With Australia leading the way in developing unconventional gas reserves in Queensland and across Australia, other regional players are trying to follow in Australia’s footsteps.
Coal Bed Methane in Australia
Australian exploration companies have focused on developingCoal Bed Methane (“CBM”) reserves and have been credited for being the most mature industry players in the field of unconventional gas (“UG”)within the region. With three sanctioned Liquefied Natural Gas (“LNG”) export projects utilising reserves in Queensland, the next 5 years will see investment of over $50bUSD, these developmentswill supply more than 25m metric tons of LNG annually to increasingly energy starved Asian buyers.
Australian government approvals in 2010 and 2011, for the first CBM based LNG projects, marked a turning point in the industries future. The policies required more than 15% of the electricity sold in Queensland to be derived from gas reserves, protecting the industry from fluctuating demand and allowing it to mature; thus preparing it for an export oriented future.
The real development, however, was sparked when oil and gas companies noticed the potential of CBM reserves in Queensland. Probable CBM reserves have been projected to be as much as 33 “Tcf” (Trillion cubic feet)., this projection led to more than $20bUSD in M&A activity from 2005[Bloomberg] to now, attracting global players to the region. The activity peaked in 2008, as ConocoPhilips agreed to pay $8bUSD for 50% of the Australian Pacific LNG project. These reserves were later readjusted downwardsand the apparent calorie content of each cubic foot has been proved to be lower than anticipated according to ConocoPhilips. This development has slowed the recent wave of CBM consolidation in Australia. Consolidation heated up again in 2010, when the Chinese entered the market; arguing that securing energy reserves in geo-political stable countries trumped the quality of the assets. This led to PetroChina spending $3.2bUSDin its acquisitionof local CBM producer, Arrow Energy; the acquisition was designed to underpin PetroChina’sown LNG project.
Deal volume increased following the acquisition, sparking interest in CBM despite the downwards readjustment of ConocoPhilip’s reserves. China National Offshore Oil Corporation, Total, and Tokyo Gas were some of many players acquiring assets in Queensland.
The increased interest in Queensland diverted some of the focus towards the neighbouring state of New South Wales, where some energy consultancies estimate reserves to be as much as 2.8 Tcf.
Shale Gas in Australia
The shale gas boom in the US has been eyed with envy by Asian regional players. Consequently, Australia’s shale gas potential has been talked up quite a bit by local players. A milestone for the Australian shale gas industry was passed in August 2011, upon the discovery of 2Tcf contingent resource in Central Australia’s Cooper Basin by Beach Energy.
Although exploration of shale gas in Australia’s Central and Western regions is in very early stages, acreage held by domestic junior players is starting to attract the attention of heavyweights such as ConocoPhillips and BG, who were prominent in the development of the East Coast CBM industry. Their attention has prompted speculation that the maturing of Australia’s shale gas sector might replicate the CBM boom, and already some participants are talking of developing projects for export markets.
But not everyone with an interest in Australia’s UG sector is focused on pushing ahead with development. Environmental and farming lobby groups are increasing their scrutiny of the industry as it rolls out, with a particular focus on the impacts of CBM and shale gas drilling, and hydraulic fracture stimulation of wells on underground aquifers and rural land. The gas developers have so far satis?ed Australia’s government and regulators that they are responsible operators, but they have also acknowledged they are under an intense public microscope and need to be accountable and transparent as they go about drilling tens of thousands of wells across prime agricultural land.
In China, CBM developments are underway, slower than expected, but still maturing. Shale gas on the other hand has become a priority by the State Council, and has been declared in 2012 as the top priority of most exploration and production players active in China. Energy Information Administration estimates China to have recoverable shale gas reserves of 1,275 Tcf, considerably more than the 862Tcf held by the US. In its International Energy Outlook 2010, the EIA said tightgas, shale gas, and CBM resources were expected to account for 56% of China’s total gas production in 2035. With enormous reserves, and growing dependency on gas, exploration has become a priority. China, whilst protecting domestic companies, has started public tenders for shale gas blocks in the Sichuan and Tarim basins. It awarded permits to Sinopec and Henan Provincial Coal Seam Gas for development in Nanchuan and Xius\Shuan respectively.
