Unconventional oil and gas magazine

UNCONVENTIONAL Issue 1 // May 2015

DRILLSEARCH

EMBRACES THE

CHALLENGE

CSG WATER ISSUES SOLVED?

AUSTRALIA: BIGGER THAN TEXAS

LAKES OIL: WE DON’T NEED RESERVATION, WE NEED MORE GAS

OPINION DRIVING AN UNCONVENTIONAL BOOM TECHNICAL CRACKING THE CODE

ISSUES DOMESTIC GAS STRATEGY HIGHLIGHTS UNCONVENTIONAL FOCUS

WELCOME

Issue 1 // May 2015

FROM THE MINISTER

A

UNCONVENTIONAL

OIL GAS Published by

Monkey Media Enterprises ABN: 36 426 734 954 PO Box 3121 Ivanhoe North VIC 3079 P: (03) 9440 5721 F: (03) 8456 6720 monkeymedia.com.au info@monkeymedia.com.au unconventionaloilandgas.com.au info@unconventionaloilandgas. com.au ISSN: 2204-8901

ustralia is blessed with abundant oil and gas resources. In order to continue reaping the rewards of this natural endowment, improvements to the function and operation of our domestic gas markets are vital to maintain our position as an energy superpower. We must do all we can to make the most of the opportunities that are presented by our abundance of natural gas in all its forms, in order to benefit all Australians.

The development of coal seam gas and the burgeoning east coast liquefied natural gas export industry requires a tripling of production by 2020. The significant increase in demand across Australia’s east coast will certainly bring challenges, but these can be overcome by responsible development of our resources, a strong supply of market information and strict frameworks in place to support people getting access to the gas they need.

The Australian Government believes we can and should develop gas responsibly and that all development should be based on science and facts rather than emotion. That’s why we have recently released an Energy White Paper that will deliver competitively priced and reliable energy supplies by promoting competition in energy markets, increasing energy productivity and facilitating investment in energy resources development.

Improving the market, however, is just one aspect. Gas supply needs to be able to respond more flexibly to changing market conditions. The Government has also released a Domestic Gas Strategy that highlights all the actions underway to collect and disseminate information and work with communities to ensure they have the answers they need. I encourage the States and Territories who have the responsibility for onshore gas to cooperate with the Australian Government and support the responsible development and regulation of an unconventional gas industry.

The community’s interest has not been well served by scare campaigns about unconventional gas, particularly about coal seam gas.

Reliable supply is not about overriding legitimate concerns: new gas development can occur while respecting farmers’ rights, protecting our land and water resources while bringing tangible benefits for local

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communities.

The industry also has to take greater responsibility for its own future by being proactively engaged with communities and acting to prevent unwanted environmental and social impacts.

To support State and Territory governments, the Australian Government will play its part in the implementation of the Domestic Gas Strategy, representing the commitment to use our scientific research expertise to help regulators and to build community confidence.

At present, unconventional gas provides around 40 per cent of production in the eastern Australian gas market but will inevitably grow in importance over the next decade. While this is entirely sourced from coal seam gas sources, there is huge potential for future growth in shale gas.

The Australian Government is working to provide industry and consumers certainty in energy policy and deliver stable energy policy and efficient transparent markets.

This will give consumers information to make choices about their energy use and give industry the confidence to invest, including in the important and growing oil and gas sector.

I welcome the publication of Unconventional Oil & Gas as an additional tool to ensure both the market and the wider population are kept fully informed on the issues.

Ian Macfarlane Minister for Industry and Science

MAY 2015 // ISSUE 1

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UNCONVENTIONAL

OIL GAS UNCONVENTIONAL Issue 1 // May 2015 // ISSN: 2204-8901

Unconventional Oil & Gas

DRILLSEARCH

EMBRACES THE

CHALLENGE

CSG WATER ISSUES SOLVED?

AUSTRALIA: BIGGER THAN TEXAS

LAKES OIL: WE DON’T NEED RESERVATION, WE NEED MORE GAS May 2015 OPINION DRIVING AN UNCONVENTIONAL BOOM TECHNICAL CRACKING THE CODE

ISSUES DOMESTIC GAS STRATEGY HIGHLIGHTS UNCONVENTIONAL FOCUS

Cover image shows Drillsearch’s Weatherford 826 rig drilling in the Cooper Basin.

UNCONVENTIONAL

OIL GAS Publisher and Editor Chris Bland Managing Editor Laura Harvey Associate Editor Michelle Goldsmith Marketing Director Amanda Kennedy Marketing Consultant Aaron White Creative Director Sandy Noke Graphic Designer Alejandro Molano

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WELCOME

Issue 1 // May 2015

FROM THE PUBLISHER

W

elcome to the first edition of Unconventional Oil & Gas, a magazine aimed at showcasing the best of this industry, but also dealing with any negatives in an open and rational way.

We have endeavoured to work closely with the industry, explorers and producers, the project owners, the experts and the pioneers, to put this magazine together and I’d like to thank Ian Macfarlane, Brad Lingo, Klaus Regenauer-Lieb, Rob Annells, Ray Johnson, Andy Lukas and Bettina Venner for their involvement in our first edition.

It is an exciting time for this industry, but also a challenging one. It’s clear that as our conventional resources deplete, we need to look at developing the resources that are today considered unconventional – coal seam gas, shale gas and oil, tight gas and oil, and deep coal seam gas.

We’ve already seen the impact the development of unconventional gas has had in the US. In less than a decade, the country has gone from being a net importer of gas to a net exporter of gas – a position few in the industry (or otherwise for that matter) could have predicted at the start of the century. The impact this has had on gas prices has been huge; and the geopolitical ramifications have been enormous too.

As the technology available to us continues to evolve, and our understanding of the underlying geology in our own resource basins improves, we firmly believe that these energy sources – of which Australia’s resources are massive – will be the cornerstone of both our domestic energy market, and our increasing export market.

We’re already seeing the impact our burgeoning coal seam gas industry in Queensland is having on global energy markets. As global superpowers in Asia continue to turn their attention to cleaner energy sources, Australia’s massive coal seam gas resources are incredibly well placed to serve this market. The CSG-LNG facilities that have been developed in Gladstone, Queensland are the gateway from which we can step into the global energy market. Australia already has huge deals in place to export gas from the Surat and Bowen basins to international customers, and the only limit to how we continue to reach this market is our

MAY 2015 // ISSUE 1

imagination.

At a time when there is much misinformation circulating about this industry, it is high time we had a clear voice to discuss and showcase the reality.

While short-term factors, such as the oil price and a number of major projects recently being completed, have temporarily slowed things down, it’s important that the industry takes a much longer term view.

It is with that view in mind that we have launched this magazine.

Our intention with this magazine is to showcase the best of the industry, highlighting the latest research, development and technology; and we’ll also be covering the ecological concerns and challenges facing the industry and hope to start some genuine debate.

Unconventional Oil & Gas is a publication that is fully integrated in print and online from the outset. Our quarterly print edition will be our flagship, presenting the best that we and the industry have to offer, and our comprehensive and fast-growing website (adapted to all devices of course) and email news will ensure that information is available when and where you need it.

Your feedback, suggestions and contributions are all welcome and can be sent to me via the contact details on page 1.

These resources might be considered unconventional today, but in time, these energy sources will become more and more commonplace as exploration and development techniques continue to evolve.

Chris Bland Publisher and Editor

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CONTENTS OVERVIEW Revolutionising oil and gas..............................................................................14

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Extracting unconventional oil and gas resources is safer and more economical than ever before and evidence continues to mount for an Australian unconventional boom similar in scale to the shale revolution in the US and Canada. With a growing demand for natural gas exports and the potential for shortages on the domestic market, the time is right for Australia to realise its own unconventional oil and gas potential and reap its many benefits.

Domestic gas strategy highlights unconventional focus...................... 20

INTERVIEW

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A ripe hunting ground: Brad Lingo on embracing opportunities in the Cooper..........................22

Brad Lingo discusses the company’s recent drilling results, and the path Drillsearch is on to develop and bring its resources to market.

Securing gas for Victoria: Rob Annells on meeting the challenge amid regulatory upheaval......................................................................................33

Lakes Oil Chairman Rob Annells shares his thoughts on the wider implications the onshore exploration moratorium is having on Victoria.

Driving an unconventional boom: Who’s behind the wheel?............................................................................ 50

While the future looks bright for unconventionals in Australia, Andy Lukas says several factors are holding the industry back from achieving its true potential.

TRAINING

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Unlock the rocks: Research points to a bright future..............................................................28

Klaus Regenauer-Lieb is one of Australia’s leading geophysicists, with a special interest in intelligently predicting where to best look for particular mineral deposits. In November 2014 Professor Regenauer-Lieb took over as the head of The School of Petroleum Engineering at the University of New South Wales (UNSW) and he’s quickly made a number changes to the School’s curriculum – including extensive changes designed to prepare the School’s students to undertake careers in unconventional oil and gas.

Building links, fostering growth..................................................................62

TECHNICAL

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Cracking the code.........................................................................................38

Unconventional reservoirs specialist Ray Johnson discusses some of the challenges involved in accessing and developing Australia’s unconventional resources, and provides insight into some of the strategies he is investigating to ‘crack the code’ and optimise production rates.

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WATER MANAGEMENT

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Managing CSG water: Extracting benefits from by-products................43

The challenge of managing the water that is a by-product of the coal seam gas production process has been a major consideration for all of the major CSG-LNG projects currently underway in Queensland. Together with SunWater, the QCLNG project has developed a unique solution which allows produced water to be put to use in the community.

CSG water: Researchers show water can be safely re-injected...........46

ISSUES

54

Separating fact from fiction: Report gives fraccing the green light........................................................54

Hydraulic fracturing in the Northern Territory has received significant public attention as the potential development of shale gas deposits is considered. The Northern Territory Government recently released the final report of their Independent Inquiry into Hydraulic Fracturing in the Northern Territory, which concludes that the environmental risks associated with hydraulic fracturing can be managed effectively with a robust regulatory regime.

Landmark report reveals mixed views on coal seam gas..................... 59

Managing community expectations, feelings and outcomes is an important part of any major development project.

SPOTLIGHT ON

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Cooper Basin................................................................................................. 66

The Cooper Basin spans 130,000 square kilometres across northeast South Australia and south-west Queensland. It is Australia’s most mature conventional onshore gas and oil production region and has also shown significant unconventional potential.

QCLNG: The world’s first CSG-LNG project comes online....................68

REGULARS Minister’s welcome ���������������������������������������������������������������������������������������������������������������������������������������� 1 Publisher’s welcome ������������������������������������������������������������������������������������������������������������������������������������� 2 Contributors ���������������������������������������������������������������������������������������������������������������������������������������������������� 6 News ����������������������������������������������������������������������������������������������������������������������������������������������������������������� 8 Advertisers’ index ��������������������������������������������������������������������������������������������������������������������������������������� 72 WWW.UNCONVENTIONALOILANDGAS.COM.AU

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CONTRIBUTORS

Brad Lingo

Drillsearch Managing Director Brad Lingo has more than 25 years of oil and gas experience, ranging from frontier deepwater exploration offshore West Africa to the commercialisation of major gas projects in Australia. He has been involved in all phases of the oil and gas industry, including business and project development, mergers and acquisitions, financing and equity capital raising for both listed and private companies in Australia and internationally. Mr Lingo was appointed to the Drillsearch Board in May 2009 and became Managing Director in June 2009. In this edition he tells us about the company’s current unconventional drilling targets in the Cooper Basin and their most recent successes.

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Klaus Regenauer-Lieb

Rob Annells

UNSW School of Petroleum Engineering Head

Lakes Oil Executive Chairman

Professor Klaus Regenauer-Lieb is an expert in the field of mathematical geophysics and computational geodynamics, developing new ways of exploration and finding mineral deposits. He has 20 years’ experience in conventional and unconventional geothermal energy and holds not one, but two PhDs. His first doctorate is in Geology from Auckland University in New Zealand; his second is in Geophysics from Johannes Gutenberg University in Mainz, Germany. Professor Regenauer-Lieb joined UNSW in November 2014 and is adapting the School’s curriculum to better prepare students to work in the unconventional resources industry, which he discusses in this edition.

Rob Annells has served on the Lakes Oil Board since 1984 and is currently the Executive Chairman. He has extensive experience in the resources sector, which includes the provision of corporate and investment advice to the business and resources industries. Mr Annells is also a former member of the Australian Stock Exchange with over 40 years’ experience in the securities industry. He shares some of his experience assisting the Victorian Government in its inquiry into onshore gas drilling in this edition of the magazine.

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Ray Johnson

Andy Lukas

Bettina Venner

Unconventional Reservoir Solutions Principal

AJ Lucas Manager Engineering and Innovation

SA Department of State Development Energy Industry Supply Chain Specialist

Dr Ray Johnson Jr has been involved with design, execution, and evaluation of reservoir stimulation treatments for unconventional projects since 1980, with recent experience and innovations relating to pre-drainage of fluids (i.e. gas and water) for coal mining. Since arriving in Australia in 1998, he has been involved in either senior engineering or management roles in the evaluation, appraisal and development of some of the most successful unconventional projects in Australia spanning several basins. Dr Johnson is an Adjunct Associate Professor at the Australian School of Petroleum, University of Adelaide and an Adjunct Fellow at the University of Queensland. Dr Johnson’s article in this edition looks at the work he is currently undertaking to help optimise production rates at unconventional wells around Australia.

Andy Lukas pioneered the development of directional drilling in Australia and is an authority on this technology and pipeline installation. He is also a leading proponent of this technology in the development of the coal seam gas extraction industry in Australia; and he is now a leading advocate for the development of the shale gas industry in Australia. He began his career at AJ Lucas in 1975 and has held various directorship positions with the company since 1975. Mr Lukas has also served as the President of both the Australian Pipeline Industry Association and the International Pipeline & Offshore Contractors Association. Mr Lukas shares his thoughts on the potential for Australia to experience an unconventional resources boom, similar to that already seen in the US, in this issue.

Bettina Venner is an Energy Industry Supply Chain Specialist in the South Australian Department of State Development, focusing on the development of oil and gas supply chains. She previously worked as a chemical engineer in the oil and gas industry at Sasol, Uhde, Chevron and Exxon Mobil in South Africa, Germany and Australia before joining government. Her government roles include EPA regulator, and roles in policy and case management of major projects. Ms Venner holds degrees in chemical engineering and commerce as well as a graduate diploma in management, and is a member of Engineers Australia.

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NEWS

CHEVRON TELLS BEACH: IT’S NOT YOU, IT’S ME

Chevron has walked away from the country’s biggest shale gas exploration project, the Nappamerri Trough Natural Gas project, effectively telling joint venture partner Beach Energy “It’s not you, it’s me”.

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hevron farmed into the Nappamerri Trough Natural Gas (NTNG) project in February 2013, in a twostage deal which would have seen the company earn up to a 60 per cent interest in the project. Chevron has walked away from Stage 2 of the project – which was always an option under the terms of the deal – and as a result all of Chevron’s interests in the project have been returned to Beach for nil consideration.

In a statement from Beach Energy, the company noted that while Chevron agreed that extensive technical evaluation confirmed a large gas resource and potential for further appraisal, “at this time the opportunity does not align strategically with Chevron’s global exploration and development portfolio.”

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Expanding upon this the company advised that the decision largely came down to the fact that it has high-graded and significantly reduced exploration spending in response to market conditions, including the weakened oil price. As such, forward-looking projects such as the NTNG no longer fit with Chevron’s own growth strategy.

Beach remains upbeat following the walkout, despite the fact that analysts, who had tipped that Chevron might walk away from the NTNG as early as October last year, felt that Chevron doing so would not be received well by the market.

Together with remaining joint venture partner Icon, Beach is reviewing Stage 1 data and outcomes to determine scope and objectives appropriate for future activities.

Beach Managing Director Rob Cole said “We are grateful to Chevron for

their significant contribution to the NTNG project. Beach considers that the Stage 1 program, designed as an exploration phase, achieved its primary technical objectives.

“We now better understand the geology through the delineation of target zones and identification of additional targets beyond the early REM shale play. We have also proved the ability to fracture stimulate, successfully flowed gas to surface and tested deliverability.

