Shale Gas to Play a Role in Australia's Energy Future
Executive Director of the Energy Division for South Australia, Vince Duffy, told about 60 delegates at the opening day of Shale Gas World Australia 2011 in Adelaide that his state has a strong future demand for gas, with good infrastructure in place to support the growth of natural gas.
Filling in for Minister for Energy South Australia, Michael O’Brien, Duffy said natural gas has been a very important part of South Australia’s development since Moomba Gas Field was commercialized, with assistance from the government that included building the Moomba to Adelaide pipeline.
“We achieve about 105PJ per annum in South Australia of which about 35 per cent of that is for domestic customers and the remaining part is for gas generation,” he said.
“When you look at the length of electricity capacity that’s available, it is predominantly driven by gas. So a large part of our consumption of natural gas is for electricity generation to feed electricity demand.”
Duffy noted the move to more wind power generation for South Australia to highlight the important role of natural gas in the future. “Wind is one of the big changes of the last decade,” he said.
“When the current government was elected in 2002, we had one non-operational wind turbine up at Coober Pedy. By the end of this year, we will have 1200 megawatts of wind capacity installed in South Australia alone.
“We are currently at 20 per cent and the government has set a new target to reach 33 per cent renewable energy production by 2020. So this is a substantial transformation of the electricity industry.”
Duffy pointed out that one of the unique characteristics of wind generation is its intermittent fuel supply. “So the capacity comes and goes with the wind,” he said.
“The average output over an annual period is about 35 per cent. It’s a substantial amount of energy but it is not able to be relied on at any point in time.
“I think the national market operator does the planning and has done some work on comparing when wind is available to meet demand, particularly during our hot summer period. They provide in their forecasting for planning purposes about a 3 per cent capacity factor available on very hot days – that’s the amount they take into account.
“To meet demand for electricity in those types of periods, we do need back-up generation. The characteristic of the investment profile going forward currently is that we are getting a substantial amount of wind investors in South Australia, and we are also getting a large amount of open cycle gas turbine.”
Duffy said it was important to recognize that South Australia had a big demand and a big supply problem now and for coming years. “Open cycle gas turbine is a low capital cost investment with a relatively high operating cost, but used infrequently is a very viable solution. So that means we have a strong demand for gas going forward,” he said.
Duffy also touched briefly on the transformational nature of the energy supply sector in Australia, noting the proposed federal carbon pricing was a great opportunity for the gas industry, as well as new gas markets. “The LNG market coming out of Gladstone is a key driver of demand going forward and we will see some transformation in those gas prices, which have been relatively low,” he said.
Duffy said Australia now had a fully integrated gas network in the eastern markets, providing opportunities for conventional gases to be developed close to pipelines without the need for further infrastructure investment, which then unlocked a world class resource that enables the LNG facilities to go forward. “So it looks very certain that the LNG facilities will be in place shortly, which will provide a long term demand for gas,” he said.
“A lot of the work we’ve seen has shown quite a suppressing on prices in the short term as all this land gas comes on line. So I think the dynamics of the market are quite spectacular going forward with this enormous demand coming from overseas, and I think there is a strong role for shale gas as a potential with the prices that are going to evolve out of the internationalizing our gas market.”
Duffy said that although it was in its early stages of development, shale gas provided an exciting resource with indications it may be able to be exploited.
Duffy also suggested delegates should check out the Bulletin Board on the Australia Energy Market Operator (AEMO) website. “You can see the actual capacity of the market of the transmission system and you can see flows on a daily basis,” he said. “So it’s all fully transparent and you can see what and how gas is flowing around the market.”
He also noted that the Primary Industries Department of South Australia had put together a gas roundtable for shale gas, hoping to solve some issues they had highlighted including making sure government provides opportunities for small players, as well as a framework for larger players.
Chair for the opening day’s proceedings was David Warner, a consultant for DSWPET Pty Ltd.
Warner got things started with the observation that Australia was in the early stages of shale gas. “We are certainly at the beginning of our journey,” he said.
“There are a lot of things that might be said about shale gas and you will hear a lot of people talk about shale gas. One of the things we have to all realize is that we are at the beginning of the journey here.
“It’s not going to be exactly the same as what happened in the US – this is my opinion -it’s going to be ‘Australianized’. So we are going to have to develop our own techniques and talk about our own rocks – really get our nose down in the geology driving the technology.”
Warner then highlighted the complexities associated with shale gas exploration. “Shale gas is the generic term and as you probably well know, shale gas morphs into things like shale oil and all sorts of things,” he said.
“So a lot of the people you hear talking today are not just talking about shale and they’re not just talking about gas. They are going to be talking about things that have lots of liquid in them.
“They are going to be talking about many different types of reservoirs and clay tops. The people in the Nappamerri Trough are not talking about the same rocks as the people in the Georgina Basin.”
Warner was upbeat about Australia’s potential. “My opinion is, we have very large onshore gas resources,” he said.
“This is the sort of opportunity that we do have in Australia. I think it’s a tremendous opportunity and despite some of the discussions…the markets are there.
“I think there is a really big opportunity for Australia to be one of the big producers of gas into the world markets at reasonable prices.”
Warner then noted there were challenges for the industry. “Will the technology that’s been used overseas work,” he asked. “I don’t think we should be in this position where we assume that’s going to be the case.”
Warner said government assistance was very important. “You have to maintain a healthy food chain,” he said. “The little guys are just as important in this game as the big guys.
“In fact you don’t get an industry - almost - if you don’t have both. So what do the little guys need? They need access to acreage. What do the big guys need? They need certainty. Government really does need to set the standard here.”
According to Warner, the issue of capacity was another challenge for the local industry. “I’m not sure how we are going to solve it,” he said.
“I was at a conference in Western Australia fairly recently. We went for two days talking about all the wonderful things that were going to happen in shale gas.
“Then on the last day, someone mentioned, and we happened to be in Western Australia, ‘how many rigs have you got there that are capable of doing these things?’ I think the conclusion was that we had one but it’s leaving.
“So here we have all this optimism and programs and people talking about doing things, but there wasn’t going to be a rig to do it with. I’m not sure how we solve this. I think it’s going to be one of our biggest issues and maybe we will hear more about that.”
Reported by Simon Trayhorn in Adelaide