that will be extracted from these rocks will be mature at
the 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 distributed
among them. There are some less explored, remote basins that have shale gas deposits but
because of the low exploration there, it can’t be confirmed if they are technically
recoverable or not.
These reserves are ‘risked’, which means that exploration has not properly taken place and
these estimates are based on the preliminary analysis. Australian shale gas reserves are just a
rough estimate and it is now starting the exploration and assessment. A few wells have been
drilled in some of these basins but nothing conclusive has been found yet. Australian shale
reserves 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 be
discussed in detail.
2.1 Cooper Basin
Majestically spreading to about 130,000 square kilometers, the Cooper basin is the most
promising of all the Australian Shale gas basins. It has been a centre of conventional oil and
gas for the past four decades. It has an extensive network of pipelines connected to the oil
and gas production sites. This has made the Cooper basin very lucrative for shale gas
development. Presence of conventional hydrocarbon reserves gives some confidence to the
estimates of the shale gas present underneath. Shale gas usually has more probability of being
found where conventional gas reserves are or have been. The natural gas reserve sits just
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above the shale rock layer and signifies the presence of the source rock. Cooper basin is rich
in 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 Others
Source: EIA & Geoscience Australia
Shale gas was overlooked till the conventional production was going on with full force in the
Cooper basin. Once the production started falling, shale gas was suggested as an alternative
to boost the production. A preliminary estimate of the Cooper basin has found shale gas
reserves potential to be 85 Trillion Cubic Feet that are potentially recoverable. The geology
of the basin is quite favorable for commercial production.
There are four troughs in the Cooper basin that have shale gas potential in recoverable
quantities. Recoverable quantity is the amount that can be commercially produced from a
basin. The commercial production means that after all the exploration and production
activities, the gas yielded will be enough to be sold in the market at a price so as to recover
the costs and make a profit. The four troughs are Nappamerri, Patchawara, Arrabury and
Teneppera. These are deep troughs with high organic content. The biggest trough is the
Nappamerri 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 between
two source rocks called the Roseneath and Murteree shales. These are rocks of the Permian
era with varying thickness. The Epsilon is a thick sandstone formation with an ultra low
permeability and a depth of about 50 meters. Its low permeability makes it a good source
rock and the best prospective shale gas reserve. The Murteree shale is also 50 meters thick
and has organic content ranging from 2.5 to 5%. The Roseneath is even deeper with low
organic content. So the target for shale production would be the Epsilon.
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As the Cooper basin is a major place of activity of conventional natural gas and oil, it has
good infrastructure support. It is well connected through pipelines to the major Australian
markets of New South Wales, Victoria, South Australia and Queensland. This makes Cooper
basin the most coveted of all shale plays in Australia.
5. Government Regulation & Policies For Exploration &
Development Of Shale Gas Reserves
The Australian shale gas development is in its embryonic stage. Companies are just getting
hold of acreages and more are coming in for purchasing of blocks and partnering with the
existing block owners. The government is yet to make policies and regulations for the sale of
shale gas blocks and their development. The Australian administration is not playing a big role
in the shale gas development as of now, but as the reserves become more lucrative, it will
have 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 gas
policies are not released. The shale gas development will largely be governed according to
the ‘Energy Resource Development Policy Framework’, released in 2011 as part of Australian
government’s draft paper called ‘Strengthening the Foundations for Australia’s Energy
Future’.
The government identifies four components for resource development, which enables it to
convert its resources to producible reserves. These four components are the parameters on
which the government exercises its control over its natural resources and their development.
It has also segregated and has differentiated policies for onshore and offshore resource
development. These four components that will help the companies understand and develop
shale gas resources are: Energy knowledge resource base, Onshore resource exploration and
development policies, Offshore resource exploration and development policies and Domestic
and international market development. Shale gas is a new found resource and its
development is gaining increasing importance for the Australian government to boost up its
LNG exports and energy security. The initial phases of shale gas development will work
according to these four major components till there are committed policies and regulations in
place for shale gas.
