Thursday, April 18, 2013

US leads on shale gas, and we ought to follow

President Barack Obama's spending and regulatory excesses are battering the US economy.

However, notwithstanding government unfriendliness to fossil fuels, America's entrepreneurial resilience has unleashed a mining bonanza based on shale oil and unconventional gas.

Twenty years ago, these were minor energy sources.  By 2020 they will supply three-quarters of US gas, resulting in the US overtaking Saudi Arabia in oil and gas production.

Already, shale gas developments have brought about a two-thirds fall in the US gas price.

The US Energy Department reckons Australia's unconventional oil and gas reserves are comparable to those of North America.

It estimates our shale gas potential is three times larger than known natural gas reserves.

At present there is no Australian shale oil and gas production.  There is a mixed regulatory picture for related coal-seam gas mining processes.

A broad antidevelopment alliance has unleashed spurious objections to the extraction technologies, even though they are well-proven.

Using pseudo-science, the Opposition's green leftist leadership argues that mining the new energy source will poison the water table.

They maintain that people use too much energy anyway, and that we should also use solar energy at a fivefold price premium.

In Queensland, however, sound government policies have allowed coal-seam gas developments to proceed.

With 4000 wells, coal-seam gas from Queensland now accounts for 12 per cent of Australian gas production.

In addition to providing most of the state's gas, coal-seam gas supplies will be the basis of a major new export industry.

NSW is a different story.  Although it has similar prospectivity to Queensland, it has allowed only about 250 coal-seam gas wells to be sunk.

The industry in NSW faces a lethal brew of hobby farmers, pro-poverty green zealots and radio shock jocks.

Last November, the Government established stringent policies that outlawed development in some highly promising areas.

Three months later, it suddenly announced additional no-go areas and further regulatory barriers.

Victoria is even worse off.  The former energy minister (now Treasurer), Michael O'Brien, was spooked by a handful of militants into declaring it illegal to use fracking to mine coal-seam gas.

Even exploration approval involves highly bureaucratic procedures.  The Government has warned companies that any successful find will be bogged down in red tape for more than five years.

Not only are the present arrangements thwarting a new industry, they are denying revenue to the Government.

Governments in Canada, where, as in Australia, the minerals are owned by the state and not the landowner, have been far more supportive.

Canada, as a result, is expecting a tenfold increase in shale gas production in the next 25 years.

Woodside's recent cancellation of its proposed giant Western Australian gas project illustrates how regulations can derail projects.

To reject the new gas and oil extraction techniques is to reject affluence from cheaper prices.

Cheap energy offers export industries to Australia and advantages to consumers and industry — Asian gas prices are five times the Australian level.

But regulations can undermine our energy wealth and prevent us from adopting the modern, well-proven, safe technologies that will enable us to discover new reserves to provide low prices and exports.

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