Date: May 16 2012
DEVELOPMENT of unconventional gas reserves in Australia is likely to follow the US model with a supply glut pushing gas prices back down towards the end of the decade, according to Santos managing director David Knox.
Mr Knox said the new drilling rigs that would tap shale and deep conventional gas reserves were already coming into Australia in anticipation of the rise in gas prices from 2015, as the Queensland coal seam gas-to-liquefied natural gas (LNG) projects come on stream.
He said low US gas prices of $US2 to $2.50/mmbtu were not sustainable over the long term.
When the Henry Hub gas price peaked above $US12/mmbtu in 2008, the number of rigs drilling shale gas wells in the US rose to 1600 and then, as supply increased and gas prices started to fall, ''the rig count also started to fall and it's followed it all the way down.
''North America is a different market to us, but it's a really fine example of what could, over the longer term, happen in Australia.''
The federal government this week released estimates that Australia had 390 trillion cubic feet of gas reserves and shale gas could double that resource.
Mr Knox said as Australian gas prices rose to export parity, ''you'll start to see the rig fleet being upgraded, and we'll unlock those gas reserves, and as we do that it could start to force down prices.
''We're already seeing a lot of new technology, new rigs coming in on the back of an expectation that prices are going to rise.''
Mr Knox said assuming Origin Energy approved a second train expansion of its Asia Pacific LNG project, he expected six trains would be approved across the three Queensland projects under construction - Santos' Gladstone LNG, Origin's APLNG, and BG's Queensland Curtis LNG. ''I'm not sure what will go forward beyond that,'' he said.
''People have underestimated the challenge of deliverability into these plants,'' Mr Knox said.
''We've got to do it at a pace the community understands.''
Santos' eastern Australia vice-president James Baulderstone said he believed ''we've gone through a bit of a peak in the sentiment'' against coal seam gas or CSG.
National Farmers Federation vice-president Duncan Fraser said the rapid ramp-up of the CSG industry in Queensland and New South Wales ''has and is creating conflict, but it should not have. Fly-by-nighters did the whole industry a disservice, the way they conducted negotiations with landholders.''
Farmers and environmentalists had joined in an ''unholy alliance between natural enemies'' but he said there was some light at the end of the tunnel.
''Some companies are changing their behaviour. Santos and Origin, from member feedback, are regarded more highly.''
■ Santos has ruled out selling its stake in the big Caldita-Barossa gas field despite frustration that partner and project operator ConocoPhillips is yet to agree to development of the Timor Sea asset. Mr Knox said yesterday that ''there is some movement here'' with regards to development of the 3.5 trillion cubic feet gas field, which has long been viewed as feedstock for a second processing train at the ConocoPhillips-run Darwin LNG plant. But he ruled out a Caldita-Barossa sale because ''at the end of the day we decided it was better in our portfolio than out''. Santos owns 40 per cent of Caldita-Barossa and has demonstrated a willingness to sell undeveloped assets, such as the $US350 million disposal of its interest in another Timor Sea field, Evans Shoal, to Eni.
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