Beach Energy to Sell Shale Gas

Australia’s Beach Energy may be ready to sell shale gas just a year from now if its pilot production wells are successful, the company’s managing director said on Tuesday.

Australia is in the midst of a gas boom, as developers build around $170 billion in projects that will make the country the world’s largest liquefied natural gas (LNG) exporter before the end of the decade.

The fuel for those projects is from conventional fields and coal seams, not from shale.

Firms such as ConocoPhilips, Canada’s PetroFrontier and Santos have been increasing their investment in the Australian shale gas sector, and the government has pointed to shale’s future potential.

But experts say the fledgling industry could take a decade to produce significant commercial volumes of gas. Beach Energy, one of the first companies to invest in shale gas, is aiming to do that much earlier.

“I am going to love proving them wrong,” managing director Reginald Nelson told Reuters.

The company’s pilot wells are expected to start producing at the end of this year or early 2012, and within a year, Nelson said he expects the company could sell the gas into the domestic market. It would out the gas through the Moomba processing plant in South Australia, which is operated by Santos.

Funnelling shale gas into longer term contracts, which usually range from 10 to 15 years in length, would likely to take a few more years, he said.

“In terms of locking in longer term contracts, you have to have the reserves booked and certified to be able to tie it up to a contract, so that might be a little later,” Nelson said.


Australia could have enough shale gas resources to double its gas resource base and its expand its growing export industry, according to a government report released earlier this week.

The reserves, which are estimated at around 400 trillion cubic feet, have sparked hopes that a U.S.-style shale gas revolution is just around the corner in Australia.

In the United States, which holds the second largest shale gas reserves after China according to the U.S. Energy Information Administration, production converted the country from a big gas importer to a prospective exporter.

Some analysts are sceptical the same will happen in Australia, as the industry faces many challenges, including high costs, environmental concerns and competition from alternative energy sources, including coal seam gas.

“It remains to be seen if Australia will have the same kind of world class shale gas assets as the U.S. does,” Ross Millan, senior analyst at Woodmackenzie said.

“Shale gas will always be higher cost than coal seam gas and tight gas in Australia. Australia’s coal seam gas assets are world class. So shale gas will never be able to beat that,” Millan said.

Coal seam gas has, however, sparked environmental concerns that could dog shale gas as well. Extraction of gas from shale requires large amounts of water and chemicals, which has led some governments worldwide to ban one of the extraction technique known as “fracking.”

The average break even price for shale gas in Australia is around $6-$9 per mmBtu, according to some analyst estimates, two to three times the current domestic prices in eastern Australia.

But domestic prices are expected to rise as more export projects come online, and the higher gas price will encourage more shale gas production, industry executives and analysts say.

“My intuition just tells me, if you’ve got a bunch of gas and you can unlock it at the right price, it’s a good place to be,” Nelson said. (Additional reporting by Simon Webb; Editing by Miral Fahmy)


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