“We look forward to progressing the NTNG project at a pace consistent with prevailing market conditions.”

It is expected that further studies will be conducted over the remainder of FY15 and into FY16. In line with its original strategy, Beach will now pursue alternative partnering opportunities for the NTNG project.

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NEWS

SHELL, BG SHAKE UP THE MARKET In April, multinational oil and gas giant, Royal Dutch Shell put forward an offer to acquire BG Group for approximately £47 billion, in a move that would establish Shell as one of the biggest players in the global LNG market.

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ne of the largest acquisitions ever seen in the oil and gas industry, this deal would see ownership of all BG Group’s assets, including their gas facilities and the Queensland Curtis LNG plant in Australia, transfer to Shell.

The deal represents a major shake up of the oil and gas industry in Australia and worldwide. The move has the potential to spur other large scale acquisitions in the near future, as oil and gas companies vie to secure their positions in a changing hydrocarbon market and take advantage of growing demand for gas exports, particularly to Asian markets.

The terms of the deal have been recommended to shareholders and at the time of printing, the purchase was expected to be completed shortly. If the sale takes place, the combined company will be the world’s third-largest gas producer.

The acquisition will increase Shell’s proved oil and gas reserves by 25 per cent and increase its overall production by around 20 per cent. The acquired assets will also give the company a strategic position in innovative oil and gas projects, especially with the acquisition of the world’s first CSG-LNG project, QCLNG. The acquisition is consistent with Shell’s increasing focus on natural gas due to decreasing oil prices, and its requirement to secure new sources of gas to replace some of its older reserves, which are beginning to decline.

By applying its capabilities to the BG assets, Shell believes that by around 2020, the combined group will have: Two strategic growth businesses – deep water and integrated gas – that could each potentially generate $15-$20 billion of cash flow from operations per annum; Upstream and downstream engines that could potentially generate a further combined $15-$20 billion of cash flow from operations per annum in total; and Shell Chief Executive Officer Ben van

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Beurden noted that BG’s LNG assets were

totalling 45mtpa by 2018.”

Shell CEO Ben van Beurden.

of particular appeal to the company.

“BG’s equity LNG production, including in Queensland, together with Shell’s growth plans, will add around 80 per cent to Shell’s 2014 equity LNG capacity,” said Mr van Beurden.

“Both companies play an LNG aggregator role, whereby we buy third party LNG, often from our other joint venture partners, and trade this gas to a worldwide customer base. That is a scale business, and clearly there is potential to add more value here, as well as cost synergies from the combined shipping operations and trading platforms.

“Shell’s LNG sales have grown substantially in recent years, up 40 per cent since 2010. We see strong growth potential in Australia, from Shell’s share in Gorgon and Prelude and BG’s Queensland LNG,

BG Chairman Andrew Gould said “BG has a strong portfolio of operations, including growth assets in Australia and Brazil, a highly competitive LNG business, as well as an enviable track record of exploration success.

“The BG Board remains confident in BG’s long-term prospects under the leadership of Helge Lund. Shell’s offer, however, allows us to accelerate and de-risk the delivery of this value. The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG Board recommends the offer.”

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NEWS

Fairview 5, one of the major gas processing hubs at the Santos GLNG project.

SANTOS PRIMES ITSELF FOR NEW OPPORTUNITIES Santos has showcased its Eastern Australian operations during an investor visit to the Cooper Basin and GLNG project, with the company priming itself to take advantage of opportunities presented by changing dynamics in the domestic gas market.

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antos’s plans include further exploration and the potential development of shale, tight and deep coal seam gas in the Cooper Basin, as well as the continued development of the Santos GLNG project, which will convert CSG from the Bowen and Surat basins into LNG for export.

Emphasis was placed on the sustainability of the company’s East Coast business, despite challenging market conditions and its strong position to deliver long-term value by taking advantage of a “transformational increase in natural gas demand”.

Santos forecasts a tripling of Eastern Australian gas demand over the coming decade. Currently contracted gas supply will be insufficient to meet this demand, making the development of new gas sources around the country necessary before 2020.

The scale of this demand presents opportunities for the company with its strategic position within the Cooper Basin, the location of large as-yet-untapped gas resources.

An unconventional plan While the company believes there are still substantial conventional resources in the basin, they also intend to tap into the Cooper’s “world-scale unconventional resource potential”.

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Encouraging results were reported for all three unconventional sources present (shale, tight and deep coal seam gas) within the Cooper. All three have been successfully tested with the program now moving to target ‘sweet spots’ suitable for commercial production.

The company’s four proven unconventional gas targets are thick, over-pressured, extensive and fraccable, making them prime candidates for gas production.

Currently three unconventional wells are in production in the basin, with Moomba-191, 193H and 194 flowing shale gas.

The Moomba-191 well flowed at commercial rates greater than 3mmscf/d.

The deep coal seam gas plays were described as highly prospective, especially within the Patchawarra Trough. Encouraging flow results with a high liquids content (10-100bbl/mmscf) have been achieved and recent improvements in frac design have seen a step change in flow performance, 0.4 mmscf/d and increasing over time.

The company also reported cost reductions across all areas of its Cooper Basin operations, as the process of extracting gas continues to become more economical with improvements to fraccing and multiple well pads.

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NEWS

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GLNG project firing up The Santos GLNG integrated CSG-LNG project is on track for first LNG around the end of the third quarter of 2015, within its $US18.5 billion budget.

The first train is expected to begin operation at the end of the third quarter of 2015, with LNG production expected to ramp up over the next six months. Train two is expected to be ready for start-up by the end of 2015, with LNG production expected to ramp up in the coming years.

The LNG plant will have a capacity of 7.8mtpa; 7.2mtpa has been sold to joint venture partners PETRONAS and KOGAS. The vast majority of 2016-20 expenditure on the project will occur upstream, and include the drilling and completion of new wells (approximately 200 per year); the connection of new wells, including well pads, gas gathering lines, water pipelines, and power/communications infrastructure; and additional associated infrastructure.

The performance of the company’s Fairview wells continues to exceed expectations with well capacity expected to be approximately 600TJ/d by the end of 2015. Meanwhile, the Roma well capacity is growing in line with expectations. A phased future development strategy is also being pursued in the Scotia and Arcadia fields.

In 2014, GLNG proved reserves grew by 22 per cent and proved and probable reserves by four per cent, primarily due to positive reassessments in the Fairview, Roma and Scotia fields.

In addition to the four core GLNG areas, Santos believes that numerous growth opportunities exist across the GLNG portfolio, with significant brownfield opportunities close to existing infrastructure.

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OVERVIEW

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OILG 14

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OVERVIEW

GAS the future of energy is here Extracting unconventional oil and gas resources is safer and more economical than ever before, and evidence continues to mount for an Australian unconventional boom similar in scale to the shale revolution in the US and Canada. With a growing demand for natural gas exports and the potential for shortages on the domestic market, the time is right for Australia to realise its own unconventional oil and gas potential and reap its many benefits.

What is unconventional oil and gas?

As the name suggests, unconventional oil and gas resources are those located outside of conventional oil and gas deposits, and therefore cannot be accessed using traditional oil and gas well extraction methods.

The main types of unconventional oil and gas resources in Australia are coal seam gas (CSG), shale gas/oil and tight gas/oil. Each of these resources has its own unique characteristics that influence the methods required for extraction.

Extracting unconventional oil and gas often requires the use of hydraulic fracturing (fraccing). For instance, fraccing is used on around six per cent of Australian coal seam gas wells to increase the amount of gas extracted, although its frequency is expected to increase as less permeable seams are targeted. Shale and tight gas wells always require fraccing.

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OVERVIEW Fraccing involves casing the well, then injecting a fluid made up of water, sand and chemical additives under high pressure. This creates fractures in the reservoir, releasing oil and gas from the rock.

In the past, the capital, energy and technology required to extract unconventional oil and gas meant that doing so was considered uneconomical.

However, advances in directional drilling and fraccing have made exploiting these resources more viable. Not only do Australia’s unconventional oil and gas deposits offer an alternative hydrocarbon source as conventional fields are exhausted, they are also likely to contain larger volumes of oil and gas.

Australia’s potential Australia is thought to have some of the most significant potential unconventional hydrocarbon sources worldwide.

For instance, Australia’s total CSG resources are estimated at around 235Tcf (trillion cubic feet), with 33Tcf economic demonstrated resources (ACOLA, 2013; EIA, 2013). CSG is by far the most developed form of unconventional hydrocarbon in Australia, now accounting for around 13 per cent of total natural gas production. It also provides around 90 per cent of Queensland’s gas needs.

Significant shale oil and gas resources are also believed to exist within Australia. The United States Energy Information Administration (EIA) has assessed six potential Australian shale gas and oil basins and estimates that they contain around 2,046Tcf of risked shale gas in-place, with 437Tcf as the risked, technically recoverable resource.

An estimated 403 billion barrels of shale oil in-place is also thought to exist within these basins, with 17.5 billion barrels as risked, technically recoverable shale oil resource. It is also possible that further reservoirs may be located outside the assessed basins (EIA 2013).

Australia’s total identified tight gas resources are currently estimated at around 20Tcf, with an expectation that larger amounts will be identified upon further exploration.

Where are unconventional resources located?

Australia’s largest CSG reserves are located in Queensland. The largest proven reserves are contained within the Bowen Basin (QLD) and the Surat Basin (QLD, NSW). Smaller amounts have also been located in other basins, including the Clarence Moreton (NSW), Gunnedah (NSW), Gloucester and Sydney basins (NSW).

Other potential sources of CSG include the Pedirka, Murray, Perth, Ipswich, Maryborough, Gippsland and Otway basins.

The EIA has assessed potential shale oil and gas resources in the Cooper (QLD, SA), Maryborough (QLD), Georgina (NT, QLD), Beetaloo (NT), Canning (WA) and Perth (WA) basins.

According to CSIRO and the EIA, the Cooper Basin stands out as the most prospective and commercially viable region for shale gas development in Australia. The EIA estimates the Cooper Basin’s risked shale gas in-place at 325Tcf, with a risked, technically recoverable shale gas resource of 93Tcf. The risked shale oil in-place is estimated at 29 billion barrels, with a risked, technically recoverable resource of 1.6 billion barrels.

Tight gas resources are thought to exist onshore in Western Australia, South Australia and Victoria, with the largest so far identified in the Perth, Cooper and Gippsland Basins.

A dynamic market CSG is the unconventional hydrocarbon that has seen the most development within Australia.

The largest amount of CSG activity has occurred in Queensland.

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OVERVIEW

Australia is thought to have some of the most significant potential unconventional hydrocarbon sources worldwide.

During the 2013/2014 financial year 7,619.58 million cubic metres (approx. 0.27Tcf) of CSG was produced in Queensland. Exploration and development are both ongoing, with 1,573 CSG wells drilled in Queensland over 2013/14, comprising 32 exploration wells, 132 appraisal wells, 1,394 development wells and 15 injection wells.

A variety of projects to develop the nation’s CSG resources are underway, including a number of CSG to LNG projects. These include the Australia Pacific LNG project, the Santos GLNG project and the Queensland Curtis LNG project.

The Australia Pacific LNG project (APLNG) in Queensland is a joint venture between Origin (37.5 per cent), ConocoPhillips (37.5 per cent) and Sinopec (25 per cent). The project will supply gas to both Queensland domestic and export markets. The project recently passed a significant milestone with the arrival of first gas from the Surat Basin to the LNG facility on Curtis Island.

The Santos GLNG project is underway in Queensland and will also convert CSG to LNG at its own Curtis Island plant. This gas is intended primarily to supply Asian export markets. The $US18.5 billion project is a joint venture between Santos (30 per cent), PETRONAS (27.5 per cent), Total (27.5 per cent) and KOGAS (15 per cent). Santos GLNG is on track to deliver its first LNG cargo in 2015, with the process of commissioning the LNG plant currently underway. When fully operational it is expected to produce 7.8 million tonnes of LNG each year.

QGC’s Queensland Curtis LNG (QCLNG) project shipped its first LNG cargo for export in December 2014. The project continues to expand, with the start-up of a second train planned for the third quarter of 2015. At plateau production, expected during 2016, QCLNG is expected to have an output of around 8 million tonnes of LNG a year.

While shale oil and gas development within Australia is still largely in the exploration phrase, a large number of companies are currently exploring for shale gas and evaluating the viability of large-scale commercial production.

In 2012, Santos announced the start of production at the Moomba-191 shale gas well as part of its Cooper Basin unconventional program. In late 2013, a second shale gas well, Moomba-194, began flowing gas.

Tight oil and gas is yet to be commercially produced within Australia, but exploration is underway in a number of basins, including the Cooper, Perth, Gippsland, Bowen, Galilee, Canning, Amadeus and Officer basins.

Some of the main companies involved in unconventional oil and gas exploration and development in Australia currently include Beach Petroleum, BHP Billiton, Cooper Energy, Drillsearch Energy, Origin Energy, QGC, Santos, Senex Energy and Strike Energy Limited.

Other companies holding significant acreages with unconventional potential include Armour Energy, Buru Energy, Lakes Oil, New Standard Energy, Oilex Limited, Woodside Petroleum and Icon Energy.

There have been some substantial recent changes in the market,

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OVERVIEW

The potential economic benefits of unconventional oil and gas production are enormous; spurring investment and job growth in Australia, facilitating regional development and enhancing the economy as a whole. with a number of acquisitions and mergers of companies involved in Australian unconventional oil and gas, and sales of gas assets.

The market continues to consolidate as companies recognise Australia’s vast unconventional oil and gas potential, and such changes will determine which companies will take advantage of the opportunity to bring Australia’s unconventional gas and oil future to fruition.

Shell has recently moved to acquire BG Group (owners of the QCLNG project), and the Australian oil and gas assets of US energy group, Apache Corp, have been acquired by the Brookfield and Macquarie Capital Consortium for $US2.1 billion. Chevron also sold its half interest in Caltex Australia for $4.6 billion.

In 2014, APA Group purchased the QCLNG transmission pipeline for $US5 billion. It is expected that the transmission pipelines associated with the APLNG and GLNG projects will also be sold at a similar premium.

Following the North American example Spurred by technological developments in horizontal drilling and hydraulic fracturing, the rapid development of unconventional oil and gas in the US and Canada revolutionised these countries’ energy economies.

According to the EIA, Australia also has the potential for an unconventional oil and gas boom on a similar scale.

In 2012, the US became the world’s largest producer of natural gas, with unconventional gas accounting for two thirds of production. In the same period, the US was the third largest producer of oil, with tight oil accounting for more than a third of crude oil production.

About 7,000 US companies are active in onshore gas production, including some 2,000 drilling operators. The industry directly employs over two million people, who earn over $US175 billion in labour income.

The shale gas boom resulted in the increased uptake of natural gas as an energy source, resulting in a decrease in emissions, despite an increase in overall energy production.

Lower gas prices benefited local industry and are thought to have increased the attractiveness of the US for industrial investment. The price drop particularly benefited the manufacturing industry, especially in the petrochemicals, fertiliser, fuel and steel sectors.

The unconventional oil and gas boom also significantly reduced North America’s dependence on energy imports, enhancing its energy security.

Benefits of development An Australian unconventional gas boom would result in similar benefits to those experienced in the US and Canada.

Natural gas is already one of Australia’s largest exports, bringing billions of dollars into the economy every year. For instance, in 2013-14, 24 million tonnes of LNG was shipped overseas, earning $16.4 billion in export revenue. Further development of gas resources means that exports can continue to increase, while the domestic market can continue to grow.

The oil and gas industry also currently accounts for around a

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OVERVIEW third of Australian business investment, with over $200 billion in project investment committed up to 2017 and another $100 billion possible.

The potential economic benefits of unconventional oil and gas production are enormous, not only spurring investment and job growth within Australia, but also facilitating regional development, enhancing the economy as a whole and contributing substantial amounts of tax. Lower gas prices are also vital for the Australian manufacturing sector and other industries.

