The rapid development of oil and natural-gas reserves trapped in shale and other “tight” reservoir rocks has catalyzed dramatic changes in the world energy picture over the past few years, says Peter Staas of The Energy Strategist.

Not only did frenzied drilling in unconventional plays enable the US to supersede Russia as the world’s leading producer of natural gas in 2010, but stepped-up drilling in liquids-rich plays has also transformed the domestic petrochemicals industry and increased the country’s annual oil output for the first time in 18 years.

But investors shouldn’t ignore the concurrent revolution that has occurred in Australia’s natural-gas industry over the past decade.

Australia was one of the few developed economies that didn’t lapse into recession in the wake of the 2008-09 global credit crunch and economic slowdown. The secrets to this resilience: Australia’s abundance of in-demand natural resources—from thermal and metallurgical coal to iron ore and copper—and its proximity to China, India, and other rapidly growing emerging markets.

Although Australia’s estimated 2.9 trillion cubic meters (Tcm) of proven natural-gas reserves represented only 1.6% of the world’s resource base at the end of 2010 (BP Statistical Review of World Energy 2011), the nation’s production of natural gas and exports of liquefied natural gas (LNG) have increased steadily over the past decade.

This uptick in gas production pales in comparison to the turnaround that has occurred in the US. Nevertheless, independent producers and major integrated energy companies expect to benefit from rising demand for natural gas in China, India, and other emerging markets.

The Chinese government’s long-term plans call for natural gas to account for 10% of the country’s energy mix, one-third of which will be imported via pipelines or LNG.

Natural gas has been growing in popularity in China, particularly in power-generation facilities located near major cities. Concerns about air quality mean that many of the high-rise residences constructed during China’s recent housing boom are equipped for piped gas.

Further migration to urban areas will only increase demand. China Gas Holdings, a natural gas distributor, recently reported that it expects its annual sales volume to surge to ten billion cubic meters (Bcm) per day in 2015 from 5.2 Bcm per day in 2010.

LNG imports will be part of the solution. China’s first re-gasification terminal opened in 2006, and the country currently boasts three operational import facilities, all of which are operated by China National Offshore Oil Corp (CEO, Hong Kong: 0883).

The first phase of the pilot Guangdong LNG terminal, which came onstream in September 2006, boasts a total capacity of about 180 billion cubic feet (Bcf) of gas per day, while the Fujian re-gasification terminal that began operations in May 2009 sports an initial capacity of 126 Bcf of gas per day. The company also runs the Shanghai LNG terminal, which can re-gasify 146 Bcf of gas per day.

But that capacity is slated to expand substantially. By 2015, CNOOC should have five LNG import terminals up and running, while PetroChina (PTR, Hong Kong: 0857) will have four operational re-gasification facilities and China Petroleum & Chemical Corp (SNP, Hong Kong: 0386) will have two.

And investors shouldn’t overlook India’s insatiable appetite for energy commodities.

India’s Ministry of Petroleum and Natural Gas expects LNG imports to increase from 33 million cubic meters (mcm) per day to 162 mcm per day by fiscal year 2029-30. Over this period the government expects natural gas to grow to 20% of India’s energy mix from 9%.

LNG imports could easily exceed estimates if expected pipeline imports don’t materialize—a distinct possibility—or domestic production falls short of expectations.

Two LNG terminals currently operate in India, Petronet LNG’s (Mumbai: 532522) ten million tons per annum (mtpa) facility at Dahej and Royal Dutch Shell’s (RDS.A) 3.6 mtpa installation at Hazira. Petronet LNG plans to add 2.5 mtpa of additional capacity.

Meanwhile, growing demand for LNG in emerging markets supports higher gas prices in developed economies. In 2010, Japan and South Korea together accounted for 64% of the world’s LNG imports, and utilities in both nations have proved eager to ink deals securing long-term supplies of this critical resource.

Australia’s domestic demand for natural gas should also increase substantially in coming years, as utilities seek to reduce carbon dioxide emissions to comply with new environmental regulations.

At the same time, the dramatic expansion of mining and industrial facilities in Western Australia will drive demand for additional electricity. The majority of these power plants will be fired by natural gas. In 2010, natural gas accounted for only 14% of Australia’s electricity generation, compared to about 24% in the US.

European demand for LNG should also increase over the coming years, particularly after Germany’s recent decision to temporarily shutter seven of its nuclear reactors, and to accelerate plans to phase out its nuclear power plants.

Against this backdrop, the energy sector’s massive investment in expanding Australia’s liquefaction capacity makes sense.

Geoscience Australia and the Australian Bureau of Agricultural and Resource Economics estimate that 92% of the nation’s natural gas reserves are located offshore Western Australia and the Northern Territory in the Bonaparte, Browse, and Carnarvon basins.

Of these three gas-rich areas, the Carnarvon has undergone the most exploration and development. Not surprisingly, the preponderance of Australia’s LNG projects will source their feedstock from these fields.

But the discovery and development of unconventional gas reserves in the eastern portion of Australia have prompted energy companies to pursue four separate liquefaction facilities on the Queensland coast: BG Group’s (London: BG) Queensland-Curtis LNG Project, Santos’ (Sydney: STO) Gladstone LNG Project, ConocoPhillips’ (COP) Australia Pacific LNG Project, and Royal Dutch Shell and PetroChina’s Arrow LNG Project.

Several producers also plan to drill their first shale-gas wells in coming months to further augment their reserves.

In the fourth quarter, Santos will sink a vertical well in the Cooper basin’s shale formation. Fracturing is slated for the first quarter of 2012. A year later, the Santos will drill a horizontal well that’s 1,500 feet long and includes 20 to 30 fracturing stages.

Beach Energy (Sydney: BPT) has also scheduled a pilot shale gas drilling program in the Cooper Basin. These efforts will get under way in 2013.

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