In January, officials in Australia announced they had found a shale oil field that contained more “black gold” than what’s found in Iran (137 billion barrels), Iraq (115 billion barrels), Canada (175 billion barrels) or Venezuela (211 billion barrels).
Discovered underneath the small Southern Australian town of Coober Pedy in the Arckaringa Basin in 2008, officials estimated the lone oil field contained about 233 billion barrels of oil — just 30 fewer barrels than what officials report is found in all of Saudi Arabia.
Previous to the finding, geologists believed Australia only had 3.9 billion barrels. Collectively the world has 1.9 trillion oil reserves. If the Arckaringa basin does have at least 233 billion barrels, Australia will possess 12 percent of the world’s oil reserves.
According to reports, the Arckaringa Basin is six times larger than the Bakken formation in North Dakota, 17 times larger than the Marcellus shale find in Pennsylvania, and 80 times larger than the Eagle Ford deposit in Texas.
But international energy expert, Dr. Kent Moors — who is an advisor to six of the top 10 oil producers and an active consultant to 20 world governments, including the U.S. — said there may be more oil in Australia than once predicted.
“The find may land at 300 or 400 billion barrels, making it one of the greatest unconventional oil discoveries any of us will see in our lifetimes,” Moors said, explaining that early estimates often times undershoot the actual figure.
Moors said even if the reserve only has 233 billion barrels, the find still “represents a bona-fide redrawing of the global energy map as we know it, and the mainstream media is completely ignoring it.”
Though the newly found U.S. oil reserves have less oil than the Australia-based basin, the U.S. is predicted to become self-sufficient in oil by the year 2020. Some also predict the U.S. will surpass Saudi Arabia in oil production — but that was before the Australian basin was widely reported in other countries.
Mike Ward is the publisher of the Money Morning TV news program. He said that the large finding has put a small town in “immense international power” that rivals that of any Middle Eastern country, since the city may dictate and be “ground zero for a fast approaching and highly volatile international showdown over earth’s energy.”
Ward explained that for years, many in Washington, D.C. have been skeptical that Saudi Arabia has accurately reported information about its oil reserves. He continued on by highlighting a WikiLeaks cable that was released earlier this year that suggested Saudi Arabia overestimated its oil reserves by 40 percent.
Moors agreed this is a “powerful discovery” that would impact every government and every major energy company on the planet geopolitically, along with national security and energy security.
Coober Pedy, the next Saudi Arabia
Once home to just about 1,700 people, Coober Pedy was described as a secluded town that was nearly uninhabitable due to extremely high temperatures and a lack of water resources. Some residents even lived in underground caves, but since the oil find about 20,000 people have moved to the area hoping to profit off the oil boom, which is worth an estimated $20 trillion.
Jobs are being created in preparation of an oil boom and as a result local economies are thriving. Dr. Moors said this find is an opportunity for “main street folks to alter their financial situation.”
According to a report from Money Morning, many people from around the world have expressed interest in investing early in the basin, since analysts believe an investment in the Arckaringa basin now, is the equivalent of investing in Saudi Arabia’s oil during the 1950s.
Peter Bond, managing director of the Brisbane-based company Linc Energy who discovered the basin, said the shale oil finding has the ability to turn Australia into an oil exporter instead of an oil importer. “If it comes in the way the reports are suggesting, it could well and truly bring Australia back to (oil) self-sufficiency,” Bond said.
“What we’re seeing up there is a very, very big deposit,” says South Australia’s mining minister, Tom Koutsantonis. “If the reserves and the pressure was right over millions of years and the rocks have done the things they think they’ve done, they think they can extract vast reserves of oil out of South Australia which would have a value of about $20 trillion.
“This is a key part to securing Australia’s energy security now and into the future.”
But since the oil must be extracted from the shale rock using the controversial practice known as fracking, in which clean water is pumped into the ground to break up the shale, some Australians are more concerned about the environmental impact the discovery has for the area than what the find could do to ease energy demands.
However Koutsantonis said that fracking technology has had a “hugely positive impact” on the U.S. economy and he would like to see the same thing happen to Australia.
Equipment costs the main hurdle
Talking to Money Morning, Moors said that Linc spent $104 million to control 16 million acres or 80 percent of the Arckaringa basin, and spent another $30 million on exploratory drilling, but Moors says the company “got a Lamborghini for the price of a bike,” since this is the “greatest unconventional oil discovery in our lifetimes.”
Linc reportedly targeted three main areas in the basin where they believed oil would be located and “initial test flow results were incredible.”
Since extracting the shale oil from the ground will be an expensive process, Linc has been looking for companies to partner with. So far the energy company has partnered with Barclay’s bank to help fund the next portion of the project, which is expected to cost between $150-300 million dollars.