The increased uptake of hydraulic fracturing and the expansion of the unconventional oil and gas industry will also create opportunities for many Australian companies to expand into a growing global market. Unconventional development could result in significant exportable local technology and expertise in the future.

Environmental considerations One of the main challenges facing the unconventional oil and gas industry is the environmental concerns associated with exploration and production methods.

In particular, the process of fraccing has been the subject of heated debate within the community, unfortunately largely as a result of miscommunication and misinformation from small but vocal groups who oppose the process. These groups are concerned about some of the chemicals that can be used in the process, which they argue can leach into groundwater supplies and be emitted into the atmosphere.

However, a number of inquiries into the impacts of fraccing have been held around the world, including two Australian inquiries in the past twelve months (in New South Wales and the Northern Territory), and these inquiries have almost universally found that while there are some environmental risks associated with the process of fraccing, these can all be safely managed by industry.

Now is the time Australia is sitting on a resource that has the potential to help increase our energy independence and enhance our energy security. Australians currently consume significantly more oil than is locally produced and rely on oil imports to make up the rest.

However, Australia has substantial undeveloped oil resources associated with shale and tight reservoirs that could eventually supply the local market.

As production from conventional gas reservoirs declines, new sources of gas are required to keep production at its current levels so Australians can continue to enjoy the benefits of abundant natural gas.

If Australia continues on its current path, natural gas shortfalls are forecast in the coming years and some states will remain reliant on the resources of others. For instance, NSW currently imports 95 per cent of its natural gas, despite having its own large undeveloped resources of CSG and other unconventionals.

Unconventional gas development presents much greater economic benefits than other methods of ensuring enough gas is available for domestic markets, such as proposed gas reservation policies.

Developing Australia’s abundant unconventional resources will mean that Australia can continue to be a leading exporter of natural gas without shortages or price hikes in the domestic market.

Natural gas is expected to play a vital role in Australia’s future energy mix. Taking advantage of Australia’s abundant unconventional natural gas and oil resources is safer and more commercially viable than ever before, representing a prime opportunity to address some of the country’s more pressing energy supply issues and realise substantial economic benefits.

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OVERVIEW

DOMESTIC GAS STRATEGY

HIGHLIGHTS UNCONVENTIONAL FOCUS

The Federal Government has released its Domestic Gas Strategy, highlighting the important role the Government expects unconventional gas to play in the nation’s energy future.

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he Federal Government has taken a proactive position on the role unconventional gas should play in Australia’s future energy mix, and the release of the Domestic Gas Strategy is being seen by many as a call to action for state governments, particularly in New South Wales and Victoria, to responsibly develop unconventional gas resources.

The Strategy articulates the Government’s role in the development of unconventional gas, including coal seam gas, shale gas and tight gas. In particular the Strategy has an emphasis on the development of unconventional gas as a means to counteract rising domestic gas prices.

The development of the LNG export industry out of Queensland, in conjunction with other factors including the decline of low-cost conventional gas reserves, are all having an impact on domestic gas prices.

The Government’s position is that new sources of gas need to be introduced into the market to increase competition and assist in driving down prices.

The Strategy document states that enabling supply of new gas sources, such as unconventional gas, is the key to ensuring supply security and efficiency in a dynamic market.

both established as the frameworks for development of the industry.

It states that the benefits of developing a stronger unconventional gas sector should be balanced with managing impacts upon communities, other industries, and the environment, and be supported by an evidence-based understanding of risks (for example, impacts on water quality, or trade-offs for land usage).

The Government will play an important leadership role in the development of the unconventional gas industry by maximising public access to research, including that undertaken by the CSIRO, to better understand the potential national economic gains and local impacts of unconventional gas development. This information will complement the research efforts being undertaken in individual states and territories, increasing confidence across the community and industry, and providing the scientific research to underpin regulation and the policy debate.

Bans on coal seam gas exploration in New South Wales and all onshore gas drilling in Victoria were also implicitly touched on in the report, with the Government stating it “expects the states to support the development of the unconventional gas industry using strong scientific evidence to underpin any decision”.

A scientific basis for development Community concerns surrounding some of the technologies involved with unconventional gas extraction, including fraccing, are discussed in the report, with scientific data and expertise

A framework for growth The Domestic Gas Strategy outlines nine key areas in which the Federal Government believes it can significantly contribute to the development of unconventional gas resources.

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These are: 1. Improving gas markets to enable better access and price discovery for all market participants, including customers 2. Understanding and responding to potential social impacts to build confidence that community needs and expectations will be properly considered 3. Understanding and communicating the science to build confidence in the community that risks and environmental impacts can be managed 4. Attracting investment and encouraging steady and predictable supply through better regulation 5. Tailoring production technologies for Australia to ensure we are making the most of our resources 6. Establishing an oil, gas and energy resources industry growth centre to accelerate advancements within the industry 7. Improving access to geo-scientific pre-competitive data to understand our resources and attract investment 8. Demonstrating the macroeconomic benefits to build community confidence 9. Learning from mistakes and successes of other jurisdictions through sharing knowledge.

These activities provide a strategic framework for the Australian Government to build on its role in leading a discussion on and promoting the responsible development of an unconventional gas industry. The Minister for Industry

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OVERVIEW

The science suggests that the development of the unconventional gas industry can happen in harmony with Australia’s farming industry.

and Science will report annually to the COAG Energy Council on the progress of implementation and continue to encourage jurisdictions to work together to facilitate the responsible development of coal seam, shale and tight gas resources for the benefit of Australians.

Building an unconventional future Minister for Industry and Science Ian Macfarlane is very clear about the important role unconventional gas will have in Australia’s future.

“Unconventional gas, including coal seam and shale gas, is already a big part of Australia’s gas supply, accounting for around 40 per cent of production in the eastern Australian gas market. It will become even more important over the next decade in meeting domestic and international demand,” said Mr Macfarlane.

“By undertaking and distributing scientific research, the Federal Government supports the work of regulators and helps communities realise the benefits of responsible development. A vast amount of research has been completed or is underway to answer crucial environmental, health and other socio-economic questions.

“Greater understanding of the importance of gas development is

essential to help underpin Australia’s future national economic wellbeing. The Federal Government is listening and responding to community concerns.

“We also expect industry to take responsibility for its own future. This means being involved in meaningful and proactive engagement with communities, and acting to understand and mitigate unwanted environmental or social impacts of its activities.

“The Domestic Gas Strategy will support discussions with State Governments, who have the primary responsibility for onshore gas development, and inform the work of the COAG Energy Council on ways to address unnecessary barriers to bringing on new gas supply.

“New gas development will ensure farmers’ rights and bring tangible benefits for local communities while protecting our land and water resources.

“It’s through this balance that we will cement our position as an energy superpower and remain competitive.”

Industry response The Australian Petroleum Production and Exploration Association (APPEA) is strongly in favour of the plans outlined in the strategy, describing the report as a “welcome recognition of the importance of

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unconventional gas production to the nation’s energy mix and economic prosperity”.

Acting Chief Executive Paul Fennelly said the Government’s commitment to provide communities with more information about how industry is regulated, as well as research undertaken by reputable government agencies such as the CSIRO and Geoscience Australia, is a positive step forward.

He added, “As the Productivity Commission recently found, scientific evidence shows that the technical challenges and risks posed by gas development can be managed through a well-designed regulatory regime.”

Australian Pipelines and Gas Association Chief Executive Cheryl Cartwright also welcomed the new strategy, describing it as a step in the right direction.

“By providing information to communities and other stakeholders about the benefits of natural gas and the safety and value of unconventional gas, the Government will help to increase opportunities to supply gas for Australia’s domestic market,” Ms Cartwright said.

“There have already been many scientific reports confirming that exploration and development of CSG, with appropriate safeguards and regulation, is safe and reliable.”

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INTERVIEW

A RIPE

HUNTING

GROUND BRAD LINGO ON EMBRACING OPPORTUNITIES IN THE COOPER

The Weatherford 826 rig drilling.

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INTERVIEW

Drillsearch is one of the most prolific oil and gas explorers in the Cooper Basin, with a steady focus on the exploration and production of conventional and unconventional oil and gas resources. We met with Brad Lingo to discuss the company’s most recent drilling results, and the path Drillsearch is on to develop and bring these resources to market.

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ince Managing Director Brad Lingo took the helm of Drillsearch in 2009, the company has narrowed its focus exclusively to the Cooper Basin – a move that has worked in the company’s favour.

From an exploration permit perspective, Drillsearch owns the second largest number of permits in the Cooper Basin. Within their exploration tenements, Drillsearch has shale gas potential, tight gas potential and deep coal seam gas (CSG) potential, which is distinctly different to the CSG development underway in South East Queensland.

For Drillsearch, the beginning of the journey into unconventional resources really started in 2009.

“We recognised the identity of the plays in the Cooper, but we also realised that following in the footsteps of other companies who have been successful in unconventional discoveries was a sensible path to follow.

“And so we very much focused on looking for unconventional resources that we could identify associated with our conventional discoveries – the wells we’d already drilled and the wells we were drilling on a regular basis.

“By doing this we were effectively getting two bites of the cherry – every well that we drilled was assessed for both conventional and unconventional potential, and that remains fundamental to our approach.”

It’s an approach that has resulted in a number of recent successes for the company. Since the start of FY2015, the company has made seven wet gas discoveries in its joint ventures with Santos and Beach Energy. Four of the recent discoveries have all shown potential for unconventional pay: Nulla North-1, Kyanite-1 and Spinel-1 with Santos; and Maupertuis-1 with Beach.

“Through this drilling program, we’re demonstrating that the basin has hardly been touched in terms of its conventional opportunity, and in addition, in the play area that we’re largely focused on – the Patchawarra Trough – most wells are finding some form of unconventional pay associated with them as well, just by nature of the system.”

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INTERVIEW During the company’s half year results briefing in February, Mr Lingo noted that the development of unconventional resources is seen as a long-term prospect for the company, but during our interview he noted that the significant recent unconventional results put the company at an “interesting juncture”.

“We’ve had a number of existing discoveries in the south-western Patchawarra Trough; but we also have a forward work program within the permit PEL570 in the northern Cooper, which is part of what I call the central Patchawarra Trough.

“Santos has farmed in to that area, and their objective is very much focused on the unconventional. They were very clear about that when they announced their farm in to the area with New Standard and Magnum Hunter, which again, for these two companies, was all about the unconventional.

“Early in the coming financial year we believe that we’ll be drilling a dedicated, unconventional exploration well in that PEL570 area.

“We’ll also be drilling somewhere between two and five conventional targeted exploration wells in the PEL101 area, which is surrounded by PEL570.

We’ve already had three conventional gas discoveries in the area, and when we have the results from the additional wells we plan to drill, we’ll be able to compare them to the results we see from the dedicated unconventional well in PEL570 and compare and contrast the results.

“So in a very short period of time, we can have somewhere between three and four well penetrations in a very concentrated area. We always realised that there was an unconventional resource potential in that area – and now we are embarking on the process of proving this up.”

Mr Lingo says the unconventional plays in the wells to be drilled start emerging at depths greater than 2,700m down to 3,800m.

Where to now Clearly, the technology to drill down to unconventional targets is here. According to Mr Lingo, the next steps will be ensuring the company has all the right technology at its disposal in terms of fraccing and well completion, leading to produce-ability.

Mr Lingo also believes that just like in the US, the next stage in the development of Australia’s unconventional oil and gas industry will involve a lot of trial and error, “experimenting with a little bit of this, a little bit of that to get the right mix for different plays”.

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“Our view is that the northern Cooper wet gas area, from an unconventional perspective, has very good rock quality by international standards. Our focus now is on establishing the right level of completion quality – looking at how to drill wells, how to fracture stimulate those wells and how to complete those wells – to ultimately demonstrate produce-ability and profitability.”

Brad Lingo, Drillsearch Managing Director

Using conventional to target unconventional

“Our business model has always been targeting conventional first – using conventional drilling and conventional production to effectively underwrite the exploration, appraisal and delineation of the unconventional resource,” said Mr Lingo.

“If we can drill and develop and start producing a conventional gas field, but at the same time, use it as a platform to start testing and appraising the unconventional resource, the idea is to eventually introduce that unconventional gas into the same gas sale contract.”

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INTERVIEW

The four P’s

Just like the four P’s of marketing, Brad Lingo has his four P’s of unconventional oil and gas: Presence, Prevalence, Produceability and Profitability.

Presence – where is the resource located?

Prevalence – how extensive is it in terms of area and volume?

Produce-ability – what do you have to do to produce it?

Profitability – can this resource be produced on a commercial basis?

“When it comes to those four P’s, in Australia, it is quite early days.

“What is clear is that most hydrocarbon basins in Australia are significantly under-explored and under-exploited,” said Mr Lingo.

“The petroleum provinces that have the advantage around the exploration, appraisal and delineation and ultimately the development of unconventional resources are the ones that have had the most historical activity.

“Clearly, that’s onshore at the Cooper Basin. The biggest challenge that we have in progressing through that exploration, appraisal and delineation process is that we’re so spoiled for choice in terms of the resources we should be targeting.”

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INTERVIEW “But that’s not something to be afraid of,” said Mr Lingo. “It’s something to embrace. Explorers need to go into their plays with a very clear mindset on the resource, and establish how much money they will put at risk on the path to produce-ability.”

For Drillsearch, mitigating the risk involved with unconventional exploration comes by using conventional wells to simultaneously evaluate the potential for an unconventional resource.

“As we evaluate it for its unconventional potential, then that builds up a catalogue of essentially prospective air holes for us to come back to test, and try various methods of testing it until we actually crack the code,” he said.

Drilling at Drillsearch’s Yarowinnie South-1 well site.

The rocks are the rocks

“With our joint venture partner Santos, we look at two essential ingredients to demonstrate the quality of an unconventional play,” said Mr Lingo. “The first is rock quality, and the second is completion quality. When it comes to rock quality – the rocks are the rocks, and they either have high carbon resources associated with them or they don’t.

The appeal of the Cooper While the US and Australia are very different exploration environments, with differing restrictions on locations that can be drilled (in the US, drilling for unconventional wells has even been allowed on land that forms a part of Dallas/Fort Worth International Airport in Texas), Australia, and indeed the Cooper Basin, does have one huge advantage that the US does not – it is very scarcely populated.

“The advantage we have that they didn’t have in the US was they identified an unconventional resource that, in many respects, was adjacent to and underlying one of the largest metropolitan areas in North America,” said Mr Lingo. “Where we’re operating, out in the Cooper Basin, our drilling activities will disturb very few people.

“But that doesn’t mean we’ll compromise, in any respect, our operational performance or our health, safety and environmental considerations. We just don’t, and we won’t. However the opportunity for conflict and misunderstanding is greatly reduced operating in a remote location like the Cooper.

“It’s remote, but because of all the conventional gas that’s been discovered, it’s very well situated to be able to explore, appraise, grade and delineate – and ultimately exploit the unconventional resource potential.”

With the Cooper Basin being so well set up in terms of infrastructure for developing conventional wells, it’s also well placed to bring unconventional resources to market when they do come online.

For example, the Kyanite well sits within one kilometre of a major gas gathering pipeline operated by Santos within the Cooper Basin – a gas pipeline that Drillsearch has already been supplying conventional gas into for the last few years.

“Our view is that the northern Cooper wet gas area, from an unconventional perspective, has very good rock quality by international standards. Our focus now is on establishing the right level of completion quality – looking at how to drill wells, how to fracture stimulate those wells and how to complete those wells – to ultimately demonstrate produce-ability and profitability.”

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INTERVIEW The Cooper and beyond Mr Lingo says the company is very aware of the challenges explorers in New South Wales and Victoria are currently facing, which reinforces the company’s decision to focus exclusively on the remote Cooper Basin.

“Whenever you operate near significant populations, people are going to have a difference of opinion about what should be done, what can be done and who has a right to do things on the land. In the Cooper Basin it is remote, it is scarcely inhabited; we maybe overestimate the population. Most of the people that are out there in the Cooper Basin are out there because they’re associated with oil and gas activities.”

Given the success the company has enjoyed of late, Drillsearch is approached by companies regarding potential new opportunities on a weekly basis.

