A potentially vast gas resource trapped in Western Australia’s dense shale formations is tipped to fuel another boom in the Energy sector.

Extracting gas from shale is a phenomenon that gained prominence in the United States as production levels grew more than tenfold from 0.39 trillion cubic feet in 2000 to 4.87 trillion cubic feet in 2010, when it accounted for 23 per cent of total US natural gas production.  

The technology is now being considered by several Australian companies particularly in WA where increasing pressure on already high prices in the domestic gas market has driven interest in exploring for shale gas resources in the Perth, Carnarvon and Canning basins, all of which are touted to have huge resource potential.

What is it and how do you extract it?

Shale is sedimentary rock formed by the consolidation of clay and silt particles into thin, relatively impermeable layers. Shale may contain relatively large amounts of organic material and has the potential to become a rich hydrocarbon source rock.  

Innovative drilling techniques that drill long horizontal sections and shatter the rocks with multiple stages of highpressure hydraulic fracturing have allowed the extraction of the trapped gas and have made shale gas competitive with more conventional supplies in North America where gas prices were typically high.  

State of play in the WA domestic gas market

The growth of the shale gas industry in the US saw gas prices halved over the span of two years from approximately $11-$12 per million British Thermal Unit (BTU) in 2008 to $4.50 per million BTU in 2010, a result that, if replicated in the WA domestic market, would no doubt bring significant benefits to the economy through increased mining activity.

In WA the vast majority of natural gas is utilised mainly for industrial purposes and power generation with Alcoa, Alinta, BHP Billition, Burrup Fertilisers and Verve Energy accounting for 90% of consumption. Consumers face domestic gas prices of $7-$8 a gigajoule (in some cases in excess of $10). As demand increases, primarily off the back of a booming resources sector, increasing pressures on gas pricing are likely to mount unless further supply is sourced economically.

The WA Office of Energy, in its ‘Energy2031: Strategic Initiative – Directions Paper’, has commented that unconventional gas resources such as shale gas offer potential to diversify WA’s gas supply and protect WA’s energy security.  

If the economics of shale gas drilling are proven to be viable on a commercial scale in areas such as the Perth, Carnarvon and Canning basins, shale gas may present an ideal and clean unconventional gas resource which could ease the pressure on an ever tightening domestic gas market.

Exploration for a production of shale gas in WA

Shale gas, being a naturally occurring hydrocarbon, appears to be captured by the definition of ‘petroleum’ under the Petroleum and Geothermal Energy Resources Act 1967 (WA) (PGERA), the Petroleum (Submerged Lands) Act 1982 (WA) (PSLA), and the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA).

As such, the procedure to obtain a licence to explore for and produce shale gas from:  

  • the onshore areas in WA under the PGERA  
  • the offshore areas within WA’s territorial sea to the 3 nautical mile mark under the PSLA, and/or  
  • the offshore areas beyond that 3 nautical mile mark under the OPGGSA  

are the same as that involved with respect to the exploration and production of conventional natural gas.

A prospective explorer for shale gas in WA will be required to initially obtain an exploration permit under the PGERA, the PSLA and/or the OPGGSA depending on the location of the potential deposit.