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5.1 Energy Resource Knowledge Base
The amount of availability of shale gas in the basins is what attracts the investors at the first
glance. This knowledge must be available to the companies to help them invest intelligently
in the country’s resources. The Government has given utmost importance to building the
reserve knowledge base. Shale gas is currently in a very initial stage and there is little
knowledge available about the basins. The government is trying to consolidate information on
its shale gas reserves through different sources which will be made available. The purpose of
the knowledge base about its reserves will be to attract the investors and companies to take
part in the development. Lack of information about a reserve that any company is looking at
can be detrimental as it will not be able to take an informed decision and the development of
that reserve will be delayed. The government plans to develop its resources at the earliest for
which, it needs to get the knowledge about all its basins and provide it to the participating
companies. The companies as such are also not very interested in committing their resources
to get the knowledge about a prospective reserve, which may or may not turn out to be
profitable. The government, thus, will build its resource knowledge on shale plays and make
it 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 money
in 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 and
resources on reserves that will yield profitable results on production. The Energy resource
knowledge 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 making
the findings public by selling the report and earning revenue on it.
The energy resource knowledge base will give the country a consolidated document which will
enhance the productivity and profitability by reducing the time taken and money required in
making these preliminary studies. The main motive would be to negate basins where shale gas
is not economically recoverable. This will bring the focus of companies to those basins where
gas is present in commercial quantities and can be recovered. The companies will save time
by not drilling wild cat wells and then abandoning them for the lack of availability. The time
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taken in development of pin pointed sure shot resources will also decrease, reducing the
overall time taken for the production of shale gas.
The government has focused itself on the right point of making the resource knowledge base
available. This will help its target to develop the shale gas resource at the earliest and
increase its gas exports. The building of this knowledge base has been given top priority on
the government’s agenda for shale gas development, a move which will prove to be very
beneficial for not only the government but also the companies that will take advantage of the
pre investment information available.
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9. Technologies For Shale Gas Exploration
9.1 Horizontal Drilling
The science of drilling a well at a near 90 degree angle, to a subsurface site just above the
target point of the reservoir, the kick off position, then differing the well bore from a vertical
plane around a curve to cross the reservoir at the entry point. The drill is kept in the
reservoir 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 to
horizontal 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 inclination
Horizontal drilling wells can be classified as three types: Short Radius, Medium and Long
Radius.
Account of Horizontal Drilling
Short radius drilling goes back to 1891, when the first rotary drill with flexible shafts was used
in the United States. The first recorded horizontal well was drilling in Texas in 1929. China
tried its hands on horizontal drilling way back in 1957, with the USSR doing it a few years
later. But until 1980, horizontal drilling was not popular mainly because of the lack of drilling
motors. Post 1980, downhole telemetry and drilling motors were invented and the technology
changed to become economical.
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Elf carried out tests to determine the commercial viability of horizontal drilling from 1908 to
83. British Petroleum then started using the technology in Prudhoe Bay to reduce the water
and gas production along with oil.
Attainable horizontal displacement made medium and long radius drilling possible, giving
birth to second generation horizontal wells. Researchers have been able to increase the
horizontal displacements of second generation horizontal wells up to 8000 Feet. This included
the drilling of stratigraphic traps, fluid injection wells and heterogeneous reservoirs to
increase 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 horizontal
wells to develop fractured rocks and heat injection wells. This gave rise to third generation
horizontal drilling, currently in use. Bakken play in North Dakota is an example of third
generation horizontal drilling. The horizontal well as opposed to vertical well in the Bakken
shale field is shown below.