“Everybody knows that we’re focused onshore, so typically we’re approached to farm-in to other onshore exploration projects,” said Mr Lingo. “They’ve ranged across various parts of Australia, they’re broadly spread. To date, we’ve yet to come across an opportunity that’s had the overwhelming attractiveness our existing developments in the Cooper offer – hence so far, we have been resistant to these other opportunities.”

Patience is a virtue When asked what message he has for companies operating in the unconventional space, Mr Lingo says it comes down to two words: patience and persistence.

“There are a few of things that Drillsearch is known for,” says Mr Lingo. “Things like maintaining focus; measuring twice, cutting once; and believing that anything that’s worth doing is worth doing right.

“For us, when it comes to everything we do, whether it be conventional, unconventional, and in many cases both, which really is becoming a foundation of the business, it’s about having the patience and persistence to deliver complementary results over an extended period of time.”

Following the US lead

“We’ve taken on board a lot of the lessons of the early pioneers in the US unconventional plays – companies like Mitchell Energy and Continental Resources. They realised that they had historically been exploring for conventional resources in the areas that had gone on to become big unconventional resources. They had actually intersected hydrocarbons across the intervals that they had traditionally been producing from; and they found that if they drilled deeper than what they were originally focused on, into the secondary targets, they saw a lot of hydrocarbons.”

According to Mr Lingo, this experience has informed the company’s current strategy to search for both conventional and unconventional plays when drilling specific wells in formations the company believes are ripe for unconventional resources. It’s a measured, disciplined approach that minimises risk and maximises the potential reward – essentially giving the company and it’s joint venture partners “two bites of the cherry” with any well.

A ripe hunting ground

With the Cooper Basin being so well previously explored, all explorers have a good database of previous drilling records and information, which has been made open-file by the state government.

“The basin is well understood, but it is not mature in terms of either exploration or exploitation,” said Mr Lingo. “And it certainly isn’t mature in terms of looking at the basin from an unconventional perspective.”

Anyone wanting to embark on the exploration, appraisal and delineation of the unconventional resources in the Cooper Basin can access a good, robust open-file database that provides all the information required. According to Mr Lingo, it is then just a matter of good old elbow grease in terms of analysing the data.

“If you look through the data, starting in 1998, every well drilled in the Cooper can be analysed in terms of its unconventional resource potential.

“As a result, in that respect the Cooper is a very ripe hunting ground,” said Mr Lingo. “And when it comes to other basins across Australia, they have hardly been explored for unconventional potential. But we do know that where we have conventional resources that haven’t been demonstrated to be commercial, then somewhere in that basin there’s going to be a potential unconventional play.”

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TRAINING

unlock

RESEARCH POINTS T

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TRAINING

the rocks

O A BRIGHT FUTURE

Klaus Regenauer-Lieb is one of Australia’s leading geophysicists, with a special interest in intelligently predicting where to best look for particular mineral deposits.

In November 2014 Professor Regenauer-Lieb took over as the head of The School of Petroleum Engineering at the University of New South Wales (UNSW) and he’s quickly made a number changes to the School’s curriculum – including extensive changes designed to prepare the School’s students to undertake careers in the unconventional oil and gas industry.

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TRAINING The Tyree Building, UNSW, where the School of Petroleum Engineering is located.

Image courtesy John Gollings.

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rofessor Regenauer-Lieb’s changes at the School stem from his belief that Australia’s massive unconventional resources can be unlocked with significantly reduced risk, if the data-intensive paradigm using physics-based supercomputer models are used to protect humans, assets and the environment.

Professor Regenauer-Lieb will also be continuing his own research at the School, which involves computer modelling to best locate sizeable unconventional gas deposits. His modelling work also looks at the way reservoirs behave when drilled, with a focus on establishing techniques which allow maximum return from wells while also minimising the impact on the environment surrounding particular deposits.

New School, new approach Professor Regenauer-Lieb said that his focus for the School over the next few years will be to upgrade the teaching curriculum to prepare graduates for the

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new opportunities in unconventional gas and geothermal energy. He also wants to continue research into unconventional petroleum and geothermal resources.

The new curriculum will address the fact that unconventional resources present completely new challenges for the engineer.

One of these challenges surrounds the geology of Australia’s rocks, which are quite different to those of the US, where the unconventional industry has already taken off.

“One thing we are doing is introducing more geomechanics to the curriculum, as an elective, so students can understand the behaviour of the unconventional resources in the Australian setting,” said Professor Regenauer-Lieb.

“In Australia, material at depths of 4,000m behaves quite differently to material in shallow depths. It’s more of a ductile, almost toothpaste-like behaviour.

This is something that needs better understanding.

“I also think that petroleum engineers need to now have a quantitative

understanding of petrochemical geology to be successful in unconventional, so this will become much more of a focus for our students. We’re revising all phases of the course, and we’re also bringing in new teaching staff to ensure that our students do get a good grounding in this area.”

In addition, this year the School is also trialling a full digital version of its thesis program, which involves computational analysis of geology and logs to then calculate reservoir behaviour.

“It’s very important that we gain a good understanding of how the aquifers above our unconventional gas reservoirs are behaving, and how good the seals are – so we are trying to build that understanding into our courses,” said Professor Regenauer-Lieb.

“There are many more changes to come, but those are the first changes that I have actually implemented so far.”

The School also has plans to open up some of its new teachings to industry, government departments and regulators, to ensure that knowledge is shared across the board.

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TRAINING Professor Regenauer-Lieb came to UNSW from a Winthrop Professorship at the University of Western Australia, with extensive experience in research, management and mentoring.

Within the geothermal research and technology field Professor RegenauerLieb is highly regarded. He has 20 years’ experience in conventional and unconventional geothermal energy and holds not one, but two PhDs. His first doctorate is in Geology from Auckland University in New Zealand; his second is in Geophysics from Johannes Gutenberg University in Mainz, Germany.

In 2006, Professor Regenauer-Lieb was awarded the Western Australian Premier’s Research Fellow and became the Director of the Western Australian Geothermal Centre of Excellence in Perth. He is also the cofounder of the Institute for Geothermal Resource Management in Mainz, Germany.

“We need to develop a strategy so that all parties – government, industry and universities – are all collaborating to unveil this new energy form.”

Professor Klaus Regenauer-Lieb “It’s not just students, the Government needs to actually have access to this upskilling, and certainly some parts of the industry would benefit from it as well,” said Professor Regenauer-Lieb. “The challenge we face with unconventional gas is that it is totally new. We need to offer compact courses for industry and for the Government so that we can develop this rich energy source in the best manner.”

Standard practice for the petroleum and mining industries follows an empirical or learning-by-doing approach, which can really be hit and miss according to Professor Regenauer-Lieb. “I aim to use insights from the fundamental physics of

rocks in order to upgrade practices in the field.

“One new research approach will be to use an integrated computational materials engineering framework that can be applied by the resource industry to improve exploration, characterisation and even stimulation of reservoirs.” This research will have an immediate impact on the petroleum industry, with much better assessments of the security and risks that are associated with harvesting unconventional resources.

Professor Regenauer-Lieb said once the new courses have been established at the student level, the School will look

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at developing these compact courses for industry. He said that he has had positive feedback regarding the potential for these courses already, with NSW Chief Science Minister and Engineer Professor Mary O’Kane particularly supportive.

“The Government and industry are very much aware of this challenge and I think they’re really looking forward to being able to tap into our new material characterisation technologies and research discoveries.

“They’re also keen to provide a bit more knowledge to the public. I think this is the main problem at the moment for unconventional gas – the public is very poorly informed.”

Breaking new ground Professor Regenauer-Lieb was specifically headhunted to join UNSW as part of a strategic investment by the university as part of an unconventional resources initiative.

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TRAINING

Professor Regenauer-Lieb with students and staff from the UNSW School of Petroleum Engineering.

dedicated for a laboratory where the behaviour of unconventional materials at extreme temperatures and pressures is being investigated.

“The university itself is already world famous for it’s micro-characterisation physical scanning led by Professor Christoph Arns and Val Pinczewski.

Now we are adding an unconventional geomechanics aspect to it and the infrared images that we get from these experiments, curiously enough, can help us to understand unconventional gas deposits, and how fractures form in these squishy materials,” said Professor Regenauer-Lieb.

“As an industry we know that fractures can help release gas; but we don’t understand the science behind it. So that’s something that we will investigate in theory. We have already engaged in a supercomputer collaboration with the Idaho National Lab, and we have a code that we have developed specifically for unconventionals so that we can model this material. Now we need to test these predictions in the laboratory and then take it into the field.

“It’s quite an exciting area of research to be involved with.”

More prolific than the US As a result of Professor Regenauer-Lieb’s research into the field, he believes the Australian unconventional industry has the potential to be even more successful than that of the US. “I think with a bit more knowledge, and with the right regulatory environment, I think we can do better than the US,” he said.

“Because our models predict that these fractures are formed over millions of years time scales, and are connected in vast networks – this means that there is a lot of gas still in there.

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“Also, in the US, shale needs special techniques, and once you actually harness the gas with conventional techniques, you sterilise the deposits – so you only get a fraction of the gas out as the natural fractures tend to close at a critical pressure.

We hope we can actually have a better approach here in Australia.

“Here in Australia we have a lot of socalled lacustrine deposits, which are highly clay rich and under extreme temperature, pressure and tectonic stress. This throws up different challenges than in the US. “The reserves here are gigantic, and with the right techniques, we can actually protect our aquifers much better, we can predict how the fractures are occurring and we can also harvest more gas out of the shales.”

Industry links The School is constantly engaging and collaborating with the industry, to ensure that students are best prepared to enter the workforce; but also so that the industry can stay abreast of the latest research and developments coming out of the School.

Professor Regenauer-Lieb is particularly hopeful that some of the computer modelling being done by the School will be useful for companies investigating the production of gas from shale reserves.

The School is also particularly keen to encourage internships for its students, a number of whom have already secured placements with explorers and developers of CSG reserves. “It’s actually quite promising for the students and a unique opportunity for them to learn new concepts.”

Advice from the inside Professor Regenauer-Lieb has several key pieces of advice for those already active in the industry.

“For the explorers, we need an understanding of the aquifers above the unconventional plays. And you need to understand the petrophysical properties of the shales and be able to assess the risk of induced seismicity. Having this knowledge is really important.

“Also what you do need is a lot more computer skills, because these reservoirs are rather high investment and you want to really predict, to the best of your capabilities, their behaviour – and computer modelling is a big part of being able to do so.

“And from a safety and environmental awareness perspective – you need to have these really accurate computer models that help us to understand the flow in these reservoirs. This is a very important part in being able to establish trust with local communities.

Professor Regenauer-Lieb also has a clear message for the industry as it moves forward.

“In Australia, we need to develop a strategy so that all parties – government, industry and universities – are all collaborating to unveil this new energy form.

“There’s a lot of challenges ahead, particularly from a social point of view, so interaction with the people who are actually living near unconventional resources will be important.

“We need to take our time with this precious resource, and really put in a concerted effort to make sure we develop it right, from a scientific and social point of view.”

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INTERVIEW

SECURING GAS FOR VICTORIA

ROB ANNELLS ON MEETING THE CHALLENGE AMID REGULATORY UPHEAVAL

The Victorian Government currently has a moratorium in place on all onshore exploration while it investigates the potential impacts deep drilling and hydraulic fracturing will have on the environment.

Lakes Oil Chairman Rob Annells shares his thoughts on the wider implications the moratorium is having on Victoria.

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R

ob Annells has more than 30 years’ experience in the oil and gas industry, and in his role as the Chairman of Lakes Oil, he is overseeing the development of two significant resources in Victoria, located on opposite sides of the coast.

On the eastern side, the company has a wellestablished position in the Gippsland Basin, having spent more than ten years developing tight gas in the region, with a large accumulation leased close to Seaspray on the coast.

In the last twelve months, Lakes Oil has acquired approximately 500,000 acres covering the Otway Basin, and the area is believed to be highly prospective for tight gas.

Lakes Oil believes it has significant gas resources in place, which could assist local industrial customers who are currently struggling to secure gas sources at prices that will make their operations commercial. However with the current exploration moratorium in place in Victoria, the company is effectively in limbo, waiting for approval to be able to drill two conventional ‘proof-of-concept’ wells in the Otway Basin.

Assisting in the inquiry process The company has met with the Victorian Government, including the new Energy Minister Lily d’Ambrosio, to provide input and try and assist in the inquiry process.

“We’re the only ones that are doing anything, or trying to do anything in Victoria,” said Mr Annells. “Most other companies who were active in Victoria have simply voted with their cheque book and gone somewhere else.”

Mr Annells said that Ms d’Ambrosio is very understanding of the position Lakes Oil has found itself in, and very up to speed on the issues at play.

“However, the problem she and the Government have, is that they’ve inherited the previous government’s mess. The previous government instigated the ban on fraccing in coal seam gas exploration nearly three years ago, but their ban was so broad that it ultimately stopped fraccing of all kinds.

“I don’t think it was intended to be that way, but that’s what its effect was. Lakes Oil had been fraccing in the Gippsland region since 2004, so the ban brought that to a stop, and then in the leadup to the State election last year, the moratorium was extended to all onshore exploration.

“To ban conventional drilling in Victoria – it’s probably the only place in the whole world where conventional drilling is banned, it’s absolutely ridiculous.”

At a time when industrial manufacturers operating in Victoria, such as Australian Paper, have called for government intervention to help them adapt to the price increases they are facing for natural gas – or risk the closure or relocation of operations – it’s a decision that does seem to defy the State’s best interests.

The terms of reference for the Government’s inquiry have, at the

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“To ban conventional drilling in Victoria – it’s probably the only place in the whole world where conventional drilling is banned, it’s absolutely ridiculous.”

Lakes Oil Executive Chairman Rob Annells

time of printing, yet to be released. It’s currently uncertain whether the inquiry will also cover conventional drilling; but according to Mr Annells, “If they include conventional drilling in their inquiry, that will be a major mistake because the implications will be huge.

“We’ve got a large volume of gas ready to go into production – but at the moment we just can’t get going.”

Proof-of-concept wells With the inquiry having effectively shut down the company’s Gippsland Basin project, the company is currently focusing on its Otway Basin project, which has the potential to supply manufacturers in the area, such as Australian Paper, with competitively priced gas.

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INTERVIEW

Gas flaring at Wombat 2.

Offshore versus onshore “Many Australian explorers have rushed offshore because the volumes and the size of those offshore structures, particularly on the North West Shelf, are large,” said Mr Annells.

But with higher costs for recovering offshore gas options, Mr Annells said it’s time for the industry to look onshore, where gas can be recovered at much cheaper costs.

“You can spend $50 to $100 million dollars drilling a well offshore, depending on where you are. Onshore in the Otway we’re looking at spending $1.5 to $2 million to drill a well.

“We don’t have to recover anywhere near as much gas to make it commercial.”

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INTERVIEW

Lakes Oil’s Victorian permits map.

The company is moving ahead with seeking special permission from the Government to drill two conventional ‘proof-of-concept’ wells in the Otway Basin, which would allow the company to proceed with attempting to prove up the resource it believes it has in place.

“The leases we’ve acquired in the Otway Basin were originally drilled back in the 1960s, 70s and 80s. Some of those wells had very large columns of gas – a couple showed up to 2,000 metres of almost continuous gas. However they were never tested because there was no market for gas at that time, nor infrastructure in place to deliver the gas to market,” Mr Annells said.

“Since acquiring these leases, we’ve sent all the data for those 14 wells that were drilled to the US and had it assessed, which allows us to review the data in light of new technology and computer models that were not available when the wells were first drilled.

“We’re convinced that potentially we’re sitting on a very large amount of gas in western Victoria which is desperately needed in that region. Not only that, but we’ve got the port of Portland about 40 kilometres away, which is the best port on the south coast. So you’ve got what we believe to be a huge accumulation of gas very close to a major port, in which you could establish a new hub for industry.”

Mr Annells is imploring the Government to allow the company to drill its two proof-of-concept wells in the Otway Basin, so they can investigate whether the computer modelling and all the work that’s been done in the US is indeed factual.

