What is shale gas?

Shale gas is a type of unconventional natural gas that exists in some shale formations. Shale is a very fine-grained sedimentary rock that acts as both the source and reservoir for the natural gas. The gas itself is stored interstitially within pore spaces and or fractures in the rock and absorbed onto the organic components within the shale. Shale gas deposits are generally dispersed over large areas and require well stimulation or other extraction or conversion technology in order to extract the resource.

Increasing importance

Shale gas deposits were originally ignored as producers sought larger reserves with a higher resource concentration in order to maximise their investment returns. Throughout the 1980s, shale appraisal commenced but it wasn’t until the following two decades, through significant technological developments and improvements in the cost effectiveness of drilling, well stimulation and conversion, that shale gas become an increasingly viable and important source of natural gas. The emergence of shale gas as a competitive alternative has changed the international gas landscape, reducing the requirement for LNG imports to the USA and lowering the outlook for global LNG demand growth.

Current shale gas market

Approximately one third of all new gas discoveries in the United States are shale related. At present, shale gas comprises approximately 10% (2.0 TCF/year) of the daily consumption in the USA and is predicted to rise dramatically in the short term with some analysts predicting that shale gas will comprise as much as half of the total natural gas production in North America by 2020. It is unlikely that the USA will have a monopoly on the geology for commercial shale gas prospects and interest in the exploration and production of shale gas is beginning to spread beyond North America throughout Europe, Asia and Australia.

Shale gas extraction

The most critical requirement for economically exploiting shale gas reservoirs is the accurate determination of ‘gas in place’. Shale has low permeability, so gas production in commercial quantities requires fractures to provide permeability. Shale gas has been produced for years from shales with natural fractures. However, the shale gas boom in recent years has been due to the introduction of modern technology in hydraulic fracturing to create extensive artificial fractures around well bores. While older shale gas wells were typically vertical, more recent deposits are horizontal and require artificial stimulation to produce. Shale gas tends to cost more to produce than gas from conventional wells due to the expense of hydraulic fracturing and horizontal drilling.

Horizontal drilling

Horizontal drilling allows producers to drill horizontally beneath neighborhoods, schools and airports. For example, much of the gas in the largest producing deposit, the Barnett Shale in Texas, is beneath the city of Fort Worth. In addition to extended reach, horizontal drilling may increase production because a horizontal well exposes more rock (and therefore more fractures) to the wellbore because it is usually designed with the horizontal portion of the well in the productive formation.

Hydraulic fracturing

Hydraulic fracturing is conducted by pumping water into the well bore at a sufficient pressure to create a fracture in the surrounding rock formation down hole. This is crucial in low permeability rock, such as shale, as it exposes more of the formation to the well bore and greater volumes of gas can be produced by the increased surface area. Without hydraulic fracturing, many would not produce at an economically viable rate

Production Fast Facts

• Current recoverable resource estimates provides enough natural gas to supply the US for the next 90 years. Separate estimates of the shale gas resource extend this supply to 116 years.
• The Barnett Shale in Texas produces 6 percent of all natural gas produced in the Lower 48 states.
• Production of shale gas is expected to increase from a 2007 US total of 1.4 TCF to 4.8 TCF in 2020.
• Production levels today equate to 9 BCF/d (out of 55 BCF/d market).
• Halliburton conservatively estimates current recoverable reserves at 500 to 1,000 TCF.

Shale gas risk profile

While shale gas is generally more expensive to produce, the high cost is often offset by the low risk properties of shale gas wells. Conventional gas exploration is actually higher risk than shale gas because it requires numerous geological factors to coincide, for example the presence of a source rock with a seal and a permeable reservoir. In contrast, shale gas aims to produce gas directly from the source rock which are typically easier to find than conventional wells. Shale gas risk arises due to is low permeability and whether it can be extracted economically.

Shale gas vs. other forms of unconventional gas

Unconventional natural gas is generally termed unconventional because it is more difficult to extract, usually because the technology to reach it has not been developed fully, or is too expensive. However, unconventional natural gas deposits are beginning to make up an increasingly larger percent of the supply picture. Although usually much deeper underground, shale gas has advantages over other forms of unconventional gas such as coalbed methane because of the very large volumes of deposits due to good porosity and the extensive nature of shale. In comparison to coalbed methane, more gas is recoverable from shale gas wells and the land footprint is typically smaller.

Shale gas potential in WA

The gas market in WA is attractively placed when compared to the East Coast of Australia.  WA has a domestic gas demand that is outpacing supply and as a result the pricing for domestic gas is currently more attractive.  There are numerous large development  projects on the horizon in the minerals sector in both the Pilbara and the Mid West regions that will add to the energy demand with the state.  WA also has an open export market for LNG to Asia as has been evidenced with the sale of gas from Gorgon in recent times.  Infrastructure is being developed in the Kimberley region with large LNG plants planned for construction over the coming years.  As a result there are a number of potential markets for shale gas that can be delineated in the Kimberley region.