October 31st 2009

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Articles from this issue:

COVER STORY / EDITORIAL: Australia's asylum-seeker policy unravels

CANBERRA OBSERVED: The toughest job in Australian politics

NATIONAL AFFAIRS: How the human rights consultation was hijacked

TAX INQUIRY: Treasury push to get more mothers into paid work

CLIMATE CHANGE: Temperature readings in rural Australia show no increase in 100 years

ENERGY: New gas resources explode "peak oil" alarmism

NATIONAL SECURITY: How much longer can Australia's luck hold?

CHINA: How the Chinese Communist Party (CCP) wields absolute power in China

ECONOMICS: The taming of unbridled free market capitalism

REPRODUCTIVE HEALTH: Women not warned about abortion breast-cancer risk

VICTORIA: Protesting on behalf of the unborn

OBITUARY: Last surviving leader of 1943 Warsaw ghetto uprising dies: Marek Edelman (1919-2009)

CINEMA: "Deeply troubling" rags-to-riches story: Mao's Last Dancer (rated PG)

BOOK REVIEW: BEERSHEBA: A Journey Through Australia's Forgotten War, by Paul Daley

BOOK REVIEW: REFLECTIONS ON THE REVOLUTION IN EUROPE: Immigration, Islam and the West, by Christopher Caldwell

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New gas resources explode "peak oil" alarmism

by Peter Westmore

News Weekly, October 31, 2009
A massive expansion of natural gas production, fuelled by new technology, is changing the global energy landscape, removing fears that the world is running out of petroleum, and dramatically pushing down the price of natural gas.

While Australians are aware of the expansion of conventional gas output in the Timor Sea, the most interesting development globally is the role taken by "unconventional gas", a technical term to describe coal-seam gas, shale gas and tight sands gas.

In Australia, major new coal-seam gas developments are being brought on stream in the Hunter Valley in New South Wales, and the Surat Basin in Queensland, but there are no developments here of shale gas or tight sands gas.

In the United States, due to technological developments over the past 20 years, about half of America's natural gas now comes from these sources, rather than the conventional sources which include natural gas platforms in the Gulf of Mexico.

The switch towards unconventional gas is the result of higher gas prices and improved technology. Only in the United States, which has both massive consumption of energy and dwindling sources of conventional oil and gas, has unconventional gas been developed to any extent.

New technology

Similar developments can be expected in other countries as the technology developed in the United States is applied elsewhere.

Over the past decade, production from all three unconventional gas sources in the US has increased dramatically. The largest increase has been in tight gas, while the largest percentage increase has come from shale gas, where production has risen 300 per cent. Driven by record well-drilling, proven reserves have also risen dramatically, so that unconventional gas now makes up more than half of the United States' proved reserves of natural gas.

Significant probable and possible reserves, as well as a large undiscovered resource base, underscore the proved reserves.

Speaking at the recent World Gas Conference in Buenos Aires, Argentina, the president of the American Gas Association, Thomas E. Skains, referred to the dramatic impact of the growth of unconventional gas on the US energy industry, and more broadly, its economy.

He said: "Perhaps never in its history has the US domestic natural gas industry experienced more changes than now, and this is just the beginning.

"The largest change affecting the US market is an increasingly home-grown supply portfolio, led by unconventional onshore shale gas. The abundance of American natural gas resources is a fundamental change - a paradigm shift - in conventional wisdom.

"Natural gas prices have changed as well; gas purchased by utilities in June of this year cost on average 68 percent less than in June 2008."

Mr Skains added, "Natural gas is a clean, efficient and abundant US and global energy resource."

Other technologies are also being developed in the United States. Conventional oil wells have a low recovery rate, because of the high cost of recovering "stranded" oil, which remains in the well as a result of a decline in oil pressure. Enhanced recovery techniques are being developed to improve oil recovery from conventional wells.

The increased production of unconventional gas has had an unexpected consequence for global natural gas prices.

At the last World Gas Conference just three years ago, the major energy producers expected that with declining domestic production, the US would become a large importer of liquefied natural gas (LNG) and prices would rise.

The opposite has happened. "The United States is now a virtual liquefied natural gas exporter because all the LNG that was supposed to be going there is now going somewhere else," said Ian Cronshaw of the International Energy Agency.

Spot gas prices are expected to remain at current low levels until well into the next decade.

Spot cargoes of LNG are trading at half the rate of some long-term supply contracts, experts said, prompting customers to begin to agitate for renegotiated pricing.

Analysts expect the full impact of the unconventional gas revolution has yet to be felt, especially as its potential outside the United States has not even begun.

"It will probably take three or four years to get one's arms around the scale of it," said Daniel Yergin, one of the world's leading energy commentators.

A recent study by Cambridge Energy Resource Associates, which Yergin heads, concluded that unconventional gas reserves could be as much as 16 quadrillion cubic feet, or roughly double current proved reserves.

Predictions that the world is running out of oil and gas - popularised by Dr Paul Ehrlich in the 1970s and repeated endlessly in the media by David Suzuki and the Greens - are utterly wrong.

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