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Australia Seen a Decade Away From Large-Scale Shale Production

Australian shale explorers may be a decade away from producing oil and gas on a large scale because of obstacles ranging from a lack of drilling equipment to higher labor and infrastructure costs, Wood Mackenzie Ltd. said.

“The only factor that could change that significantly is if there’s a liquids-rich play that really drove the need to rapidly bring in the rigs,” Andrew McManus, the Sydney-based vice president of Australasia energy consulting at Wood Mackenzie, said in an interview. “Then you can see the value proposition and would want to fast-track that.”

Projects focusing on higher-priced oil and liquids may earn better returns and reach production faster, according to Wood Mackenzie and ConocoPhillips. (COP) In the U.S., the largest producer of the fuel, a supply glut has caused gas prices to slump and forced companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc to focus on extracting petroleum liquids.

“If you have liquids the economics are much, much better right now than a pure gas play that will take longer from an infrastructure standpoint,” Todd Creeger, president of ConocoPhillips’s Australian unit, said in a May 15 interview.

Energy companies will need to invest billions of dollars on projects to extract oil and gas trapped in Australian shale formations following about $600 million of commitments from companies including Conoco, Mitsubishi Corp. (8058) and Hess Corp. (HES), McManus from Wood Mackenzie said.

Santos Ltd. (STO), Beach Energy Ltd. (BPT) and Buru Energy Ltd. (BRU) are among explorers holding pieces of an estimated 400 trillion cubic feet of recoverable shale-gas resources in Australia, the U.S. Energy Information Administration said.

Australian Basins

The Cooper Basin straddling the borders of South Australia and Queensland states, the Georgina Basin in the country’s north and the Canning Basin in the west are shale regions with liquids potential, according to Wood Mackenzie.

ConocoPhillips, the third-largest U.S. oil company, is interested in further shale investments in Australia following a partnership last year with Perth-based New Standard Energy Ltd. (NSE), according to Creeger.

In the Canning, “we know there are liquids in the system, which is one thing we think will be key to the pace at which Australia develops shale,” Creeger said in Adelaide.

Oil in New York increased 9 percent from a year earlier to average $103.03 a barrel in the first quarter. Natural gas plunged 40 percent in the quarter compared with a year earlier to average $2.503 per million British thermal units. Crude oil fell 0.3 percent to $92.56 a barrel yesterday, while natural gas declined 0.9 percent to $2.594 per million Btu.

Rigs, Pipelines

Australian shale explorers face a number of challenges, including the lack of rigs, the remote location of their projects and insufficient pipeline networks, McManus said.

Hydraulic fracturing, in which water, sand and chemicals are pumped into the ground to break apart shale rock and release fossil fuels, has made the U.S. the largest natural-gas producer. The drilling technique, known as fracking, has drawn criticism from regulators and landowners concerned about water contamination and has been banned in France and Bulgaria.

The Obama administration earlier this month issued a proposed rule requiring disclosure of the chemicals used in the process when fracturing for oil and gas occurs on public lands.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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