“At this stage it reads well, and we hope it will produce well, but until you drill a couple of wells and test the recovery, it’s just paper.

All we’re asking is to drill two vertical wells, down to probably 2,000 metres, no fraccing, nothing fancy, just conventional wells.

Reservation: it’s not the answer Before the idea of domestic gas reservation could be raised in response to Victoria’s future supply issues, Mr Annells was quick to shut the concept down.

“I don’t believe in reservation, the answer to the problem is to increase the supply. We’ve got the perfect model in the United States, gas prices five years ago were $9 in the US. But because of what took place in the unconventional space, the values of gas increased substantially and the price dropped to $3.

“What we are seeing there is a rebirth of industry in towns that have been in the rust bucket for 20 years – and it’s all thanks to cheap energy.

“So you don’t need reservation, you just need more gas. That’s what brings the price down. Reservation is artificially controlling markets and it doesn’t solve anything,” said Mr Annells.

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INTERVIEW

Bringing gas to market Like many in the industry, Mr Annells is perplexed as to why the industry needs to be put on hold in Victoria for another inquiry into the potential environmental impacts of coal seam gas drilling and fraccing, given the number of inquiries that have already taken place both in Australia and around the world – all of which have concluded that any potential impacts associated with deep drilling and fraccing can be safely managed.

“In New Zealand for instance, they held their inquiry in 2012, and they’ve since given it the full tick. Now, they’re going full bore on gas exploration and development, and gas prices are dropping in New Zealand as a result,” said Mr Annells.

“Now in Australia, because of the gas export market that has been established out of Queensland, gas is being sucked up to Queensland, and we’re looking at shortages of gas in the south, and the price is certainly jumping.

“I would have thought a government should be looking at how they can increase the supply as quickly as possible – rather than making it more difficult to bring more supplies of gas to the market.”

“From these two wells, if we get the results that we hope we’ll get, we’d sit down with the Government and with stakeholders and the community to see how we can best develop what we believe to be a great new Victorian resource for everybody’s benefit.

“But to date, we haven’t met with any success with the Government, they’re hell bent on having their inquiry. Hopefully we can get there, but I really don’t know.”

The company believes that in the Otway Basin, it can recover gas from the Eumeralla Formation, which is a sandstone that gets tighter the deeper you go. At this stage Lakes Oil believes that at the top of the formation, there will be enough permeability and porosity to have commerciality without having to artificially stimulate the wells in any way.

“That’s essentially what the idea of the two proof-of-concept wells are. We’d drill the two wells and we’ll say yes, we can do this, or no we can’t,” Mr Annells said.

Managing community expectations The extent of Lakes Oil’s involvement in the Government’s inquiry process has extended all the way to the consultation program, which has involved travelling to local communities, meeting with stakeholders and discussing the potential impacts of the onshore gas industry – including any potential impacts associated with fraccing.

“We’ve been involved in the Government’s consultation program, both in the eastern part and the western part of the State, which was instigated by the previous government and continued by the current Government.

“What we’ve found is that at these meetings there’s a real cross-section of the community present. The farmers in attendance realise that there’s no danger to them or the community. The local Government there tend to be very concerned, as they should be, about unemployment, particularly youth unemployment, which in some towns is up to 20 per cent. That’s pretty serious stuff, and the development of gas resources has the potential to positively influence those figures.

“Then there are other individuals who really have made a decision regarding fraccing already, and they’re not going to change their

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minds. That’s okay, people are entitled to have their opinion, but our experience is showing us that we have a real issue in the communication of information, and indeed scientific fact, to some of the groups and individuals who oppose fraccing.

“We believe that the Government should be doing more. There should be more consultation on a bigger scale, and with more independent people involved. We need to have CSIRO involved in the communication process – they’ve got no vested interest, and people in the community respect them from a scientific point of view.

“Instead of spending money on inquiries, the Government would be better off spending the money on having community meetings explaining what’s going on.”

Where to now?

While the company waits for the terms of reference for the Government’s inquiry to be released, it is pushing ahead with its attempts to seek approval for the two Otway proof-of-concept wells. “The reasoning behind our requests to drill these wells is very strong. Only 30 kilometres from our planned well sites, Origin have been allowed to drill two wells and we believe they’re about to drill a third onshore down to about 1,000 metres and then go offshore from onshore,” said Mr Annells.

“There’s absolutely no difference in what they’re doing and what we want to do. The final target may be a bit different, but the drilling and the mechanics of it all are exactly the same. We believe we’ve been dealt with very unfairly – and that was the previous government, I might add – so we’re saying let us drill our two proof-of-concept wells, and if we’re successful with those two wells, we’ve got a great new Victorian resource.

“The other fact the Government needs to consider is that Victoria is going to be short of gas in two or three years’ time, and then the Government will be saying help, help, help. If we can do some of the early exploration now, at least we’ve got a better idea of where our potential resources are, and we can plan in the eventuality that the moratorium allows us to drill in the future.”

“Have your inquiry by all means, but please let us drill these two proof-of-concept wells.”

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TECHNICAL

Cracking

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TECHNICAL

the

by Dr Ray Johnson, Principal, Unconventional Reservoir Solutions

COD Unconventional reservoirs specialist Ray Johnson discusses some of the challenges involved in accessing and developing Australia’s unconventional resources, and provides insight into some of the strategies he is investigating to ‘crack the code’ and optimise production rates.

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W

ell stimulation in unconventional reservoirs is currently at the centre of a broad discussion of an overall process of creating an economic outcome from very low-permeability reservoirs. The well stimulation process includes the proper selection of fracturing fluids, stage/job placement, proppant selection, onsite job execution, post-frac clean-up and long-term production management, all enveloping that very important step of hydraulic fracturing design and modelling.

As it is an overall package involving designing, executing and then evaluating a number of dependent processes, it cannot be optimised by some singular out of the box model, or some optimal design strategy from an expert in some faraway setting. Unfortunately, optimising a successful unconventional well stimulation strategy or development plan for a new geological or geomechanical setting other than North America is a complex process and often underestimated.

In fact, making an unconventional development successful is part of an entire economic framework that supports the development to optimise production, based on maximising net present value by lowering the numbers and costs of wells over the life of the project.

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Armour Energy’s Egilabria 2 lateral well where stimulation operations are being performed on the ancient, Pre-Cambrian, Lawn Hill Shale in the Mt Isa SuperBasin in Queensland.

Already tests have demonstrated gas potential from these unconventional reservoirs.

Image courtesy Armour Energy.

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TECHNICAL Australian versus global unconventional resources For the most part, the US experience will be hard to duplicate outside North America’s unique economic and geomechanical environment. Until recently, development of an unconventional project in the US could begin anywhere, anytime and by anyone with ample capital to commence a drilling and fracturing program. With a hydraulic fracturing service provider no more than four hours from any North American unconventional location, and a landholder wanting you to drill as soon as possible and succeed beyond even the operator’s wildest expectations, is it any wonder than the whole process has succeeded as quickly as it has?

On the other side of the world here in Australia, we face numerous economic and logistical challenges including: lack of fit-for-purpose drilling or subsurface equipment, high costs of labour, limited selection or competition in service providers, and stakeholders that only perceive risk resulting from a project and only attribute any benefits from their hardships to the operating company or state.

Alternatively it has truly been a ‘land of opportunity’ in the US, where anyone with cash can bid on a potential tract of land, in a highly prospective area where: • Landholders immediately benefit from the cash bidding process along with lucrative long-term royalty schemes • Investors benefit from increasing value as their projects are proved successful, and then see their company being gobbled up by some international major • Entrepreneurs can bring new ideas to the process and become wealthy as a start-up service provider.

While the lowered price of oil has dampened the furore − fear not, it has been an ongoing process in the US oil and gas industry since Edwin L. Drake drilled the world’s first oil well in 1859.

Besides the overwhelming economic factors in favour of unconventional gas in North America, technically it is truly one of the best environments to pursue unconventional gas. Most of the unconventional gas being pursued in North America is deposited in basins with similar regional tectonics to their current state.

Many ‘rules-of-thumb’ employed in North America have technical merit based on their application in a relatively extensional regional stress framework, and create reproducible well behaviours in those areas in which they are used. Drilling a well, creating transverse fractures and producing

TECHNICAL

Numerical modelling results for a fracture initiation from an elliptical wellbore with natural fracture present at 30° from the maximum horizontal stress direction show potential complexities that can occur in such initiation conditions (After Johnson et al., APPEA Extended Abstract 140801-103, 2015 APPEA Journal).

a large stimulated reservoir volume with reasonable recovery is almost predictable for this normally stressed environment in which most wells are drilled. In fact, in some areas well orientation does not actually require optimisation to gain the benefit of this relaxed stress regime with conductive natural fractures.

Australia and many of our fellow continents that long ago made up the Gondwana supercontinent, are not so fortunate with our current stress regimes, since we broke up and went our separate ways. In fact most of us ended up in highly compressive stress regimes, trying to forge some mountain range like the Papua New Guinea Highlands Region or the Himalayas!

Not only were our reservoirs deposited and created in some ancient paleo stress regime, they have undergone numerous stress changes and are currently the end result of more recent compressional or transpressional stress regimes. In such unfortunate circumstances, is it any wonder that applying the North American solutions may feel a bit awkward and leave a less than desirable aftertaste here?

Making it work Down Under So where do we go from here? It is obvious that Australia will need to find new well completion strategies to reap the

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benefits of our truly vast unconventional resources in tight coals, tight gas sandstones, siltstones and shales.

We need to recognise our differences and not try to fit North American solutions to our current reservoirs. We need to recognise our geomechanical framework and gather the data we need in order to build effective placement models, forgoing North American assumptions and ‘rules-ofthumb’ in place of proper modelling and experimental trials.

We need to consider that longitudinal or oblique fractures and drilling close to the maximum horizontal stress direction may be the best we can get. It is foolish to keep drilling wells in the minimum horizontal stress direction, expecting a North American experience − this ain’t Kansas!

Finally, we need to recognise that our created stimulated reservoir volumes are going to be more stress sensitive than those created in North America and will require new ideas and proppant strategies to optimise productivity.

I am grateful to be a participant in several research projects at the University of Queensland, Centre for Coal Seam Gas, and University of Adelaide, Australian School of Petroleum on coal seam and shale gas resources. They and other universities are investigating projects

and presenting papers highlighting unconventional reservoir settings, strategies and stimulation concepts for Australian unconventional resources at the 2015 APPEA conference in Melbourne. All of them centre on finding unconventional solutions to our unconventional resources, whether they be in coals, shales, brecciated dolomites, or tight gas sandstones and siltstones of the Cooper Basin. With further research funding, data sharing and collaboration, our combined research and industry efforts can crack the codes, just as the US Gas Research Institute projects of the early 1990s did. I was a participant in many of those projects, and I have seen firsthand that these projects laid the foundation for many of the current strategies for North America.

It is only with that same cooperative industry spirit that we can progress solutions for our unconventional resources in a time in which they may appear to be economically disadvantaged to the rest of the world.

Companies can continue to go it alone; or they can collaborate on research and experimentation that can truly make Australia’s unconventional resources less unconventional.

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WATER MANAGEMENT

MANAGING CSG WATER:

extracting benefits from by-products

The challenge of managing the water that is a by-product of the coal seam gas production process has been a major consideration for all of the major CSG-LNG projects currently underway in Queensland. Together with SunWater, the QCLNG project has developed a unique solution which allows produced water to be put to use in the community.

I

n February, SunWater commissioned the Woleebee Creek to Glebe Weir Pipeline, which will transport up to 36,500 megalitres of treated coal seam gas water per year from the QCLNG project for beneficial use by industrial and agricultural industries.

Construction of the pipeline was completed in 2014, with the pipeline and pump station commissioned in late 2014.

Final interface commissioning was carried

out in early 2015 with QGC’s infrastructure and water treatment plant. Operation of the pipeline and the first supply of treated water commenced in February 2015. This water was pumped to Glebe Weir, boosting overall water supply to the Dawson Valley Water Supply Scheme (WSS).

SunWater Industrial Pipelines General Manager Tim Donaghy said the milestone was great news for local customers, and indeed for the coal seam gas industry.

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“This marks the beginning of beneficial use by irrigation and industrial customers from both the pipeline and the Dawson River,” Mr Donaghy said. “Water is extracted as part of the coal seam gas production process. It is treated to a high standard at QGC’s Woleebee Creek Water Treatment Plant using ultra-filtration and reverse osmosis, and is monitored by both QGC and SunWater to ensure it meets strict compliance requirements before it is

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released.

“The beneficial use of the treated water has been approved by the Department of Environment, and is reflected in the revised Fitzroy Basin Resource Operations Plan.

“The treated water, which is included as part of the scheme supply and announced allocations for the Upper Dawson sub-scheme, will be extracted by customers through their existing pumps and infrastructure, and measured through existing flow meters.”

Building the pipeline The Woleebee Creek to Glebe Weir Pipeline is located approximately halfway between the Queensland towns of Theodore and Miles. The town of Wandoan, on the Leichhardt Highway, was used as a central location during the construction of the pipeline.

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Features of the pipeline system include: • 150m of 1,400mm diameter mild steel cement lined (MSCL) suction main, connecting to QGC’s storage and outlet • The Woleebee Creek pump station adjacent to QGC’s storage • Approximately 120km of buried MSCL pipeline ranging in diameter from 914mm to 1067mm (typically using rubber ring spigot and socket jointing system) • A 5ML balancing storage located partway along the pipeline • Associated pipeline infrastructure, and pipeline outlet structure for discharge to Cockatoo Creek • 900m of 804mm diameter pipe connecting to the discharge structure.

Other major control structures and features along the pipeline include

standpipes, surge tanks, air valves, scour valves, isolating valves, control valves, flow meters, and customer offtakes.

The pump station houses five main pumps, though will typically operate in a three duty and two standby pump configuration.

The pump station will pump up to a maximum of 113ML per day, with the pipeline discharging up to a maximum of 100ML per day to Glebe Weir (both are approval limits, and noting customers may take supply from the pipeline before the remaining volume is discharged).

The pipeline operates as a pumped pressure pipeline up to the balancing storage, and then a gravity pipeline section to the outlet. Treated water is discharged from the outlet to Cockatoo Creek, approximately 600m upstream of SunWater’s Glebe Weir on the Dawson

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WATER MANAGEMENT

River.

Water stored at the weir is then released periodically, and used by customers downstream – predominantly irrigators – within the Dawson Valley WSS.

Delivering the water The pipeline has two types of customers: pipeline users who take water directly from the pipeline, and river users who take water stored in the Glebe Weir pond or water discharged from the weir and extracted from downstream weirs or the Dawson River.

Existing customers along the Dawson River within the Dawson Valley WSS – from Glebe Weir to the end of the Upper Dawson sub-scheme – who have medium priority (supplemented) allocations will

automatically receive the benefits of additional water added to the scheme.

These customers, typically irrigators, receive announced allocations throughout the year as a proportion of their annual maximum water entitlement volume, and in accordance with available water supply volumes and calculations provided in the Resource Operations Plan.

These calculations will take into account additional volumes to be made available to the scheme by the discharge of treated water from the pipeline, potentially improving both reliability and maximum entitlement volumes.

standard, utilising ultra-filtration and reverse osmosis, allowing SunWater to supply water for beneficial use and in accordance with its environmental approval conditions and stringent water quality requirements.

Water quality and the receiving environment is monitored at a number of locations to ensure ongoing compliance.

“We are committed to seeking innovative water supply solutions for our customers and are pleased to deliver this project,” concluded Mr Donaghy.

Extracting the benefits The water being supplied from the QCLNG project is treated to a very high

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CSG WATER researchers show water can be safely

re-injected

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WATER MANAGEMENT

The question of what to do with the water that is produced as a by-product of the extraction process remains a key environmental concern for coal seam gas (CSG). New research from the CSIRO suggests that there is very good potential for CSG water to be treated and re-injected into underground aquifers – turning an environmental challenge into a unique opportunity.

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T

he CSIRO study, CSG Water Injection Impacts: Modelling, Uncertainty and Risk Analysis, aimed to assess the risks of water quantity and quality changes resulting from a large-scale injection scheme proposed

by Australia Pacific LNG (APLNG) in the Surat Basin, Queensland.

