Sydney (Platts)--25May2012/317 am EDT/717 GMT

Australia's nascent shale gas industry is still around 10 years from achieving any significant level of production, according to industry consultants Wood Mackenzie.

"We are just so early days -- to get any sort of substantial production, you are going to have to drill lots of wells, 50 to 100 at least," WoodMac Vice President Energy Consulting Australasia Andrew McManus told Platts on the sidelines of last week's Australian Petroleum Production and Exploration Association conference in Adelaide.

"You might get a little bit of niche production [sooner], but that's not going to change the market," he said. "Any sort of substantial production, of at least 100 million cubic feet/day, is going to be into the next decade."

Although exploration for shale gas is still in its infancy in Australia, big-name players BG Group, ConocoPhillips, China National Offshore Oil Corporation, Hess and Mitsubishi have already taken a foothold in the industry. The overseas investors have joined local players including Santos, Beach, Drillsearch, Buru Energy, Exoma and Senex exploring shale gas in several basins across central and western Australia.

"The interesting thing is that these companies are coming in right at the exploration phase, rather than once this is proven, so they're testing these plays," McManus said. "We expect a lot of interest in this as it continues to evolve. The smaller players will need the resources of the bigger players because [shale gas] is not as cheap as coalseam gas in the exploration phase, because the rigs are much bigger."

Liquids-rich plays could be key to unlocking shale gas in Australia, according to WoodMac.

"We did an analysis based on some really rough assumptions and our estimate is you need a gas price of $6-9/Mcf [to make shale gas viable], but if you have liquids that can definitely be the game changer," McManus said. "In the US liquids plays the breakeven cost for the gas is in the $2-3.5/Mcf range."

Gas prices in eastern Australia are currently around $4/Mcf but are on the rise due to the development of three export-oriented LNG projects at Gladstone in Queensland. According to Santos, the largest supplier to the domestic gas market, local prices will trend toward an oil-linked international parity of $6-9/Mcf over the next few years.

"If [shale gas] gets developed next decade when the price has risen to that level it can fit into that market, but it doesn't fit into the market today," McManus said. "So how can you ramp up really quickly when you haven't got those economics working for you?"

According to GeoScience Australia, the nation's total identified gas resources, excluding shale gas, are around 392 Tcf. Shale gas resources are estimated to be as much again, at around 400 Tcf.

Australia's shale gas will compete with other resources globally, but it could eventually be developed to feed what is set to be the world's largest LNG industry by the end of this decade.

"Could [shale gas] backfill existing [LNG} facilities in 15-20 years time? Absolutely, if it's the right price," McManus said. He particularly pointed to the 3.6 million mt/year ConocoPhillips-operated LNG plant at Darwin in the Northern Territory, which is expected to be running short of gas around 2020-2022.

Ultimately the development of shale gas will come down to cost and whether it can compete with conventional offshore resources and coalseam gas, currently being produced at between $1.5 and $4/Mcf.

"If shale can be competitive against some of the higher cost, later life coalseam gas then it will get into that LNG," McManus said.

Australia is currently enjoying a boom in its LNG industry, with eight projects worth a total of more than $170 billion approved over the past five years and set to lift the nation's total output to more than 80 million mt/year. Of those, three are coalseam gas-to-LNG plants currently under construction on Curtis Island in Gladstone.

--Christine Forster, christine_forster@platts.com

--Edited by Haripriya Banerjee, haripriya_banerjee@platts.comharipriya_banerjee@platts.com

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