When the lights go out

By IM Staff
Published: Monday, 18 July 2016

At its peak in 2008, oil (WTI) was trading at $140/bbl, which in turn pushed up the price of natural gas. The high price of fuel prompted investment in alternative energy supply, with countries looking to become self-sufficient, at least in part. Now, Cameron Perks, IM Correspondent, details how Australia has moved to diversify its supply mix and what this means for oilfield mineral markets.

Australia’s energy source reliance has changed dramatically in a short amount of time. A carbon tax introduced in the 2012-13 financial year forced coal energy output down by around 12% over the two years that it was in place (1 July 2012 to 30 June 2014). Coal’s energy market share fell to an historical low of 73.6% in 2013-14. The abolition of carbon pricing on 1 July 2014 reversed this trend, most notably for brown coal generation, the output of which rose by 10% in 2014-15.

Gross electricity demand is predicted to grow by 30% out to 2050, according to the Office of the Chief Economist, indicating that all existing energy sources will expand, including coal, although its overall share as an energy source is expected to decrease. 

Over a 10-year period, coal as a source of energy shrank by 2.2% overall, with oil, gas and renewables gaining a 2%, 3.9% and 2.4% market share, respectively. The largest annual growth rate over a 10 year period was seen in the solar photovoltaics (PV), wind, biofuels and solar hot water areas.

Rising electricity bills over the past five years has contributed to consumers’
adoption of solar energy

Energy1 

Growth rate over time. Hydro generation includes Tasmanian generation prior to its
entry to the National Electricity Market in 2005 (Source: AER)

Renewables

The Australian Renewable Energy Agency (ARENA) recently announced that it would partner with the Clean Energy Finance Corp. (CEFC) to fund Australian dollar (A$) 350m ($263m*) for the building of up to 10 additional large scale solar plants by 2017. In addition, the Australian Energy Regulator estimates that by 2025, solar PV will meet 7.5% of total energy requirements in Australia (up from around 2.5% in 2014-15).

Battery storage will allow for better matching of output from intermittent generation such as solar PV against evening demand peaks. The drive for more sustainable transport, championed by Tesla Motors Inc., is affected by increasing battery storage capabilities. Tesla is now taking the innovation sparked by the transport industry and transporting it to the home in the form of the powerwall, a home battery that charges using electricity generated from solar panels and powers the home in the evening. 

Australian investment in new energy generation plants outside of wind and solar has largely evaporated and a large amount of new plants have been withdrawn from development. Besides the growth driven by consumers and suppliers, the government is targeting 33,000 GWh from renewables by 2020, which would mean 23.5% of Australia’s electricity generation in 2020 would come from renewable energy, mostly from wind and solar. 

CEFC has suggested that significant potential exists for new investment in the bioenergy market – technologies which are not currently widely deployed in Australia. Bioenergy contributes only 0.9% of Australia’s electricity output, well below the Organisation for Economic Cooperation and Development (OECD) average of 2.4%.

Australia is also host to many granites which can be exposed at the surface or concealed under overlying rocks or sediment. Some of these granites, notably those that are relatively deep beneath the surface and with high heat producing qualities, could have significant potential as a hot rock source of geothermal energy for Australia.

Energy2 

Tesla Powerwall (Source: Tesla Motors)

Gas

Conventional and unconventional gas is expected to increase its overall market share at a growth rate of 2.5% per year until 2050. Gas consumption continues to rise in the state of Queensland and Western Australia, as well as in the mining and chemicals sector, according to the Department of Industry and Science. 

Companies like Arrow Energy Pty Ltd, Santos Ltd, Molopo Energy Ltd, Origin Energy Ltd, Westside Corp. Ltd and QCG Pty Ltd (BG Group) are hoping to capitalise on these numbers in Queensland – with BG Group alone to spend A$1.7bn developing its Charlie CSG project in the Surat basin, initially targeting 93 wells and upping this to 400. Queensland’s mines minister, Anthon Lynham, said that "by 2018, Queensland could be the world’s fourth largest liquefied natural gas (LNG) exporter and by the end of the decade, Australia has the potential to be the world’s leading LNG exporter."

Addressing 100 business leaders in May at an invitation-only investment forum at the NT Parliament House in Darwin, Gina Rinehart, iron ore magnate, said that the nearby Northern Territory contains more than 200 trillion cubic feet of gas, which could potentially power Australia for over 200 years.  

