Shale revolution, pipelines and future prospects for Australia

What roles do pipelines play in developing United States (U.S.) shale plays, and is this comparable to the Australian pipeline industry?

Transportation infrastructure is key to transporting product to market, particularly with natural gas, and development can be constrained and local oversupply “˜gas bubbles’ can develop when the pipeline infrastructure is inadequate.

In the case of crude oil, the entire “˜crude by rail’ phenomenon has developed in response to inadequate pipeline infrastructure in the U.S., particularly for production from North Dakota and the more remote (pipeline deficient) areas of Texas.

Pipelines are by far the lowest-cost transportation method for oil, gas, refined products, chemicals and so on.

In the U.S., given the current gluts of oil and natural gas in the play locations, the ability to supply the resource-intensive operations and get the produced commodities to market quickly is driving innovative logistics solutions and infrastructure development.

If Australian production outpaces transportation capacity, other means of transporting will have to spring up, or localised oversupplies will develop as they did in the US.

What lessons can be applied to Australia from the changing landscape of U.S. unconventional gas?

Creative solutions, out-of-the-box thinking and (almost unprecedented) co-operation among operators and suppliers will be key to making the economics work and shale plays to move forward in Australia.

In every play, in the U.S. and everywhere else around the world, the local challenges present opportunities and the innovation discussed here is done to meet those challenges.

In Australia’s case, the more significant challenges are lack of infrastructure (including but not limited to pipelines), lack of supply chain resources, cost of doing business and lack of water.

All of these challenges have been present to some degree in one or more of the U.S. shale plays, and addressed successfully!

In addition, there are many “˜lessons learned’ for Australia in regulating these operations and managing the community impacts that can be adapted to Australia.

What kind of new pipeline technology is being developed in relation to shale gas?

There are multi-product pipelines, such as Kinder Morgan’s 3058 km, 304 mm Cochin system which transports light hydrocarbon liquids across three Canadian provinces and seven American states.

There are also bi-directional pipelines coming into play.

Texas Gas filed a request with the Federal Energy Regulation Commission to reverse the flow on an 1110 km of pipe and begin to carry Marcellus and Utica shale gas from the northeast to south, what they want to do is turn the pipeline into a bi-directional flow so the gas can go either way.

There has been a bit of change in the U.S. unconventional gas landscape since 2013, how has the falling global oil price affected the U.S. shale market?

The drop in oil price has stimulated innovation and cost reduction, so the plays will be economic at the new oil price.

This process, already underway for the last several years, has been accelerated in response to the drop in the oil price.

Shale gas, which made up only 1 per cent of U.S. natural gas production in 2000, is now at 25 per cent and expected to increase to nearly 50 per cent by 2035, squeezing out imports.

With the Organisation of Petroleum Exporting Countries (OPEC) actively increasing their production to counter the growth of the U.S. shale market, what can be done to take the next step with unconventional gas?

Shale gas development is moving forward here in the U.S. regardless of what OPEC does!

The U.S. is now awash in low-cost natural gas and new uses here and new markets opening up overseas (Europe and Asia) will continue to absorb production.

The U..S and Australia will compete to some degree for the Asian market, but that depends largely on Asian demand.

Actually, the drop in the oil price makes natural gas projects somewhat more attractive.

With the oil price at $100/bbl and the natural gas price at $3, this price ratio was 25 or more, which means that oil is disproportionately more valuable.

This drove interest away from natural gas and toward oil projects.

With the price ratio much lower, this driving trend is not nearly as strong.

Having said that, there are still cost challenges with the Australian LNG projects, but on the other hand, those facilities comprise a significant source of demand for natural gas as feedstock.

In the U.S., the rig count is at or near the bottom and has started picking up in some locations.

I expect that things will take off when companies complete the “˜adjustment’ process to lower costs sufficiently, probably around the end of the year or first quarter of 2016.

In Australia, my impression from overseas is that the very early wells are being drilled, so not much is known.

Now is the time to ensure that regulatory structure is in place to provide appropriate oversight without over-regulating these operations.

Charlotte Batson is the Owner and Principal at Batson & Company.

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