Hail to Shale PDF Print E-mail


Last month, Santos announced the first commercial production in Australia of shale gas (from the Cooper Basin in South Australia).
Australia is well behind the US, where commercial production commenced in the late 1990s. 

But some see Australia enjoying the same bright future as the US in this sector.

In the US in 2012, shale gas will account for 30 per cent of total natural gas production, up from 1 per cent in 2000.

Natural gas prices have dropped significantly with this increase in production. As a result, shale gas is displacing coal in some electricity production and is revitalising gas-intensive manufacturing.

Conventional gas is found in reservoirs. Shale gas is found in a more dispersed form in shale, a sedimentary rock. Extracting it requires horizontal drilling and fracturing, a technique for opening up the rock (which has low permeability) and thus allowing the gas to flow.

The development of these two techniques in the US in the 1980s and 1990s, coupled with government support, lie behind the shale-gas revolution.

Australia appears to be well endowed with shale gas, with 45 per cent of the “technically recoverable resources” of the US (source: US Energy Information Administration, 2011).

These lie particularly in the Cooper Basin (in South Australia and Queensland), Northern Territory and Western Australia.

Fears have been expressed in the US and elsewhere about the environmental effects of fracturing, for example, that it threatens surrounding groundwater. But, in practice, the record of the industry is good. In the view of The Economist (2 July 2012), “the risks from shale gas can be managed”. 

Note, too, that with the switch from coal to natural gas in the United States in the wake of the shale-gas revolution, “carbon dioxide emissions have dropped to their lowest level in 20 years” (Bjorn Lomborg, The Australian, 15 September 2012).

A much better result than that achieved by wind farms, solar panels, carbon taxes and the Kyoto treaty in other countries.

Australia is fortunate that many shale deposits are in areas of low population and low agricultural productivity, easing the task of environmental management.

Furthermore, with the exception of Victoria (which has a moratorium on fracturing), neither the Federal government nor state governments have any in-principle objection to fracturing.

This is in contrast to Europe, which frowns upon it. 

The shale-gas revolution in the US is likely to have some adverse effects on Australia, through increasing competition from exports of natural gas (expected to commence in 2015) and exports of coal displaced from electricity production (which is already happening).

And it remains to be seen to what extent in Australia “technically recoverable resources” of shale gas can be converted into commercial production.

But with Santos making the first move, the quest to find out is gathering pace. 

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