However, it’s not all roses for the gas industry, with exploration company Metgasco Ltd leaving the state of New South Wales (NSW) after having its licenses bought back by the government for $25m last December. Metgasco’s managing director, Peter Henderson, said there is little confidence in gas exploration investments in NSW, adding that the company "would like to take the $25m settlement and invest in other oil and gas opportunities in states that are more favourable for investment". Elsewhere, AGL Energy pulled out of its CSG plan in Gloucester in NSW and is selling its assets in Queensland’s Moranbah and in Spring Gully. 

The company said a review had concluded that natural gas assets would "no longer be a core business for the company" because of volatile commodity prices and long development lead times. It added that it would cease production at its Camden Gas Project in south-west Sydney in 2023 – 12 years earlier than expected.

As indicated by Rinehart, Australia contains significant gas resources. Gas is Australia’s third-largest energy resource after coal and uranium and, as of August 2015, reserves of gas stood at 126,000 petajoules. Conventional gas resources are widespread both on and offshore, occurring in fourteen different basins, but most of the resource is off the north-west margin in the Bonaparte, Browse and Carnarvon basins.

Australia’s gas facilities

Energy3 

Source: Geoscience Australia

Energy prices 

Wholesale electricity prices fell in 2014-15, except in Queensland, where generator bidding contributed to high summer prices. Electricity retailers offer consumers a range of contracts with different price, product structures, fees and transparency levels. Retail electricity prices mostly fell in in 2015, reflecting declining network cost pressures.

Retail gas prices have risen in most states and territories since 2014, driven by higher pipeline charges and rising gas contract prices. These rising electricity prices are driving consumers to cut energy usage through the adoption of measures like solar water heating and energy efficient air conditioning, as well as the installation of solar PV panels. 

Energy prices have a knock-on effect on the mining of all commodities. The nature of some industrial mineral operations, especially those that are intermittent or small-scale family-owned quarries, means that these low-margin operations are the first to be affected, if not directly through the cost of operating equipment, then through higher costs incurred by manufacturers using industrial minerals in their products.

One example is National Ceramic Industries Australia (NCIA), one of only a few tile plants left in Australia, which has an energy-intensive process of turning raw materials into tiles through drying, pressing, firing and printing. If rising energy costs incurred to the manufacturer were passed down to the supplier of raw materials, then the effects would be felt in the feldspar, quartz and clay industries among others.

Clay is considered the most important component in ceramic tiles, producing a light colouring during firing, giving plasticity and binding characteristics to the mass, enhancing mechanical characteristics in fired tiles, producing good rheological flow properties and providing a good density level during firing.

Feldspar is an important and common fluxing material for ceramics as well as glazes, supplying the glassy phase for the ceramic bodies. It is added to decrease firing temperature and reduce cost, as well as to facilitate drying and the release of gas during firing like other non-plastics.

The addition of silica sand to tiles decreases its unfired strength and plasticity but also assists with the escape of gases during drying and firing. It additionally reduces drying shrinkage and increases the whiteness of the fired body.

Talc, wollastonite, dolomite, magnesite, nepheline syenite are other minerals used in the ceramic clay manufacturing process. With the example of just one manufacturing industry, it is easy to see the interconnectedness of the mining and energy sectors.

Gas minerals

Hydraulic fracturing (fracking) is used for the extraction of gas from shale deposits. While fracking is an old method, the Australian shale gas industry is still in its infancy — the first commercial project commenced operation in the Cooper Basin, South Australia in 2012.

Fracking fluid is composed of mostly water and sand or ceramic beads (between 96 and 99.9%). These proppants enter fissures created in the rock and hold them open to make the fracking process more effective. Natural sand proppants must be formed from high silica (quartz) sandstones or unconsolidated deposits with >99% quartz or silica. Other essential requirements are that particles are well-rounded, relatively clean of other minerals and impurities and are able to facilitate the production of fine, medium and coarse grain sands. 

A single fracked well can reportedly use as much as 10,000 tonnes sand over its lifetime, but the Founder of Asset Minerals told IM that a typical well uses around 100 tonnes frac sand in Australia. This number could triple however, if horizontal drilling becomes widespread.

Asset Minerals is a potential new entrant to the frac sand industry, which is currently dominated by sole-operator Sibelco Global in South Australia. Asset’s resource, located in Queensland’s Surat Basin, contains about 2m tonnes JORC-certified sand under API specifications. The deposit has been approved by the council and the company is in the process of acquiring a mining lease, with plans to begin mining by 2017.

Yuleba Minerals Pty Ltd, also in Queensland, claims to produce frac sand and distributes its products throughout Australia, however the company is not API certified and has reportedly failed testing requirments, according to sources close to the company. 

