Chevron Bets Big On Australian Shale Given Asian Demand

Domestic natural gas production in the United States has surged by as much as 20% over the last five years. According to BP’s Energy Outlook, the United States’ shale-based oil and gas reserves will allow the country to become self-sufficient in energy by 2030. ((“BP Energy Outlook 2030“, January 2013)) Australia is another region that boasts of significant shale gas resources. According to a 2011 estimate by the U.S. Energy Information Administration (EIA), the country holds 396 trillion cubic feet of technically recoverable shale gas – around 6% of the world’s total. ^[1] Unlike the United States, Australia’s reserves haven’t been tapped in a big way yet, but that is set to change with oil and gas majors like Chevron beginning to place big bets on the country.

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Chevron (NYSE:CVX) has been spearheading the development of natural gas in Australia with around 47% stake in the Greater Gorgon Area, the country’s biggest domestic source of natural gas. The company’s mega-scale Gorgon Project includes 8.9 million-metric-tonne-per-year Liquid Natural Gas facility that is scheduled to begin operations in 2014. Apart from Gorgon, the company also has significant interests in other large scale, upcoming projects such as Wheatstone and Browse.

Chevron is also trying to take Australian production levels a step further. Having established its interests in conventional natural gas resources, Chevron is now busy pumping money into developing Australia’s unconventional resources as well. In February this year, the company announced its intention of spending as much as $349 million for acquiring land in Central Australia, which may hold huge shale gas deposits. ^[2] The deal poses some risks as the country’s shale resources are very underdeveloped, and it will take years for Chevron to finish with exploration. It is still uncertain whether the gas can be extracted at commercially viable prices. The company must also face pressure from environmental groups opposed to ‘fracking’ – the process used to extract natural gas from shale.

So why is Chevron prepared to take such risks in Australia?

The answer lies in the region’s proximity to the booming Asia Pacific market where demand for energy has rocketed over the last two decades. With such an incentive on offer, the latest deal could mark the beginning of a rush for shale gas resources in Australia – just like the scramble seen in the United States over a decade ago.

Chevron’s efforts at developing and commercializing Australia’s gas reserves should give a major boost to the company’s global natural gas production in the long run. The company expects its gas production to increase by as much as 20% by 2017, and Australian gas (both conventional and non-conventional) should play major role in helping the company achieve its target. Our own projections for Chevron’s natural gas production are optimistic, primarily keeping in mind the Australian gas projects, as well as increasing demand in emerging economies of the Asia Pacific. ^[3]

We currently have a Trefis price estimate of $119 for Chevron, which is in line with the market price.

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1. EIA – Analysis And Projections [↩]
2. “Chevron’s Australian Shale Gas Gamble“, Wall Street Journal, February 2013 [↩]
3. “Chevron Says Oil, Gas Output to Jump by 2017“, Wall Street Journal, March 2012 [↩]