It will take time before CBM and Shale Gas make up a substantial part of China’s gas mix.By 2020, Censere estimates CBM, shale gas, and tight gas to make up 30% of total gas production.
The industry in China faces severe growth hurdles asmany reserves are in terrain more difficult to access than typically seen in the US. They also contain non-hydrocarbon gases,which will add to the cost of production. In addition, water availability in the key Tarim Basin, limited pipeline infrastructure, and the highly consolidated nature of the Chinese industry in the hands of the three state-controlled oil companies might act as barriers to the rapid development of shale gas. PetroChina and independent assessments have put China’s CBM resources at up to 1,300 Tcf, and in its 11th Five-Year Plan, ending in2010, Beijing was aiming for production of 177 Bcf. The target was missed, however, with output estimated at around 53 Bcf in 2010.But the industry has government backing; producers receive a subsidy of Yuan 0.2 ($0.03USD) according to China Energy Commission per cubic meter, and enjoy tax breaks on equipment, and is expected to continue expanding. According to state media reports, the 12th Five-Year Plan will include a CBM production target of 0.32 Tcf from surface wells by 2015.
Indian prospect and its ambitions
In 1997, Indian policy makers pushed for exploration and production of CBM reserves, and began awarding blocks through international bidding rounds in 2001. In the four rounds held to mid 2010, 33 blocks were awarded; containing total estimates of 62 Tcf according to the Indian Government. Total CBM reserves are estimated to be around 92 Tcf [Bloomberg].
The ?rst CBM producer was Great Eastern Energy, a local Indian company, which began commercial operations at its Raniganj ?elds in the state of West Bengal in July 2007, the ?elds currently produce around 150 Mcf/day. With more blocks due to start commercial production, Indian CBM output is projected to reach around 7,400 Mcf/day by the ?scal year ending March 2015. Meanwhile, India’s oil ministry are working on a policy framework for shale gas. The framework was expected to be ready by mid-2011, but it had not been published at the time of writing (February 2012). The taskforce working on the policy is looking at issues such as land use, environmental concerns, and the simultaneous exploitation of conventional oil and gas, along with shale gas. Shale gas potentially exists in most of India’s conventional ?elds; the oil ministry’s timeline envisages that the ?rst shale gas auctions will be held by 2Q 2012. Six basins thus far have been identi?ed for assessment in the ?rst phase.
Indonesia’s growth fuels exploration in unconventional gas
With Australia thus far leading the way, and China and India positioning themselves as major players, other Asia-Paci?c countries are looking at the potential of UG. Indonesia, for one, is seeking to develop its UG resources as part of its push to reduce its dependency on oil, according to government officials. CBM production is expected to start in late 2011, at two sites in East Kalimantan.The local investor Ephindo is to develop the Sangatta permit and theVicoa joint venture between Italy’s Eni and the UK’s BP working at the SangaSanga block. Ephindo’s output will be used at a local electricity generating plant, while Vico is expected to supply its output to the Bontang LNG export plant.
The Indonesian government anticipates the full-scale development of CBM will be underway by 2015, when it expects production to be 500,000 Mcf/day. Output is forecast to rise to 1Bcf/d in 2020, and 1.5 Bcf/d in 2025. Government estimates put Indonesia’s CBM reserves among the world’s largest at 453 Tcf, more than double its conventional natural gas deposits of about 190 Tcf. Indonesia awarded a total of 32CBM blocks over the period 2008 to August 2011. In addition to state-owned oil and gas company Pertamina, international players including BP, Total, and ExxonMobil have so far taken up CBM permits. Developers of Indonesia’s CBM are also being offered more favourable returns than are in place for conventional gas production. CBM producers will receive 45% of the after-tax profit, with the remaining 55% going to the government, compared with the 30:70 split for conventional gas production. Shale gas is still a long way from full development in Indonesia, with the Ministry of Energy and Mineral Resources’ officials estimating that peak production is as far off as 2020. Government estimates put the country’s shale gas potential at as much as 570 Tcf, based on studies in Sumatra, Java, Kalimantan, and Papua.
Censere’s view on the unconventional gas boom
With a global boom in unconventional gas exploration, with a particular boom in shale gas and CBM exploration, Censere sees a future with enormous potential for all participants in the value chain, whether upstream, midstream or downstream.