A knock-on effect from the oil market plunge, if prices stay low, could be that huge shale gas reserves in South Australia’s Cooper Basin remain unexplored.
The Cooper Basin had been Australia’s best chance of replicating the American shale gas boom; over there, production of gas from coal seams was quickly overtaken by extraction of gas — and oil — from deeper shales, unlocked by directional drilling and hydraulic fracturing, otherwise known as “fracking”.
In 2011, the US Energy Information Administration (EIA) set the cat among the pigeons with an estimate there could be 396 trillion cubic feet of shale gas in the Cooper Basin — bigger than our conventional gas off Western Australia and double Australia’s total identified coal seam gas reserves. If even a fraction of that Cooper gas proved economically recoverable, the east coast boom in CSG — fuelling construction of three great new liquefied natural gas (LNG) export facilities at Gladstone worth $70 billion, and vaulting us over Qatar to become the world’s largest LNG exporter by 2018 — would be followed by an even bigger shale gas boom. Unlike our CSG fields, unhappily spread under some of our most fertile farmlands like Queensland’s Darling Downs and the Liverpool Plains of NSW, the Cooper Basin was an established oil and gas province in the remote desert, connected to the east coast market by an existing pipeline, with processing at Moomba.
Geoscience Australia was more cautious; it has never backed the US EIA number, and its 2014 Energy Resource Assessment notes simply that Australia’s shale gas resource “remains to be defined” and the Cooper Basin is “being explored for thick basin-centred gas accumulations”.
Nevertheless, the interest of US oil majors was piqued and in 2013 as Chevron entered a joint venture with established Cooper Basin player Beach Energy and junior Icon Energy.
Fast forward two years, and as the The Australian Financial Review has reported, results have been disappointing, with worries about the rapid decline in gas flow-rates from the exploration wells drilled so far. And drilling costs have been higher than expected, with each well costing $20 million. A similarly disappointing experience led ConocoPhillips and PetroChina to pull out of exploring another onshore shale gas target, WA’s Canning Basin.
Outgoing Beach managing director Reg Nelson was still talking up the potential a fortnight ago, telling the AFR last month that the Cooper Basin could hold up to 600 trillion cubic feet of gas — of which 10%-20% could be recoverable — leading to speculation that Chevron might pull out of the joint venture by March. In the market fallout since last Thursday’s OPEC meeting that possibility only looms larger, and this is reflected in the share price of the Cooper Basin players, which have fallen in line with the rest of the energy sector: Beach, which was trading over $1.70 in August, is now trading at $1; junior Drillsearch’s shares have halved since late July and were down by a quarter by Monday’s close, at 83 cents; partner Senex plunged over 30% and is now at 28 cents. Yesterday’s AFR predicts a long-awaited consolidation of the Cooper Basin players.