What are the chances that the McArthur and Beetaloo Basins can make Australia self-sufficient in liquid fuels?
I genuinely believe there is a very high chance that shale petroleum will play an enormous part in Australia's energy self-sufficiency - and ultimately exports. The numbers quoted by most operators for the volumes of hydrocarbons, albeit currently at ‘prospective resource' status, are enormous. They dwarf Australia's proven present-day conventional oil and gas volumes.
The Northern Territory Geological Survey's estimate that in excess of 500 Tcf of gas-in-place is present just within the Middle Velkerri Shale in the Beetaloo Basin. Empire's independent expert certification is that the P50 or ‘most likely' resource in Empire's acreage to be about 2 billion barrels of oil equivalent - or 13 Tcf equivalent of gas - but is up 5 billion BOE at P10. This is a substantial prospective petroleum volume and yet is conservative when compared with And that hugely conservative assuming main shale formation, the Barney Creek Formation is 100m thick - and can be up to 900m thick. They've also assumed up to 75% of the shale formation is not petroleum-bearing. And we have the McArthur Basin potential on top of that.
The part of the McArthur Basin within Empire Energy's acreage occupies a similar area to the USA's Fayetteville Basin. After many years of drilling, the US Department of Energy has estimated the Fayetteville contains about 42 trillion cubic feet of gas.
So how do you know where to start exploratory drilling in such an enormous area? Isn't it like a needle in a haystack?
The US has been developing shale petroleum for a number of years now and geologists have a good knowledge of where the richest shales or ‘sweet spots' are located. The rule-of-thumb from the USA, from hindsight, is that about 10% of the area of a shale play is a real sweet spot. Furthermore, it's suggested that the sweet spot contains about 45% of the total economic value of the basin. So clearly that's where you want to start drilling.
Early sweet spot development enhances the project economics; achieving good early production rates means the initial investment will be paid back quicker. Lower quality shales can be exploited later.
How do the Geologists go about predicting shale petroleum sweet spots in a basin?
You look for the relationships between the color, hardness and composition of the various layers of rock and identify which layers have the high organic carbon content. You also look at the fine sedimentary structures that describe the conditions in which the sediment was originally laid down. Those details will tell you a lot about how the rock was deposited, whether sand was being introduced into the basin diluting the shales, and whether the environment was anoxic, so the carbon content is preserved. And then you correlate the rock layers between many wells and mineral cores and see if they are continuous over great distances or fragmented.
This approach will allow you to draw contour maps such as for total thickness of black shale layers with high organic carbon, the depths at which the rocks are buried, and determine if they are deep enough to generate oil and gas. The areas with thick shale, little sandstone dilution, large number of layers with organic carbon, at the right palaeo-temperature and at optimum depth to drill will be the sweet spots. Seismic data helps establish the horizontal continuity across the basin and identify local geological complexities to stay away from.
Analyzing the shapes in the rock layers on seismic tells us about the relative sea-level under which successive rock layers were originally deposited, and the likely overall chemistry of the rocks at different depths. You can say ‘right, we see a particular shape in the seismic data, that's a particular place of interest'.
I'm really looking forward to seeing first-hand the seismic data we are acquiring across EP187 right now.
As a frontrunner, Empire Energy acquired not just a sizable portion of the Beetaloo Basin, but also a major segment of the older McArthur Basin. Along with Empire, only Armour Energy has substantial claim over the McArthur which may have an even greater potential than the Beetaloo.
How will Empire commercialize its gas?
The supply-demand conversations and possibilities between the Northern Territory and Queensland are real. In 2018 Jemena constructed the Northern Gas Interconnector between Tennent Creek and the eastern pipeline network connecting the systems at Mt Isa. Such investment proves there is already growing and Australia-wide recognition of the energy potential of the Northern Territory shale basins.
Empire Energy plans to start commercial gas production as early as possible initially with customers from the local mining and fertilizer industries looking to replace diesel with cleaner and cheaper gas. The McArthur River mine has a gas pipeline that passes right through Empire Energy's license EP187. Longer-term, if there really are of the order of 29 trillion cubic feet of gas, which external assessments currently attribute to Empire Energy's McArthur Basin acreage, this will lead us to the possibility of LNG of exports and examining Australia's strategic security of supplies, also in liquid fuels.
Empire's prospective shale acreage extends 600 kilometres, south to north, up to the very top end of East Arnhem Land. Near the site of Pacific Aluminium's now-closed Gove Refinery there is functioning deepwater port at Nhulunbuy in East Arnhem Land just 80 kilometres to the east of Empire Energy's northernmost exploration area. Furthermore, a right of way for a 600-kilometre spur pipeline from Katherine to Nhulunbuy has been surveyed and passes right through Empire Energy's tenements EPA 180 and EPA 181.
The town of Nhulunbuy is in one of Australia's most northerly locations and faces the South East Asian LNG markets. We are extremely well-positioned to be a substantial player in the emerging shale petroleum export story.
My personal view is that the industry must embrace the conversation about this new frontier, about energy security and of the huge potential for the exporting liquefied natural shale gas. It created a massive change in the USA with daily shale gas production increasing dramatically from about 2 Bcf [billion cubic feet] in 2007 to 50 Bcf in 2015 - with a 10% decrease in national annual carbon emissions. There will be intense market pull, both domestic (from gas usage and prices) and international (for LNG) if the shale resource is realized. That's my personal view.
John Warburton BSc Hons Geological Sciences, PhD Structural Geology, FGS, FPESA, MAICD
John is a Non-Executive Director of Empire Energy Group. Previously he spent 14 years with BP Exploration where he held senior technical and management positions then moved to senior positions with substantial oil and gas companies including LASMO plc, Eni Pakistan Ltd and Oil Search Ltd. John is an Independent Non-Executive Director of Senex Energy Ltd and Visiting Professor in the School of Earth & Environment at the University of Leeds, UK.