Moors said that normally with a big discovery such as this one, between 20 and 30 international companies and banks will invest in the project, but right now there are 70 companies that have expressed interest in investing. Though 70 or more investors sounds like a lot, Moors said when all is said and done, the project is expected to cost billions of dollars.
“If the Arckaringa plays out the way we hope it will, and the way our independent reports have shown, it’s one of the key prospective territories in the world at the moment,” Bond said, adding that each well could flow at 1,000-2,000 barrels per day.
“You put in 50 of them and that’s a lot of oil,” he said. “We have a very good idea that this will be an oil-producing asset.”
Bond said the discovery has the potential to bolster the nation’s energy security. “We are importing more and more oil every day. Australia was relatively self-sufficient in oil in 2000, 2001, but since then we’ve been falling off the peak oil curve for quite a while now,” he said.
“Any oil field that can do 500,000 barrels a day is massive in anyone’s books. It would be a push to get to that high. That would basically be getting out to full production. It’s hit all the runs and done all the right things to get up to that size but if it does, you potentially would be getting up around being an oil exporter,” Bond said.
“By then much of your other oil production in Australia would have dropped off even more and you’ll be just starting to fill the gaps there.”
British company Altona Energy began drilling in January to discover more resources and build a $3 billion power project in the basin, which would involve an open-cut coal mine and a 560 megawatt power plant.
Peter Strachan is the author of investor broadsheet StockAnalysis. He said that while the potential to make a lot of money from the oil reserves is there, he said experts don’t often take into account the cost of extracting the gas from shale and other rock formations.
“The amount of gas trapped in these formations is many times more than the amount of gas that’s ever been trapped in conventional reservoirs,” Strachan said. “But the problem is the cost of extracting the gas from these areas of low permeability is three or four times the cost of extracting gas from conventional reservoirs.
“So the capital cost just continues, and with these unconventional wells, you tend to get about 75 percent of the amount of gas that you’re going to get from an individual well over the first 18 months. Then there’s a very long and thin tail of production from these wells, so you have to keep drilling well throughout the life of the project.
Faith in “preliminary data”
Since drilling for oil, especially using the fracking method, draws criticism from environmental groups, the group Queensland Energy Resources (QER) has worked to overcome negative perceptions of shale oil mining — a practice that was banned in Coober Pedy until earlier this year.
A spokesman for QER Chris Anderson said that market research showed there was actually more community support for the industry than opposition.
“On a periodic basis we redo those surveys and ask various questions about our projects and what people think and that’s how we determine our formal level of community approval, and there’s obviously the informal feedback as well from people who come to the plant and have a look and other people that we talk to in the community.”
Since Anderson says there are misconceptions about the industry, he said the group is working to educate the community and dispel myths around oil shale development. He said the group is “telling people what our plans are, what we will do and what we won’t do. One of those is, we will not be mining under the harbour in any way.”
Reserve findings this past August and said that while experts have expressed their belief that the reserves have the ability to turn Coober Pedy into the next Saudi Arabia, part of him hopes “this is all just hot air, and not a genuinely bankable find.”
Australia is reportedly a country rich in hydrocarbons and uranium, and was the second largest coal exporter in 2011 and third largest liquefied natural gas (LGN) exporter in 2012. Ray hypothesized that most of the shale oil reserves will be sent to Asia at cost and be sent back to Australia at an inflated “Singapore benchmark price that we’ve grown to hate so much.”
But Koutsantonis disagrees with Ray and thinks the oil reserve will be an economic savior for the Pacific nation. “Shale gas and shale oil will be a key part to securing Australia’s energy security now and into the future,” he said.
“We have seen the hugely positive impact shale projects like Bakken and Eagle Ford have had on the U.S. economy. There is still a long way to go, but investment in unconventional liquid projects in South Australia will accelerate as more and more companies such as Linc Energy Ltd. Energy and Altona prove up their resources.”
John Young is a senior resources analyst at Wilson HTM. He agreed with Ray and said it is important to take these preliminary figures with a grain of salt. “I think we need to recognize these represent, at this point in time, what people believe to be there and what might be able to be recovered, but we’ve still got some significant way to go before people have actually commercially recovered resources out of these shales,” he said.
While Young says it is still early to fully assess the quality of the resource, and how much can be extracted and exported, he think’s it’s best to not focus too much on the size of the oil that could be extracted from the basin.
“The numbers are going to be very large, but we really need to move from that in terms of this focus around the quantity to ultimately one of the quality of the resource — how good is it, how economic will it be, and that’s going to take a significant amount of exploration and appraisal work before the industry’s in a position to determine that,” he said.