The proposed scheme would inject 30-40 ML/day of reverse osmosis-treated CSG produced water into the Precipice sandstone at the Reedy Creek site in Surat Basin. Similar injection schemes are planned at other APLNG CSG production sites including Spring Gully, Condabri and Talinga.

Injection of the water produced from the coal seams into surrounding aquifers after reverse osmosis treatment is one of the most viable measures for its management. A key advantage of this approach, compared with other management options, is that a local benefit can be created for the Great Artesian Basin groundwater users.

APLNG’s proposed injection scheme would occur over a CSG development area of large spatial extent, potentially via a large number of wells. The extent of the scheme, combined with the large numbers of users and existing wells in the target aquifers, necessitated a comprehensive assessment of the risks of the injection scheme on a variety of potential risk receptors.

Methodology of the study The question the CSIRO study sought to answer was the effect that re-injecting treated CSG water would have on the quantity and quality of the groundwater already in the receiving aquifer.

The researchers involved with the project did this by building on existing computer models to develop a method of predicting the local and regional impacts on water quality and quantity.

Specific elements of the project included: • Multi-scale integrated groundwater modelling to predict groundwater head and quality changes in the precipice sandstone and other neighbouring aquifers as a result of injecting CSG-produced water at the operational scale.

• Developing an inversion-based upscaling approach, to efficiently upscale information from the well-scale injection trials, pump tests and tracer tests, and use this information to constrain regional scale groundwater models.

• Application of state-of-the-art uncertainty analysis techniques to quantify the prediction uncertainty in the simulated groundwater quality and head changes.

• Exploring the potential impacts of the presence of faults in the injection well field on the predicted groundwater quality changes.

• Exploring a hypothesis testing framework to test whether the occurrence of an undesirable level of water quality could be rejected with high confidence at a risk receptor.

• Investigating the relative worth of different data types and their spatial and temporal disposition to optimise injection trial

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The need for more information As the industry is subject to much public debate over the potential environmental impacts of CSG extraction, comprehensive assessment of the environmental impacts of any planned activity needs to be undertaken.

Such assessments are of direct or indirect relevance to all stakeholders including the community, regulatory decision-makers and CSG explorers and producers.

However, given the complexity of the problem and lack of sufficient information for subsurface characterisation, deterministic predictions of these potential impacts are not feasible.

Using a stochastic modelling framework to predict impacts has the advantage that they can be quantified probabilistically. Using such a probabilistic modelling framework enables the identification of impacts which are unlikely to occur and can be rejected with high confidence. The other impacts, which cannot be rejected, then require continued monitoring and early intervention with mitigation and other management activities.

In addition to the main objectives of quantifying the impacts of injection and the associated uncertainty, the project also explored stochastic modelling approaches for simulating the groundwater ages for different formations in the Surat Basin. Additionally, the utility of modelling-based approaches for the monitoring and management of injection impacts were also explored. This included development of methods to analyse the worth of future data collection to inform these predictions and optimise the injection well field designs.

design for other sites (specifically the Spring Gully site) as well as for the long-term monitoring of groundwater quality at the Reedy Creek site.

• Stochastic particle track analysis to determine the probability distribution of groundwater age in different formations in the study area.

• Developing a novel simulation-optimisation modelling approach for the stochastic optimisation of injection well field design and testing it by using a proof-of-concept case study.

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WATER MANAGEMENT

Weathercap relief valve protection.

The main purpose of the groundwater modelling undertaken in this project was to quantify the environmental impacts of large-scale CSG water injection schemes. The impacts of such large-scale injection may be felt over a large area in terms of groundwater pressure changes, yet near-well conditions and dilution processes cannot be ignored when considering water quality impacts.

• Eliminates valve malfunction by sealing out rain, sand, dust, insects and nesting birds • Sizes to fit 1/2” to 24” Sch40 discharge piping • Installed without tools • Indicates valve discharge • Reusable - Highly visible

Modelling of such large-scale groundwater injection schemes necessitated integration of groundwater monitoring information available in different spatial and temporal scales. This included upscaling of information from the well-scale injection trial and tracer tests to predict the regional impacts of operational scale injection.

The primary objective of this project was the development of an integrated modelling framework which is capable of doing this.

The results The key finding from the study is the fact that water quality changes resulting from the large scale injection, if any, are unlikely to propose a risk to receptors such as nearby domestic bores.

Water quality simulations indicated that dilutions would occur to very low concentrations (1/100th of initial concentration) over a distance of 5km from the injection well.

The model simulations also found that while the groundwater head would increase on a regional scale, the fluctuation in groundwater levels in nearby stock and domestic wells are expected to be minimal. The maximum simulated head increase in the nearest bore (which was 15km from the Reedy Creek injection well field) was 4.3m, a fluctuation within the range that usually occurs due to the natural unsteady state of the flow of the Surat Basin.

The increase in groundwater level means that availability of fresh water in the region is increased and can be drawn out over many decades.

In their findings the report authors note that while further investigation will be required, the results produced to date show encouraging signs for the potential for CSG water to be safely re-injected into existing aquifers.

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• Upstream gas skids • Offshore platforms • Petrochemical plants • Refineries

1/2” to 16” WeathercaPS in Stock for immediate deLivery auStraLia Wide auStraLian agent & StockiSt

Tel: (03) 9699 7355 www.pressureandsafetysystems.com.au

9277P&SS-uo&g2

For more information, or to download the report in full, visit www.gisera.org.au/publications.

IdeAl FoR use on:

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INTERVIEW

Driving an

unconve

boom Despite the recent boom in unconventional gas development in Australia – most notably in coal seam gas – shale gas and tight gas have yet to flourish here. While we know that extensive unconventional resources exist, and have witnessed the shale oil and gas revolution that is currently taking place in the US, industry stalwart Andy Lukas says several factors are holding the industry back from achieving its true potential.

The US experience The unconventional boom that has taken place in the US has been nothing short of phenomenal. In 2001, shale gas constituted only one per cent of gas production in the US. By 2010, this figure had increased to over 20 per cent, and the Energy Information Administration (EIA) has predicted that by 2035, more than 46 per cent of the US’s natural gas supply will be derived from shale gas.

The consequences of this development cannot be overstated. The price of gas in the US has dropped by more than 50 per cent, and over 800,000 new jobs have been directly created. In 2012 alone, the US completed 45,468 oil and gas wells (and brought online 28,354 of them), compared to only 3,921 wells completed in the rest of the world (excluding Canada).

The US went from being a net importer of natural gas to a net exporter, and became self-sufficient in oil production – a statistic that ten to 15 years ago would have seemed unlikely at best and virtually impossible at worst.

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With the availability of cheaper gas, many steelworks projects in the US could reopen, and the petrochemical industry became extremely competitive, with the US set to become the world’s biggest producer of polyethylene.

In summary, the shale boom completely transformed the US oil and gas industry.

Global flow on effects Given that similar resources exist in Europe, China and Australia (to name only a few), the obvious question to ask is – what is it about the US context that enabled the shale boom to occur?

According to Mr Lukas, there are several key contributing factors, the most significant being the existence of mineral rights in the US. In almost every country in the world, oil and gas are considered to be property of the Government, and the surface owner has no right to any mineral that may be present beneath their land.

In contrast, in the US, oil and gas rights extend vertically downward from

the property line, and unless explicitly separated by a deed, are owned by the surface landholder. Private individuals can buy, sell and transfer their oil and gas rights like any other piece of real estate.

Consequently, the discovery of oil or gas on private land is generally met with a positive response, and landholders are far less likely to obstruct the production process.

Further, the US has an established and respected culture of oilfield workers and expertise, with the necessary pipeline infrastructure and railways to transfer their product. The US also has the capital markets for oil and gas, and, importantly, has a regulatory regime which understands the industry. This stands in stark contrast to Australia, where regulations continue to impede progress in New South Wales and Queensland.

In summary: if Australia is to have its own shale gas boom, we must learn from the US experience.

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INTERVIEW

ntional who’s behind the wheel?

Potential shale basins in Australia (CSIRO).

Community attitudes will continue to play an ongoing role in the development of unconventional reserves in Australia. According to Mr Lukas, one of the critical differences in developing reserves in the US compared with developing reserves in Australia is the response landowners have to the discovery of gas on their land: In the US: “Great, they have discovered gas on my land!”

In Australia: “Oh no, they have discovered gas on my land!”

Because US landowners own the gas resource – they want development. It’s a different story in Australia, adding another layer of complexity to the development of reserves Down Under.

Australia’s reserves There is a huge amount of shale rock in Australia, and the total organic content (TOC) is greater than two per cent, meaning potentially very large volumes of oil and gas. Potential areas for unconventional oil and gas exploration have already been identified and some exploration has taken place.

Cooper Basin The Cooper Basin offers arguably the best unconventional resource outside of the US. The EIA estimates that there is 325Tcf (93Tcf recoverable) of gas in-place and 29 billion barrels (1.6 billion recoverable) of risked oil in-place. To put those numbers in perspective, 93Tcf is equivalent to 60 years of output from the

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QCLNG, GLNG, and APLNG projects. Given the size of the basin, there is considerable potential for the development of a significant gas pipeline gathering system.

Amadeus Basin Central Petroleum is active in the Amadeus Basin. While currently focused on proving 200PJ of conventional gas, MAY 2015 // ISSUE 1

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INTERVIEW

it is estimated that this is just the tip of the iceberg in this basin, with extensive unconventional reserves, with estimates in the order of 26Tcf.

Canning Superbasin Buru Energy owns the largest acreage in the Canning Superbasin and is in partnership with major international players Mitsubishi and Apache. There is significant oil and gas potential in conventional reservoirs, as well as multi-Tcf tight wet gas resources, which Buru is in the early stages of exploring. AJ Lucas also owns acreage in the basin and considers it prospective for shale gas, shale oil and tight gas. The EIA estimates the Canning Superbasin unconventional gas resources at about 229Tcf.

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Southern Georgina Basin The Southern Georgina Basin is an under explored area with excellent prospective acreage. It is composed of rich Cambrian source rocks with TOC greater than five per cent. Potential recoverable resources have been estimated at nine billion barrels in the ‘hot shale’.

Beetaloo Basin The Beetaloo Basin is relatively unexplored and has shale oil, shale gas and basin-centred gas accumulations potential. Eleven wells were drilled by Rio Tinto around 30 years ago, and Pangaea Resources is now exploring the area. Cores demonstrated the presence of tight oil and gas, and several horizons were shown to be prospective for unconventional oil and

gas. The oil resource is estimated to be between ten to 28 billion barrels.

There’s no time to waste Given the extensive shale resources already identified in Australia, there is no reason why we couldn’t have a gas revolution of our own. In order for this to happen, a large exploration program needs to be undertaken in order to find and identify the best resources to develop.

We also know that exploration will be more expensive than conventional exploration programs, given the depth at which the resources are located, and the effort that needs to be put into extracting the resources.

According to Mr Lukas, at present, Australia does not have the capital markets

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INTERVIEW

CSG versus Shale CSG

to pay for this exploration, nor does our strict regulatory regime encourage explorers and developers to move in.

If the Australian Government wants to benefit from its shale resources, then it must work together with both industry and landholders to foster a more developmentfriendly environment – and the sooner the better, particularly given the fact that China has significant unconventional resources of its own, with a potentially friendlier regulatory environment to explorers and much lower production costs to boot.

Determined entrepreneurs are needed, as are global and local markets for the reserves to be developed. If we have these ingredients, our huge shale volumes will lead to many new projects and a significant boom for the industry.

Shale

Gas is adsorbed to surface of coal particles and also in open space in cleats

Rich in clay and organic matter (Kerogen) – gas or oil is in rock matrix

Gas held in place by water or overburden pressure – flows when water is pumped

Heat converted Kerogen to oil and/ or gas

Coal seams are thin e.g. three metres Shale deposits very thick – up to 1,000 metres Good coal does not need hydraulic fraccing

Shale has no permeability and needs fraccing

Gas can flow easily

To fracture, shale must be brittle

Depth < 1,000 metres

Depth usually >2,000 metres

Small rigs can be used

Big rigs needed

Can be close to aquifers

Deep and remote from aquifers

Water is salty – disposal can be big problem

Not much water produced

Pumps needed to remove water

Pumping not needed

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ISSUES

SEPAR

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ISSUES

ATING

FACT FROM FICTION REPORT GIVES FRACCING THE

green light

Hydraulic fracturing in the Northern Territory has received significant public attention as the potential development of shale gas deposits is considered. The Northern Territory Government recently released the final report of its independent Inquiry into Hydraulic Fracturing in the Northern Territory, which concludes that the environmental risks associated with hydraulic fracturing can be managed effectively with a robust regulatory regime.

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O

riginally announced in February 2014 by the NT Minister for Lands, Planning and the Environment, Peter Chandler, the inquiry began in April 2014 and was conducted by Dr Allan Hawke AC. It aimed to separate myth from science to create an accurate picture of the risks associated with the fraccing process, to determine what steps should be taken to mitigate these risks and to make recommendations to the Government on appropriate regulatory regimes.

Investigating hydraulic fracturing Throughout the inquiry, Dr Hawke undertook a thorough investigation into the impacts of hydraulic fracturing for hydrocarbon deposits in the NT, consulting a number of experts, accepting public submissions, conducting site visits and public forums, desktop research and reviewing relevant reports.

The international reports considered were: • The New Zealand Parliamentary Commissioner for the Environment (Dr Jan Wright), Interim Report of November 2012, Evaluating the Environmental Impacts of Fracking in New Zealand; • Dr Wright’s Final Report in June 2014, Drilling for Oil and Gas in New Zealand: Environmental Oversight and Regulation; • The Council of Canadian Academies’ 2014 Report, Environmental Impacts of Shale Gas Extraction in Canada; • The Royal Society and the Royal Academy of Engineering, June 2012 Report, Shale Gas Extraction in the UK: a Review of Hydraulic Fracturing.

The Australian reports considered included the Australian Council of Learned Academies (ACOLA) review Engineering Energy: Unconventional Gas Production, and reports from state reviews and inquiries in NSW, QLD, SA, Victoria and WA. During the submission period, 263 submissions were received.

Areas of interest The inquiry’s terms of reference set out the following areas of particular focus:

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1.

Historical and proposed use of hydraulic fracturing (exploration, appraisal and production) of hydrocarbon deposits in the Northern Territory (number of wells, locations, timeline).

2. Environmental outcomes of each hydraulic fracturing activity for hydrocarbon resources in the Northern Territory (number of wells; frequency of types of known environmental impacts).

3. Frequency of types and causes of environmental impacts from hydraulic fracturing for hydrocarbon deposits in the Northern Territory and for similar deposits in other parts of the world.

4. The potential for multiple well pads to reduce or enhance the risks of environmental impacts.

5. The relationship between environmental outcomes of hydraulic fracturing of shale petroleum deposits with geology, hydrogeology and hydrology.

6. The potential for regional and area variations of the risk of environmental impacts from hydraulic fracturing in the Northern Territory.

7. Effective methods for mitigating potential environmental impacts before, during and after hydraulic fracturing with reference to: • The selection of sites for wells • Well design, construction, standards, control and operational safety and well integrity ratings • Water use • Chemical use • Disposal and treatment of wastewater and drilling muds • Fugitive emissions • Noise • Monitoring requirements • The use of single or multiple well pads • Rehabilitation and closure of wells (exploratory and production) including issues associated with corrosion and long term post closure • Site rehabilitation for areas where hydraulic fracturing activities have occurred.

ISSUES

The key findings of the inquiry Consistent with other Australian and international reviews, the inquiry concluded that the environmental risks associated with hydraulic fracturing can be managed effectively with a robust regulatory regime. The final report states that there “is no justification for the imposition of a moratorium of hydraulic fracturing in the Northern Territory”.

The report also contains more detailed findings on the key issues set out in the terms of reference.

Selection of well sites and use of single or multiple well pads The inquiry found that the environmental impact of individual well pads should be small, but the cumulative impact of extensive well development over a gas play could be significant. However, the use of multiple well pads is likely to reduce the environmental footprint of unconventional gas development.

