Shale gas is the gas trapped within deep shale rock formations. The low permeability and porosity of shale means that gas can only be recovered through hydraulic fracture stimulation, or fraccing; that is by drilling then injecting large amounts of water, sand and chemicals at high pressure into shale to release trapped gas.
Until recently it was almost impossible to recover shale gas. However, developments in fraccing and horizontal drilling techniques have enabled shale gas to be recovered at a cost which is competitive with other sources of natural gas.
Source: US Energy Information Administration
Success of shale gas production in the US
Shale gas production has been hugely successful in the US, with 20-26 trillion cubic feet (Tcf) of shale gas produced annually for the past 10 years, causing the domestic price of gas to plummet from US$8.00/thousand cubic feet (Mcf) in 2008 to US$3.75/Mcf in 2010. Shale gas now represents 25% of total US gas production and is likely to transform the US from a gas importer to a gas exporter.
Can Australia replicate this success?
Australia is estimated to have approximately 396 Tcf of shale gas resources, of which 288 Tcf is estimated to be held in Western Australia's (WA) onshore basins (this amounts to double WA's conventional offshore gas reserves) and 85 Tcf in the Cooper Basin spaning Queensland and South Australia. One Tcf of gas can provide enough energy to power a city of one million people for 20 years.
Australian gas producers are likely to be attracted to these shale gas resources given:
the large demand for energy from Asia
the high international price of gas
the rising costs of recovering conventional gas
the excess capacity at domestic liquefied natural gas (LNG) processors
the implementation of a carbon pricing scheme in Australia.
These factors have resulted in the price of domestic gas from conventional sources rising significantly, particularly in WA where the gas price is now three times that of the Eastern states. The realisation of shale gas resources has the potential to reduce prices as the supply of gas to the market is increased.
However, there are several critical differences between Australia and the US which will impact upon the success of the Australian shale gas industry. These include:
source material – Australian rock is vastly different to that of the US which may impact on the current estimates of Australia's recoverable shale gas reserves, or the fraccability of the shale containing those resources
Australian gas industry – the recovery of shale gas requires specialised equipment and experience to facilitate hydraulic fracturing, and to produce horizontal wells. Australia has very few resources, including experienced personnel, to produce these specialised wells
cost – a shale well in Australia is currently estimated to cost A$7 million, compared with only US$2-3 million per well in the US
infrastructure – Australia does not have the same coverage of infrastructure (including gas distribution networks) as the US, particularly in remote sites where shale resources exist, such as the Canning Basin in WA and the Galilee Basin in Queensland.
Environmental concerns over fraccing for shale gas
A major hurdle to the success of the shale industry is the ability of regulators to deal with community concerns about the environmental impact of fraccing.
Fraccing is a very water intensive operation. There are existing concerns that water aquifers have been markedly depleted from coal seam gas fraccing activities in New South Wales and Queensland near prime agricultural areas.
Of greater concern, however, is the fact that water returned from fraccing ("produced water") contains salts and other chemicals. The safe disposal of produced water is crucial to avoid the contamination of water resources and the dissemination of dangerous chemicals into the environment.
Shale gas and carbon pricing
The implementation of a carbon price provides an incentive for the use of natural gas over other sources of energy, given the low carbon footprint of natural gas. However, due to high methane emissions, the carbon footprint of shale gas is greater than that for conventional gas or oil. Despite this, the carbon emissions from shale gas are still estimated to be between a third to a half that of coal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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