Methodology
Rotary drilling technique, rotation of the drill string, is used to drill the vertical segment of
the horizontal well. The drill string has many combinations of steel alloy drill pipe, drill
collars and the drill bit. A hydraulic motor is used to drill the horizontal well from the kickoff
point to the entry point in a curved manner of a radius of 300 to 500 Feet, with the motor
driven by drilling fluid and placed just above the drill bit. In this process the drill pipe is not
rotated, only the motor rotates through the surface. Navigation is handled by a steerable
downhole motor by positioning the bend in the motor and moving ahead without the rotation
of the drill pipe, called slide drilling. The steering can be horizontal, vertical or in either left
or right. The pipe is then rotated gradually along with the motor rotating the drill bit, to
come 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 the
drilling assembly to the drillers through downhole instrument packages. The exact position
along with coordinates is also relayed by these sensors by additional sensors added to the drill
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bit. The sensors can also provide information on the temperature, pressure, weight, speed
and torque of rotation of the drill bit. Modern day sensors can transmit information even on
the radioactivity, resistance etc. in real time.
Objective
Shale gas reservoirs are bigger horizontally than vertically in terms of thickness. A vertical
well is not able to enter the reservoir rock perpendicular to the plane of the surface as much
as horizontal drilling can, parallel to it. But more exposure to the reservoir, leading to more
producible gas, comes at a price much higher than conventional vertical drilling. Shale gas
extraction 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 a
higher price.
Horizontal drilling is especially suitable and recommended when there is low permeability of
the reservoir rock, as in case of shale which has an ultra low permeability. In such cases
horizontal drilling produces at a rate almost seven times of that of vertical wells.
Pay Offs
The first benefit of drilling a horizontal well is that the reservoir can be developed with a
lesser number of wells as the horizontal well covers a large volume of the reservoir than the
usual vertical wells. Horizontal wells are known to produce at a faster pace with better
efficiency. This is important when considering the return on the expenses paid for the
extraction. In case of China’s shale gas, this is particularly important as it aims to achieve
fast paced development of its shale reserves. The density of the drilling mud is also
significantly reduced due to the well already drilled in production formation.
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10. Competitive Landscape
10.1 Domestic Companies Having Shale Gas Basin Exposures
10.1.1 Beach Energy
Considered to be the pioneer in the shale gas development game in Australia, Beach energy
has been developing the Cooper basin for quite some time. Beach is a major conventional and
unconventional oil and gas company based in Adelaide, South Australia. It has permits to large
conventional oil and gas reserves and is active in almost all the basins. Beach energy was also
among the first ones to enter the coal seam gas development in Australia, in the Queensland
basin. It has permits for shale gas blocks in the Cooper basin, wholly and partially owned and
has entered into a joint venture with Somerton Energy for development in the Otway basin. It
has 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 head
start for development of its shale gas blocks. It was the first company to drill exploratory
wells in the basin and has plans to start production after the initial success of its well. Beach
energy 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 produced
results confirming the existence of shale gas over an area of 1 kilometer. The first fracture
stimulation program has also ended in the latter half of April 2012 from which maximum flow
rate was achieved at 2 mmcf/d. Beach has estimated this block to have 60 Trillion Cubic Feet
of recoverable reserves. The company has been counting on the results of this well to invest
more and after the success they have plans to produce gas by the end of next year. Also, the
central idea behind this well is to collect information that will help it drill the horizontal
wells necessary for the shale gas production. There are other wells that Beach energy is
developing but in partnerships with other companies, where, it is conducting 3D and 2D
surveys.
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Beach energy is investing a lot of money in developing the shale gas reserves but there are
risks associated to the return on its investment. The price of producing shale gas is high and
the 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 with
Beach all set to start production by next year, its fears are increasing. Beach energy is
focusing on the development of its acreages for now and investing in the purchase of more
assets to have more shale gas to sell at the expected higher prices. But the pricing of gas
could play a spoil sport with the development plans of Beach energy. Recently Beach energy
had closed its data base for other companies, looking for prospective partnership for its
Cooper basin shale gas acreages. It had opened the data room for sometime but now has
closed it as it does not expect any more partners until more gas is proven in its acreage.
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