The report suggests a number of reforms to help mitigate any issues. These include refinements to the current Project and Environment Plan assessment and approval process to allow a one-stop-shop for developers, while efficiently and transparently satisfying all legislative and regulatory requirements.

It also suggests the development of an effective framework for the strategic assessment of cumulative impacts of shale gas development, and working with industry to encourage the use of multiple well pads in order to reduce the environmental footprint of future shale gas development.

Well design and well integrity The report states that ensuring well integrity is a key aspect of reducing the risk of environmental contamination from unconventional gas extraction.

It concludes that “application of leading practice in well construction combined with rigorous integrity testing and effective regulatory oversight should result in a very low probability of well failure, but a groundwater monitoring regime that can detect contamination attributable to unconventional gas activities is also desirable.”

While concerns in the community regarding fraccing have been high, the report concludes that any environmental risks can be managed.

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ISSUES Among other recommendations, the report suggests that the NT Government consider developing a Code of Practice for shale gas wells.

Fracture propagation The inquiry found that “the risk of fracture propagation in deep gas shale formations allowing hydraulic fracturing fluid, methane or brine to contaminate overlying aquifers is very low”.

The report states that the risk can be further minimised by requiring leading practice in fracture operations, including fracture modelling and real-time and post-fracture monitoring, as well as the previously mentioned development of a Code of Practice.

The report also suggests collaboration with the Australian Government, research institutions and industry to research the stratigraphy, faults, stress distribution and deep hydrogeological processes in NT shale gas basins, which will inform development, regulation and monitoring of unconventional gas extraction.

Water use The inquiry states that the water requirements for drilling and hydraulic fracturing are small in the context of many other licensed water uses. However, they still need to be managed carefully to ensure sustainability at a local or catchment/aquifer scale.

The report suggests that “conflict with other water users can be reduced by the use of saline groundwater or recycled water where feasible”, and that water allocation to gas extraction activities is probably best done under the Water Act. Chemical use The inquiry found that chemicals used during fraccing generally pose a low environmental risk, providing that leading practice is applied to minimising surface spills and managing flowback water after fracturing.

The report states that public concern about chemical use could be reduced by a transparent, full disclosure policy.

Wastewater The report states that the wastewater management issues for fraccing are similar to many other mining and industrial processes. It recommends on-site treatment and recycling where possible, although the “use of re-injection for wastewater disposal will require further investigation to test whether it can be applied in Australia”.

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Fugitive emissions The inquiry states that “accurate monitoring of, and accounting for, fugitive emissions during unconventional gas production – including during well completion and following well closure – are critical to understanding life-cycle greenhouse gas emissions”.

It recommends the NT Government mandate the use of flaring as the minimum standard for managing fugitive emissions during well completion and work with industry and other Australian jurisdictions to promote the uptake of “green completion”.

The report states that the Government and industry should encourage and cooperate with studies seeking to improve atmospheric monitoring of fugitive methane emissions, including pre-development baseline measurements.

Noise The inquiry found that while noise is one of a number of “nuisance” impacts associated with unconventional gas extraction, noise impacts occur primarily for a limited time during drilling and fracturing, and may not be a significant factor in most remote locations. The report suggests that noise impacts can be controlled by the right regulation and/or best practice.

Monitoring requirements In regards to monitoring requirements, the inquiry found that “robust monitoring regimes will be crucial to the effective management and regulation of a developing unconventional gas industry in the NT, and that monitoring requirements in addition to those for standard regulatory compliance should be carefully considered”.

It suggests that the NT Government establish a multi-agency working group that will collaborate with industry to establish standards and protocols for key monitoring programs associated with the development of an unconventional gas industry in the NT, particularly relating to groundwater quality, hydraulic fracture performance, fugitive emissions, well abandonment and environmental indicators for cumulative regional impacts.

In order to allay community concerns, the report suggests that monitoring data should be collated in standard formats in a central data repository and be made publicly accessible along with accompanying analyses and interpretation.

Overall recommendations The final report lists a number of overall recommendations in order to pave the way for a best practice approach to

unconventional gas development, mitigate undesirable impacts, reduce community concerns and allow the development of a thriving unconventional gas industry while balancing the needs of other stakeholders.

The report states that “it is at the political level that the balance can be struck between promoting shale gas production, setting the environmental management parameters, facilitating land access and fostering the NT’s economic development”.

The inquiry recommends that the Government establish a Cabinet SubCommittee chaired by the Deputy Chief Minister and comprising the Ministers whose portfolios cover Lands, Planning and the Environment; Land Resource Management; Mines and Energy; and Primary Industry and Fisheries to oversee the creation a best practice regulatory regime.

The report’s other main recommendations are that the NT Government: • Restructure the NT Environmental Assessment Act in the light of the report and the proposed bilateral agreements with the Commonwealth on environmental assessments and approvals; • Consider aligning the petroleum and mineral royalty frameworks; • Propose through the COAG Standing Council on Energy and Resources that ACOLA host a workshop of international academies to consider their collective findings, learn from each other and identify the findings shared by all of the academies.

Where to now?

The Northern Territory Government has stated that it broadly accepts the recommendations from the report and that it is “committed to working with Territorians to develop a best-practice regulatory model that is in line with community expectations”.

In light of the report’s recommendations, Dr Hawke has been appointed to lead a review of the regulatory regime, including engaging with the community and stakeholders to develop a best practice framework for fraccing in the Northern Territory.

The report reaffirms the fact that any risks associated with fraccing can be effectively mitigated and that unconventional gas deposits can be developed in Australia while balancing the interests of other industries and stakeholders.

To view the full inquiry report and public submissions visit: www.hydraulicfracturinginquiry.nt.gov.au.

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ISSUES The main street of Chinchilla. Residents in Chinchilla see their community as adapting to changes more effectively than people in the other areas surveyed.

Dr Andrea Walton, Dr Rod McCrea and Dr Rosemary Leonard, CSIRO

LANDMARK REPORT

REVEALS MIXED VIEWS ON

COAL SEAM GAS

Managing community expectations, feelings and outcomes is an important part of any major development project. Here, CSIRO provides insight into the impact the three major CSG-LNG projects have had on rural Queensland communities in recent years; and provide suggestions for how major project developers can ease community concerns.

R

esidents in Queensland’s Western Downs Region have mixed feelings towards coal seam gas development taking place in their midst, according to a CSIRO survey conducted at the peak of the construction phase in February 2014.

More than two-thirds of locals described themselves as ‘tolerating’ or ‘accepting’ CSG, while only 22 per cent had openly

positive attitudes. However, just nine per cent of survey respondents rejected the industry outright.

Around half of the surveyed residents felt that their community was struggling to adapt to changes. Residents were also less optimistic about the future, with many predicting a decline in community wellbeing over the coming years; 50 per cent expect their wellbeing to be less in three years, 41 per cent expect it to stay

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the same, and nine per cent expect it to improve.

Digging deeper into people’s attitudes on CSG The report is part of a three year project that looks at how CSG activities impact on a community’s wellbeing and functioning. The report draws on a survey of a representative sample of 400 residents living in and around the towns MAY 2015 // ISSUE 1

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ISSUES

Percentage of participants

50 45

Dalby

40

Chinchilla

35

Miles Tara

30 25 20 15 10 5 0 Reject

Tolerate

Accept

Approve

Embrace

Attitude towards CSG Figure 1. Attitudes towards CSG in the Western Downs Region by sub-regions.

CSIRO asked people about their attitudes to CSG, as well as their opinions on the wellbeing and resilience of their communities in the face of both opportunities and challenges associated with rapid CSG development.

Opportunities included increased employment and business, new services and new facilities, and a more vibrant community, whereas the challenges included water and land management, traffic conditions and safety, and affordable housing.

There were mixed feelings towards CSG development in the region, with 69 per cent saying they either ‘tolerate’ or ‘accept’ it. A minority (22 per cent) ‘approve’ or ‘embrace’, while a smaller minority (nine per cent) of respondents ‘reject’ it, see Figure 1.

Although these results indicate that attitudes to CSG are not strongly polarised in these communities, it is clear that some community members are strongly opposed to it.

Also, in response to questions about how residents felt their community was dealing with CSG development in their region, about 50 per cent felt that their community was struggling to adapt to the changes – either resisting, not coping, or only just coping with CSG development, as shown in Figure 2.

Other results show that more positive attitudes to CSG are associated with community perceptions of being resilient; the environment being managed well for the future; good

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employment and business opportunities; higher levels of trust; and resource companies, government, and business working effectively with residents to deal with changes.

Differences across the region Residents in Chinchilla see their community as adapting to changes more effectively than people in the other areas surveyed. This may reflect perceptions that Chinchilla has better employment and business opportunities than places like Dalby and Tara, where respondents were more likely to find these opportunities unsatisfactory.

People who lived out of town reported lower levels of social interaction, services and facilities, employment and business opportunities, and overall community wellbeing than in-town residents. Although this may reflect differences in rural and town life, those living out of town also had less favourable attitudes toward CSG and lower expectations of future community wellbeing.

Nevertheless, the overall average of community wellbeing across the whole survey was rated at 3.8 out of 5, which is robust, and higher than many other Queensland regions when compared to similar items surveyed in a previous study.

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ISSUES

Dalby

Percentage of participants

60

Chinchilla Miles

50

Tara 40

Out of town In town

30 20 10

Resisting

Not coping

Only just coping Adapting to the changes

Changing to something different but better

Figure 2. Perceptions of community responses to CSG development in the Western Downs Region (percentages).

Improving the situation The survey offers a snapshot of how people in Queensland’s Western Downs Region are feeling about the changes happening to their communities, and could form a basis for future strategies to support them.

The results suggest that investments made in wellbeing could lead to a more optimistic outlook for the future. In particular, three key areas of community dissatisfaction are: • Road infrastructure • Community participation in decision-making • Long-term environmental management.

However, the CSIRO also found that while improving these things would benefit communities, these are not the most important factors underlying overall community wellbeing. The things rated as most important were services and facilities, community spirit and cohesion, a socially interactive community, personal safety, and environmental quality.

More optimistic outlooks for community wellbeing are associated with community resilience; especially good working relationships between groups, planning and leadership, supporting volunteers, and having access to information. Targeted investments are important but need to be combined with good collaboration across state and local government, CSG companies, and local communities to enhance future community wellbeing.

The Western Downs Region is now moving from the construction to the production phase of CSG extraction, and it would be

The survey offers a snapshot of how people in Queensland’s Western Downs Region are feeling about the changes happening to their communities, and could form a basis for future strategies to support them. useful to rerun this survey to compare community wellbeing and resilience in the region over time. Given that Queensland is more advanced than any other state in terms of CSG production, such studies might also offer lessons for other regions of Australia that are facing the issue of CSG development, either now or in the future of Chinchilla, Dalby, Miles and Tara, all of which are experiencing varying stages of CSG development.

This project is part of a suite of social and environmental research programs funded by the Gas Industry Social & Environmental Research Alliance (GISERA). GISERA is a collaborative vehicle established to undertake publicly reported independent research addressing the socio-economic and environmental impacts of Australia’s natural gas industries.

The governance structure for GISERA is designed to provide for and protect research independence and transparency of funded research. Visit the GISERA website (www.gisera.org.au) for more information about GISERA’s governance structure, funded projects and research findings.

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TRAINING

BUILDING LINKS,

FOSTERING GROWTH

The South Australian Mining Industry Participation Office recently facilitated a study tour to the US, providing South Australian companies with opportunities to witness and learn from established oil and gas industry supply chains in place in Texas and Pennsylvania.

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TRAINING

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TRAINING

T

he Mining Industry Participation Office (MIPO) was established in 2013 to develop South Australian mineral and energy supply chains. Together with the Industry Capability Network (ICN) and PACE Manufacturing, it forms the Industry Participation Office of South Australia’s Department of State Development.

Since its establishment, MIPO has led two delegations to the US, established the Oil and Gas Supplier Forum and facilitated the establishment of the Onshore Petroleum Centre of Excellence training facility at Tonsley in Adelaide. This is in addition to its role in the development of the minerals supply chain.

Learning from the best After a successful Unconventional Gas Supplier Study Tour in January/ February 2014 to Houston, in February this year MIPO once again led an Oil and Gas Supplier Study Tour to the US for South Australian companies to gain a better understanding of the opportunities offered by the oil and gas industry for their businesses. The tour provided South Australian suppliers who have an aspiration of either growing or establishing a revenue stream from the petroleum sector a unique insight into established petroleum supply

chains. Participants saw a significant portion of the supply chain – including site visits to manufacturing facilities and well sites across Texas and Pennsylvania.

Last year’s study tour has already benefited local business capabilities, including new standover rig services, proppant testing facilities, guar growing trials and the establishment of valuable engineering network ties into the US market.

The feedback from the participants in this year’s study tour has been overwhelmingly positive.

“I have eight leads to follow up that may lead to future business, new capabilities and global partnerships. There were several other insights that I will share with other South Australian SMEs that would benefit their business,” said Mark Fusco of Advanced Focus.

David Heaslip of Century Group said “Overall it was a very well run tour and the mix of organisations and events was very good. It is probably the most informative tour I have been on.”

Andrew Downs of SAGE Automation added “This study tour delivered fantastic insights into the oil and shale gas supply chain, as well as direct access to operating fields and work sites. This is something we could not have done on our own.”

“My personal goal was to get a better

understanding of the market here in order to expand our presence in North America,” said Michelle Kyle of SRA. “My overall goal is to help my Adelaide office leverage our experience here to expand their presence in South Australian unconventionals. I made several significant contacts which I will continue to network with.”

Tim Reynolds of Fyfe noted “Overall the tour provided valuable insights into the shale oil and gas industry in Texas and Pennsylvania (and to a certain extent the whole of the US) and provided us with potential collaboration opportunities to broaden our client base.”

Oil and Gas Supplier Forum The Oil and Gas Supplier Forum was established under the Roundtable for Oil and Gas Projects in South Australia.

The Forum assists in developing South Australian capability in the oil and gas supply chain, and driving down the cost curve for the development of oil and gas resources by educating suppliers about the oil and gas industry, providing information on opportunities for South Australian businesses to invest in, connecting them with oil and gas operators and assisting suppliers to diversify into this sector.

The inaugural meeting of the Oil and Gas Supplier Forum was held on 22 October 2014 with around 250 attendees,

Students at the Onshore Petroleum Centre of Excellence training facility.

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TRAINING in conjunction with the Roundtable meeting on 23 October, and featured a range of speakers and networking opportunities.

Attendees represented local, national and international businesses in the oil and gas supply chain.

The agenda included ‘Oil and Gas 101’

by Professor John Kaldi of the University of Adelaide, an overview of the supply chain, project updates by Santos and BP, opportunities in the US supply chain, programs offered by the Department of State Development and Austrade, and panel discussions on drilling, completions and supplying to oil and gas exploration and production (E&P) companies. Panellists and presenters included all the major South Australian E&P companies and many of the major Tier 1 suppliers.

Like the Study Tour attendees, Supplier Forum attendees have a positive view on how the experience is helping them to grow their business.

Andrew Morris of ExoDrill Inspection Services said “Thank you for the invitation to be included in the Oil and Gas Supplier Forum. I was able to make some great industry connections and meet with the key government people for potential support as we continue to grow our services here in South Australia.”

Sergei Ostashkevich of ULX110 custom blend oils added “I found the event to be an excellent platform for enabling business to business networking. I met other business owners and representatives with similar mindsets who were keen to understand what other businesses can offer them. The event provided a relaxed and open environment for attendees to easily approach and introduce each other and commence relationship building. I was able to start a dialogue with five businesses which I would otherwise probably have been unable to.”

Simon Hornsey of Allied Solutions Workplace Safety Products said “The forum was professionally organised and run, and I believe these forums are one of the best ways to enlist industry interest and involvement. It is critical that South Australia as a state is unitedly concerned to promote the opportunities that we have at our door, and these forums provide that intelligence and opportunity.”

MIPO’s 2015 study tour group in front of Schlumberger’s training drilling rig.

