The world is increasingly taking interest in the potential for a shale gas revolution. Australia is no exception to this trend. The key question for Federal, State and Local Government is, assuming a shale gas revolution is seen as desirable, what policy measures maybe taken in order to achieve this end and what should any debate over shale gas policy be focusing upon? This brief paper sets the context of the shale gas revolution. It then outlines the characteristics present in the USA that generated their shale gas revolution. In the context of Australia, there are a great many barriers to reproducing these characteristics. The paper considers what policy options are available to reduce such barriers and lead to an Australian shale gas revolution.
2. THE “SHALE GAS REVOLUTION” IN THE USA
a. A BRIEF HISTORY
The shale gas revolution in the USA is based upon the application of two main technologies – horizontal drilling and hydraulic fracturing (frack ing). Neither is new technology. Horizontal drilling was developed in the 1930s and the first well was fracced in the USA in 1947. The revolution has been reflected in the dramatic increase in the production of shale gas. In 2000 shale accounted for less than 1 percent of US domestic gas production. In 2007 it was 8 percent and only four years later, in 2011, it was 30 percent. However, a key point is that this American “revolution” in reality happened over a long period of time – well over 20 years in the making, although it is only in the last five years or so that the share of shale gas in domestic production has increased significantly. Furthermore, this growing role of shale gas is expected to continue. The EIA suggests shale gas will supply 42 percent of domestic gas production by 2040 and another source puts shale at over 50 percent by the 2030s .
b. THE IMPACT IN THE USA
The impact of this shale gas revolution has been significant . The most obvious impact has been on USA domestic gas prices as can be seen from Figure 1.
Source: US Energy Information Administration.
This dramatic fall in gas prices has had several important effects. It has led to a significant revival in USA petrochemical and other gas intensive manufacturing industries. It has also pushed coal out of much electricity generation, leading to increased coal exports and a reduction in the USA’s carbon footprint. Internationally, it has had a huge impact on the global LNG trade. Between 2005 and 2009, 75 percent of USA LNG regasification capacity was built in anticipation of falling domestic USA gas supplies. By 2011, 90 percent of total capacity was idle. At the same time, LNG export plants which had been built in anticipation of greater US demand suddenly found themselves scrabbling for alternative markets. The result was a potential oversupply of LNG leading to downward pressure on prices .
c. WHY IT HAPPENED IN THE USA
A key question that is relevant to the Australian story...