First gas from Australia's Beetaloo shale basin is scheduled to start flowing next month, with initial production of 37 million cubic meters, Reuters has reported, noting hopes that the country could replicate the U.S. shale gas success story.

The Beetaloo basin, located in the Northern Territory some 500 kilometres south-east of Darwin, is estimated to hold some 500 trillion cubic feet of gas and has been compared to the giant Marcellus shale play in the United States. The Northern Territory government hopes that Beetaloo will turn the region into another LNG production hub, adding to an export industry that already ranks Australia among the world's largest LNG suppliers, alongside Qatar and the United States. Development only became possible after the territory government lifted a moratorium on hydraulic fracturing in 2018, following a scientific inquiry that recommended strict conditions on drilling.

Development of these reserves has been slow, as Australia's industry has focused on conventional deposits for growth. The moment now appears opportune for a move into shale, particularly in light of worries that Australia may begin to experience domestic gas shortages on the east coast before long, driven by heavy exports under long-term contracts. Australia's energy market operator has warned of potential east coast shortfalls later this decade unless new supply is developed, and moving Northern Territory gas to eastern buyers would depend on pipeline capacity, as the existing Northern Gas Pipeline linking Tennant Creek and Mount Isa is limited in scale.

The first gas, produced by Tamboran Resources and Beetaloo Energy, will go to the city of Darwin to secure its gas needs while the companies monitor depletion rates in these initial wells, Reuters noted in its report. Those depletion rates matter because shale wells typically decline faster than conventional ones, so sustaining output requires continuous drilling and steady capital, which has been the defining challenge of the U.S. shale model the basin hopes to replicate. Earlier this year, Tamboran Resources chief executive Todd Abbott said he expected the company to be pumping over 1 billion cubic meters of gas daily. According to Reuters, this could add 9% to Australia's liquefied natural gas export capacity.

Japan is the biggest buyer of Australian gas, which is why Inpex earlier this year made its own bet on the Beetaloo basin, investing in acreage there that it acquired from Formentera Partners. Inpex already operates the Ichthys LNG project, one of Australia's largest, whose processing facilities are located near Darwin.

"You need a party with deep pockets who's willing to deploy billions of dollars over several years before being able to prove up a large-scale commercial play, and they've never had that until now," said Saul Kavonic, senior energy analyst at MST Marquee. How quickly Beetaloo scales beyond the initial wells will hinge on early drilling results, regulatory approvals and access to that kind of capital, while environmental groups continue to raise concerns about the impact of fracking on water resources and emissions in the Northern Territory.

By Irina Slav for Oilprice.com.