Onshore Petroleum Centre of Excellence Santos, Beach Energy and Senex Energy have collaborated with the South Australian Government and TAFE SA to establish a hub for onshore oil and gas training in Adelaide. The training facility provides a fully immersive simulated oil and gas production environment, as well as static equipment displays for demonstration and educational purposes. It is used for technical training, including safety, environmental and sustainable operational principles and key maintenance activities.

The simulated production environment includes different pump types, gas compressors, a pig launcher and receiver, gas metering skid, field separator and small tanks, as well as associated pressure safety valves, flow valves and other instrumentation. Water is used to simulate oil and air to simulate gas flow.

The static equipment display includes various valve types, flanges and a well head. Santos, as operator of the SA Cooper Basin Joint Venture (of which

Beach Energy is a member), has committed significant oil and gas production and mechanical equipment, engineering design, transportation and installation of the equipment in the training facility.

The State Government, Senex Energy and Beach Energy have committed funding for fit-out, capital works and the running of the facility for the first two years.

Industry partners Ottoway Engineering, Logicamms, MRC, Bureau Veritas, Transfield Services, GPA Engineering, Inductabend, Whitham Media Australia, Toll Energy, Fyfe Engineering, Centralian Controls, Max Cranes, James Walker Australia, ICE Engineering & Construction, Konnect, Veolia Environmental Services, Toyota Australia, Coventry Fasteners and Central Diesel along with other industry partners, have provided their expertise and services to support the initiative. Pilot training was undertaken in the fourth quarter of 2014 and the training facility was officially opened on 16 February 2015.

For more information about what the Mining Industry Participation Office is doing to assist local businesses enter or increase their involvement in the oil, gas and mineral supply chains, visit www.dmitre.sa.gov.au or contact Bettina Venner, Energy Industry Supply Chain Specialist at bettina.venner@sa.gov.au or 08 8303 2175.

To find out about future events supporting local participation in the oil and gas industry, or to join the Oil and Gas Supplier Forum and the Roundtable for Oil and Gas Projects in South Australia, submit your contact details to DSD.petroleum@sa.gov.au.

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SPOTLIGHT ON

COOPER BASIN

Key Statistics Unconventional resources

Shale gas, shale oil, tight gas, tight oil Prospective resources

325Tcf of shale gas, 29 billion bbl shale oil (EIA, 2013) Tight gas and oil yet to be formally assessed Risked recoverable amount

93Tcf of shale gas, 1.6 billion bbls shale oil (EIA, 2013) Tight gas and oil yet to be formally assessed Cooper

Main troughs

Nappamerri, Patchawarra and Tenappera Key active companies

Santos, Drillsearch, Beach Energy, Origin Energy, Senex, Strike Key successful wells

Hornet-1 tight gas well (Senex), Moomba-191 and Moomba-194 shale wells (Santos)

Unconventional gas in the Cooper Basin The Cooper Basin spans 130,000 square kilometres across north-east South Australia and south-west Queensland. It is Australia’s most mature conventional onshore gas and oil production region and has also shown significant unconventional potential.

Three main deep troughs in the region have the greatest unconventional oil and gas potential – Nappamerri, Patchawarra (including the Arrabury Trough) and Tenappera.

The region has particular promise for shale gas development. According to the US Energy Information Administration (EIA), the region contains an estimated

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325Tcf of shale gas in-place (including gas associated with shale oil), with 93Tcf risked and technically recoverable.

It is estimated that the Cooper Basin also contains around 29 billion barrels of risked shale oil in-place, with a risked, technically recoverable resource of 1.6 billion barrels.

The Cooper Basin is also thought to contain one of the largest tight gas resources in Australia. For example, there is an estimated 300Tcf of tight gas in the Beach Energy owned and operated PEL218 alone.

Unconventional activity in the region Exploration and evaluation activities are already underway within the Cooper Basin.

Various companies including Beach Energy, Senex, Drillsearch, Strike Energy, Santos and a number of joint ventures are undertaking shale and tight gas and oil exploration and evaluation programs.

Some of the larger exploration programs underway include the South Australian Cooper Basin Joint Venture exploration program (Santos 66.6 per cent and operator, Beach 20.21 per cent and Origin Energy 13.19 per cent) and Beach Energy’s Nappamerri Trough Natural Gas project.

Chevron was also formerly involved in the Nappamerri project, but decided not to continue to the second stage of this project in March 2015.

Drillsearch operates primarily within the

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SPOTLIGHT ON

In the first of a series of regular profiles on Australian geological basins, here we take a look at the Cooper Basin, the massive resource that has been supplying Australia with oil and gas for more than 40 years. With significant unconventional discoveries in the area also, the basin’s importance to the Australian energy landscape looks set to continue for many years to come.

Cooper Basin and is focusing most of its unconventional exploration activities on the Central Cooper Basin area (including the Nappamerri and Patchawarra troughs) and in the Western Cooper Basin Unconventional Gas Fairway. It has also recently acquired more acreage in the northern Patchawarra Trough with the acquisition of Ambassador Oil and Gas in late 2014. The company’s joint venture with Santos and Beach Petroleum has made a number of recent unconventional discoveries in the Patchawarra Trough, with four of eight wells drilled over March 2015 showing unconventional potential.

Over the coming financial year, Drillsearch intends to drill a dedicated, unconventional exploration well in the PEL570 area and between two to five in the PEL101 area.

Senex has acreage in the North, West and South Cooper Basin. In 2014, Senex announced two farm-out agreements with Origin Energy for unconventional gas exploration in the Cooper Basin. The up to $252 million work program will take part in two stages and focus on the potential shale and tight gas resources in the Patchawarra and Allunga troughs. Drilling is expected to commence in late 2015.

Senex is also specifically targeting tight gas within their existing portfolio and the Hornet-1 gas well is in pre-commissioning ahead of first gas sales. The company is also undertaking exploration for tight oil in the Cooper Basin.

Strike Energy is also exploring and evaluating the potential of shale gas and oil and deep coal seam gas in the basin.

In 2012, Santos announced the start of production at the Moomba-191 shale well as part of its Cooper Basin unconventional program. In late 2013, a second shale gas well, Moomba-194, began flowing gas.

The company also recently farmed in to PEL570 in the Patchawarra Trough with New Standard Energy and Magnum Hunter Resources.

Commercial viability The Cooper Basin is widely considered to be the most attractive prospect for unconventional gas development in Australia. It is currently the basin where the most exploration and development activities have taken place.

CSIRO states that the Cooper Basin stands out as the most prospective and commercially viable region for shale and/ or tight gas development in Australia due to the presence of already existing infrastructure that can be leveraged to incorporate unconventional gas sources into the network. Production facilities and an extensive pipeline network are already in place, supplying gas to SA, NSW, Queensland and Victoria.

The Cooper Basin already has service industry that is capable of the well drilling and hydraulic fracturing required to develop its prospective unconventional oil

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and gas reservoirs. The results from vertical production test wells for shale gas have been largely encouraging.

The prospective areas within the Cooper Basin’s three main troughs are large, thermally mature and over-pressured – making them favourable for efficient shale gas and oil gas recovery. Most of the Nappamerri, Tenappera and Patchawarra troughs appear depth-prospective for shale gas development and relatively little faulting occurs within them.

Some areas within the Cooper Basin are less favourable for efficient oil and gas recovery due to higher clay content making the shale response to stimulation less predictable, more complex geology and higher carbon dioxide volumes (mostly in deeper troughs).

The Cooper Basin is the location for much of the unconventional gas and oil activity in Australia, especially in regards to the shale and tight gas and oil resources that have not yet been commercialised in the country. With industry players undertaking projects intended to rapidly commercialise unconventional oil and gas plays in their existing acreages, we are likely to see much more unconventional activity in the Cooper Basin throughout the coming years. It is probable that the Cooper Basin will see the first large-scale integration of shale gas into the gas network.

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QCLNG: THE WORLD’S FIRST

SPOTLIGHT ON

CSG-LNG PROJECT COMES ONLINE

Queensland Curtis LNG, the world’s first dedicated coal seam gas to liquefied natural gas project, loaded its first cargo for export in late 2014. This project has paved the way for a number of other CSG-LNG projects, representing a paradigm shift in the way Australia, and the world, looks at the opportunities presented by CSG and other unconventional gas sources.

A world first project Announced in 2008, the world first QCLNG project began construction in 2010 and is one of Australia’s largest capital infrastructure projects, receiving approximately $US20.4 billion of investment from 2010-14.

The project was made possible thanks to significant overseas interest, with project owner QGC securing LNG sales agreements for over eight million tonnes a year with the China National Offshore Oil Corporation (CNOOC), Tokyo Gas, GNL Chile, Chubu Electric and the Energy

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Market Authority of Singapore.

Construction of the infrastructure associated with the QCLNG project is a massive undertaking, involving a number of integrated elements to develop Queensland’s gas supply and enhance its export potential.

The QCLNG project primarily involves: • Expanding QGC’s existing natural gas production capacity in the Surat Basin of southern Queensland by drilling 2,000+ new wells and constructing 21 new upstream processing facilities; • Building a 540km buried natural gas

pipeline network linking the gas fields in the Surat Basin to Gladstone; • Construction of an LNG plant on Curtis Island near Gladstone, comprising two processing units, known as trains, with the potential for the construction of a third train.

The project’s Curtis Island LNG plant shipped its first cargo for export in December 2014 on the Methane Rita Andrea, with the second cargo following soon after.

While the gas processed at the LNG plant is being exported to meet the

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SPOTLIGHT ON

The Methane Rita Andrea, which shipped the first cargo from the project.

demands of rapidly growing Asian LNG markets, the fields developed as part of the upstream component of the project also supply large amounts of gas to the domestic market.

Construction of the next stage of the project is underway, with start-up of the second train scheduled for the third quarter of 2015. After seven years of development, the project is expected to reach plateau production in 2016 when it will have an output of around 8.5 million tonnes of LNG a year.

Developing a massive resource Queensland has vast CSG resources, the majority of which are located in the Bowen and Surat basins. Exploration for CSG began in Queensland in 1976 in the Bowen Basin, with commercial production beginning in 1996.

Around 90 per cent of Queensland’s gas needs are currently supplied by CSG. Now, the first shipment of LNG from QCLNG has demonstrated the massive potential of the state’s unconventional gas resources to also supply export markets.

The Surat Basin incorporates over 270,000

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square kilometres, around two-thirds of which are in Queensland, with the remainder located in New South Wales. Gas produced for the QCLNG project will be drawn from parts of the basin in Queensland.

The Queensland sections of the Surat Basin are estimated to contain proved and probable CSG reserves of around 31Tcf, while the Bowen Basin is estimated to contain 2P reserves of 8.7Tcf. This brings Queensland’s 2P CSG reserves to a total approximately 39.7Tcf (Queensland Department of Natural Resources and Mines, 2014).

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SPOTLIGHT ON The transmission pipeline during construction.

Paving the way In order for natural gas to be efficiently and safely transported over large distances for export, it must be liquefied, causing it to reduce to 1/600th of its original volume. This requires the gas to be cooled to -161°C. Once this process is completed it must be stored in specialised storage tanks then loaded onto a specialised LNG vessel.

The QCLNG project was the first project to achieve this process using gas from coal seams. Now two other large CSG-LNG projects are underway in Queensland.

The Australia Pacific LNG project (APLNG) will supply gas to both QLD domestic markets and for export. This project is currently the largest coal seam gas producer in Australia and has passed a significant milestone with the arrival of first gas from the Surat Basin to its LNG facility on Curtis Island in February 2015. This project is a joint venture between Origin (37.5 per cent), ConocoPhillips (37.5 per cent) and Sinopec (25 per cent).

The Santos GLNG project is also being developed to convert CSG from the Bowen and Surat Basins to LNG. This $US18.5 billion project is a joint venture between Santos, PETRONAS, Total and KOGAS. The process of commissioning the LNG plant on Curtis Island is underway and the project is on track to deliver its first LNG cargo in 2015. At plateau production it is expected to produce 7.8 million tonnes of LNG each year.

At a time when gas demand is growing worldwide, these projects have demonstrated the potential of innovative unconventional gas projects within Australia to supply gas on a global scale and have attracted significant international attention.

Queensland CSG production from the Surat Basin has increased dramatically over the last decade, from none in 2003/2004 up to 0.157Tcf in 2013/2014, making it the highest producing basin in the state.

Local and global benefits LNG is already one of Australia’s key exports. In 2013-14 alone, exports of 24 million tonnes brought in $16.4 billion in export revenue. Global demand for LNG continues to rise and many countries that require natural gas do not have their own indigenous sources to develop. According to QGC, it is estimated that by 2025, the global LNG market will require around 120 million tonnes per annum (mtpa) of new supply in order to meet demand.

This represents a prime opportunity for Australia to secure significant gas sales by developing our largely untapped unconventional gas resources through projects like QCLNG. The benefits of this development are already being realised, with the QCLNG project expected to generate an increase in Queensland’s gross state product of up to $32 billion in the project’s first decade to 2021.

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CSG development also helps secure an abundant, lower emission energy source for the domestic market. Extracting more gas from unconventional sources such as coal seams will boost gas production and further unconventional development can help balance the needs of local and export markets; offsetting domestic gas price rises caused by increasing LNG exports. This means that Australia can continue to enjoy this cheap and efficient source of energy without sacrificing the huge economic benefits associated with exports.

A project of global interest The QCLNG project highlights the vast potential of Australian CSG, and has attracted interest from large multinational industry players looking to increase their supply. As a result, a number of significant acquisitions have recently taken place or are in progress, with more expected to occur in the future for other gas assets.

In 2014, APA Group purchased the 543km QCLNG transmission pipeline, which connects the CSG fields to the LNG facility, from BG Group (owner of QGC) for $US5 billion. At the time of the offer the pipeline’s book value was $US1.6 billion.

The purchase was part of APA Group’s strategy to consolidate its position in the market as Australia’s largest owner of gas transmission infrastructure by increasing the footprint of its east coast grid. The pipeline was considered an attractive investment due to its complementary position to APA’s existing assets on the east coast and the opportunity it presented to “benefit from evolving dynamics in the market, with gas demand on the east coast expected to continue to increase over the coming years”.

APA was not the only industry player with an eye on the project. In April 2015, Royal Dutch Shell made a £47 billion offer to acquire BG Group and all its assets, including the QCLNG project.

The sale is expected to be completed shortly, subject to regulatory approval. The combined company will be the world’s third-largest gas producer and be valued at around $387 billion.

The acquisition is consistent with Shell’s increasing focus on natural gas and its need to secure new sources as the production from many of its existing reserves begins to decline. The acquisition may be interpreted as a vote

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SPOTLIGHT ON

The LNG tanks at the Gladstone facility during construction.

of confidence in Australian unconventional gas development, as the QCLNG project is thought to be one of the key assets that catalysed Shell to make the offer, recognising the potential of Queensland’s CSG reserves as a source of LNG.

The future of QCLNG The QCLNG project is expected to deliver gas for decades to come. When the first two trains are fully operational they are expected to produce around 8.5 million tonnes of LNG each year. The plant will operate 24 hours a day and around 120 cargoes of approximately 140,000 cubic metres will depart from the plant each year.

The possible addition of a third train

would allow LNG production to increase to around 12 million tonnes a year. The QCLNG transmission pipeline has an expected 40-year asset lifetime.

Other developments in Australia’s gas market, such as the likely construction of the North East Gas Interconnector pipeline, which would connect Australia’s northern and eastern gas markets, may have significant implications for the project.

CSG extracted from the project’s infrastructure in the Surat Basin could be transferred to states with lower supply.

Alternatively, other unconventional gas fields across Australia could also one day supply gas to the LNG plant. In some cases, connections between other gas

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fields and the Gladstone plant already exist. For instance, if the large potential shale gas resources in the Cooper Basin are developed, existing transmission infrastructure means gas could be supplied to both the domestic market and to the LNG plant for export purposes, further extending the lifetime of the project.

QCLNG is the world’s first large-scale LNG project to be supplied by CSG. As the QCLNG project ramps up production, it can be viewed as a vital step towards the country’s future as an increasingly important gas exporter, supplied by vast, previously untapped, unconventional gas sources.

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