Gas Down Under

The things we at Oil and Gas Investor will do to cover a story—like flying into the windy and rainy remnants of a Pacific cyclone to gather intelligence on emerging onshore Australian unconventional resources. A lesson learned: check the weather before climbing into an airplane that will whisk you 8,000 miles from home base. Upon a buffeted landing in Brisbane, and honestly unaware, I queried the transfer bus driver—soaked after stowing my bags—“Having a bit of weather today?”

“Yeah, yeah, just a small typhoon. No worries, mate.”

While Brisbane, home to a number of Australian East Coast oil and gas companies, suffered minor flooding and power outages from Cyclone Oswald, nearby towns didn’t fare so well. Television news crews in full crisis mode covered submerged homes, floating vehicles and helicopter rescues. We along the U.S. Gulf Coast can relate. Not unexpectedly, the weather event washed out a full day’s slate of interviews with energy executives, and a photo shoot in the Surat Basin, where drilling activity is ramping up.

The temporary pause can’t stop the massive wave of natural gas production from unconventional resources building in Australia. The country has identified 392 trillion cubic feet (Tcf) of conventional gas resources, and another 631 Tcf of resource from unconventional sources such as coal-seam gas (coalbed methane to North Americans, CSG to Aussies) and, yes, shale too.

That’s a lot of potential gas, but it’s a big country. Yet its population is a mere 22 million, clustered around the edges and largely southeast. Domestic natural gas consumption is primarily from manufacturing and residential. Total gas production in 2011 was 788 million cubic feet (MMcf), of which 229 MMcf was from CSG, none from shale, according to the Australian Petroleum Production & Exploration Association.

That is about to change.

The catalyst supercharging the Australian gas market is construction of three, maybe four, LNG liquefaction plants being built literally side-by-side-by-side on the East Coast in Gladstone. Asian markets just north of here have a voracious appetite for gas. Australia already is home to three producing LNG facilities, but those process offshore gas from the west and north coasts with no cross-country pipeline to connect markets.

These new LNG projects are the first to rely on Australia’s vast onshore coalseam gas resources, primarily from the Surat and Bowen basins in the northeastern state of Queensland. This will expose the Australian eastern gas market to international export markets for the first time.

The Australian Department of Resources, Energy and Tourism estimates the country’s gas production will triple by 2020, and quadruple by 2035, as a result of these exports. “Around 70% of the world’s LNG capacity currently under construction is in Australia, and the benefits of those projects will continue for decades,” it said in 2012.

All three plants under construction will feature two trains, with sales commitments already in place for all capacity. The first facility, Queensland Curtis LNG (QCLNG), is owned by the Queensland Gas Co., a BG Group company, with an initial capacity of 8.5 metric tonnes per annum (Mtpa). The second, Gladstone LNG (GLNG), is a joint venture between Santos Ltd., Petronas, Kogas and Total with initial capacity of 3.9 Mtpa. The third is Australia Pacific LNG (APLNG), between Origin, ConocoPhillips and Sinopec, with 4.5 Mtpa initial capacity. A fourth, Arrow LNG, a Shell and PetroChina project, is still being considered. Three others are proposed.

First expected output is in 2014.

All of the principals in these multi-billion-dollar LNG projects have hedged their bets by securing upstream assets to supply the value chain. But local scuttlebutt is the upstream efforts in the CSG fields will fall short of meeting the initial demand, possibly starving out local markets and spiking prices. A full-scale effort is underway by other opportunistic E&Ps to appraise the shale opportunities to fill the expected void.

It is this burgeoning emerging market that has inspired Hart Energy to take its popular DUG series of conferences on unconventional resources to Australia August 27-29 in Brisbane. I’ll take a deeper dive into Australian unconventional opportunities in the April issue.

Australia is still 10 years behind the U.S. in developing unconventional resources, with vast geographic expanses and limited service capacity, but the trend is inevitable with so much resource at hand and, for the first time, an international market. Australia is next shale up. U.S. independents looking for an emerging play could find a lot of potential Down Under. No worries, mate.