Australia – The price of extraction
Due to Australia’s relatively small population, domestic demand for natural gas is limited, and the country produces natural gas for export in liquefied natural gas form. With limited pipelines, natural gas liquefaction plants or other infrastructure, shale gas development is in an early, immature state and its economic viability is uncertain. Further, Australia’s shale gas is often located in remote locations, making it even more expensive to commercialize. While a combination of foreign and local companies are exploring for shale gas plays in various locations, there is currently no commercial production of shale gas.
Many experts feel that significant production of shale gas in Australia is at least a decade away and will face challenges due to the following factors:
- Shale gas drilling costs
- Concerns over fracking
- Ability to compete with coal seam gas
Since most of Australia’s conventional shale gas is remotely located, its production may face less environmental opposition than operations in the more populated areas where coal seam gas is currently being developed.
For the Australian producers, the biggest issue involved with shale gas is the cost of extraction. Currently, there is not enough incentive for companies to invest significantly in shale gas. If conditions improve, the country is well positioned to develop export markets in countries such as Malaysia, Taiwan, Japan, Korea and China, especially as some of these countries seek to diversify their energy sources. Additionally, Australia has proposed to introduce a carbon pricing mechanism in 2012, which could ultimately create more demand for shale gas.
In short, if an Australian company were to find a big enough reserve in the right place to extract it and distribute it to market, then economies of scale could make shale gas production viable.
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China – Five-year strategic plan
In 2010, the Chinese government began to explore shale gas production. While there are no official statistics, it is estimated that China has over 1,275 trillion cubic feet of shale gas deposits. Shale gas could be China’s largest onshore source of energy, and the country is looking to develop this resource in order to decrease dependence on Russian and other foreign natural gas sources.
China’s latest five-year plan places great emphasis on the exploration of non-traditional/alternative energy sources, such as coal seam, petroleum gas and oil sands. China’s target is to fulfill most of its energy needs from alternative sources by 2020. (However see International Energy Outlook on facing page) As part of this strategy, China will enter into strategic partnerships with foreign companies in order to help China acquire the skills and technologies needed to develop and exploit its shale gas reserves.
Currently, under a joint venture between PetroChina and Shell Oil, 10-15 wells are in operation, producing about 2000 cubic meters daily. The venture started in the last quarter of 2010 and is situated in western China. In October 2011, production commenced in the Sichuan Basin.
China’s shale gas deposits are geographically different than those in the United States, and so it is uncertain if U.S. methods of retrieving the gas can be duplicated. While water is relatively abundant in the Sichuan province, it is also needed to support agriculture in the region, which supplies 7 percent of China’s rice, wheat and grains.5 China’s Ministry of Resources has invited some major oil and gas companies to pitch for shale gas exploration work, offering four licenses for exploration in western China. As shale gas production is in its infancy, there is no regulatory framework in place in China. China is pursuing joint ventures with foreign companies to help build up know-how in shale gas exploration and extraction, and it appears likely that the Chinese government will continue to promote and support shale gas development.
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