The world is increasingly taking interest in the potential for a shale gas revolution. Australia is no exception to this trend, particularly due to substantial unconventional gas resources.
The key question for Federal, State and local governments is, assuming a shale gas revolution is seen as desirable, what policy measures may be taken in order to achieve this end and what should any debate over shale gas policy be focusing on?
This brief paper sets the context for any shale gas revolution. It then outlines the characteristics present in the US that were necessary for the generation of its shale gas revolution. In the context of Australia, there are many barriers to reproducing these characteristics. This paper considers what policy options are available to reduce such barriers and lead Australia to its own shale revolution.
The paper provides 10 recommendations and says policy makers seeking a shale revolution should focus on the key drivers:
• committing government funds to develop 2D and 3D seismology maps;
• developing a wholesale gas market, similar to the ‘Henry Hub-style’1 market in the US;
• getting tougher on ensuring greater third party access to gas pipelines; and
• ensuring shale gas receipts were better targeted to regional priorities and not lost in general revenue.
Shale Gas in Australia: the Policy Options proposes that:
1. State and Territory governments should fund the greater use of seismic (2D and 3D) data banks to verify lucrative areas for shale gas production and use this and a “use it or lose it” focus to prioritise shale gas projects based on the best resource basins;
2. The development of a larger and more competitive service industry for drilling and fraccing should be encouraged, by offering a more attractive tax regime, including altering capital allowances and depreciation;
3. The acute shortage of deep well ‘proppants’ (used to keep channels propped open to allow trapped oil and gas to escape) and ‘guar gum’ (thickening agent) could be mitigated by stimulating domestic supply industries, again through taxation instruments, including accelerated depreciation of capital investment;
4. The disclosure of fraccing fluids could be published widely on a well-by-well basis, to enhance transparency and accountability;
5. The formation of knowledge sharing alliances among developers and service companies could be encouraged, through investment and other fiscal measures;
6. Third party access to existing pipeline infrastructure could be improved by the implementation of a common carriage policy obligating pipeline owners to distribute the existing pipeline capacity on a pro rata basis, even if it is fully utilized;
7. The development of a stronger wholesale market by implementing a trading platform for unused pipeline capacity could simplify gas transactions;
8. Regulatory measures specific to shale gas operations should be contemplated in regards to environmental impact management and community engagement. Disparate legislation should be pulled together under a specific regime to aid transparency and ensure the effective governance of shale gas operations across Australia;
9. Obtaining social licences to operate with wider local community participation is vital for any long-term shale gas industry. The collaboration and understanding of stakeholders is crucial to reducing barriers for development; and
10. State and Federal Governments should more directly link local community employment, training, economic and social programmes to receipts from future shale revenues.
You can download and read the Shale Gas in Australia: The Policy Options green paper freely on the UCLAustralia website, and the text is available for use under a Creative Commons 3.0 BY license.
1 Wikipedia: The Henry Hub is a distribution hub on the natural gas pipeline system in Erath, Louisiana, owned by Sabine Pipe Line LLC, a subsidiary of Chevron Corporation. Due to its importance, it lends its name to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) and the OTC swaps traded on Intercontinental Exchange (ICE).