Asset told IM that API specification is critical and that frac sand cannot by supplied without it. With an API-certified resource, Asset Minerals is well-placed to supply sand to the 40,000 approved gas wells in the Surat basin. Of these, an estimated 10% will be fracked, but this number has the potential to grow significantly as companies move into shale rock resources. 

Another potential source of frac sand in Australia includes Montumana in Tasmania, which has been tested and has passed API specifications testing. The operator told IM that it is looking for JV partners or other investors in order to continue the project. 

In addition to sand-based proppants, ceramic proppants comprise most often of calcined bauxite, calcined kaolin or a mixture of both, and are known for their round particle shape, which is much more effective for fracking in deep oil and gas stratum with high pressure. However, this type of proppant is more expensive to produce than silica sand owing to a complicated and energy-intensive process.

Australia-based LWP Technologies Ltd is attempting to solve this issue with a fly-ash based alternative to ceramic and bauxite based proppants. Thanks to Australia’s vast amount of coal production and coal-byproducts, fly ash could be a low cost option for fracking, but it has not yet proved successful.

Australia has excellent potential to produce bauxite-based proppants. Prior to 2008, Rio Tinto Plc produced up to 150,000 tpa calcined bauxite for abrasives and proppant agent applications, filing proppant patents in the 1980s as Comalco Aluminium Ltd. In the same year that Rio Tinto stopped producing non-metallurgical bauxite in Australia, US-based Carbo Ceramics Inc. switched from Australian bauxite imports to buying material from Guyana. 

Rio Tinto has demonstrated that Australian bauxite can used to make proppants. Given the high cost of importing frac sand into Australia from the US along with the rise of onshore gas activity in Australia, the development of local bauxite-based ceramic proppants manufacturing could be an area of opportunity. 

Finally, resin-coated proppants can be sand- or ceramic-based and are being increasingly used in the US due to their ability to increase proppant pack conductivity, leading to higher oil and gas production.

Proppant testing in Australia

LAB SA has recently opened a new proppant testing laboratory in Adelaide to service the emerging unconventional oil and gas industry. The lab was opened with the assistance of the South Australian Government’s Mining and Petroleum Services Centre of Excellence, awarding a $100,000 grant to set the service up.

LAB SA’s general manager, Andrew Attwood, spoke to IM and said that LAB SA is the only facility of its kind of Australia, where API testing is carried out to ISO standards. LAB SA’S proximity to local suppliers means that testing results are carried out in a matter of days rather than weeks, resulting in a 40-50% reduction in testing costs.

Attwood said that while South Australian silica sand is of a high quality, more resources need to be discovered and companies are still learning about the relevant processes needed for cleaning of the mineral before it is used as a proppant. 

Minister for Mineral Resources and Energy, Tom Koutsantonis, said that Lab SA has "now come up with a unique and cost-effective technique, which has led LAB SA to providing quality assurance and quality control testing for companies in Queensland, Western Australia and the Northern Territory, as well as some international companies".

While the company is focused on benefits gained from local growth, it also hopes to grow into Asia.

Proppant characteristics

Frac Sand

Resin Coated Sand

Ceramic Proppant

Conductivity

Low

Medium

High

Shape

Low

Medium

High

Shape

Irregular

Irregular

Uniform

Well Type

Low Pressure

Medium-High Pressure

High Pressure

Cost

$

$$$

$$$$$

Other minerals

Currently coal seam gas wells and all oil and gas wells are required to be plugged with cement. This process is limited as cement is expensive and can require maintenance over time. 

A study by the University of Queensland into using bentonite to plug wells is currently underway to solve this issue. Bentonite is cheaper and easier to handle and, when hydrated, creates a more reliable plug as it is malleable and self-healing when disturbed. 

Considerable laboratory data have already been acquired at the University of Wyoming verifying the efficacy of the process, while multiple field trials with bentonite plugging have been successful in the US and at least one in Australia. Further research and testing is required to provide clear scientific evidence of the performance of bentonite plugs under Australian conditions.

However, the most common use of bentonite is in drilling fluids and, just like proppants, the material must be API certified as the institute precisely regulates technical data for all minerals in drilling fluids.

Bentonite is used to lubricate and cool the cutting tools, to remove cuttings and to help prevent blowouts. Other minerals such as attapulgite, sepiolite, barite, chalk and hematite also used in drilling fluid. 

Attapulgite and sepiolite, also known as 'salt gel’, are clay minerals and are used to provide low-shear rate viscosity for lifting cuttings out of the annulus (the space between the wellbore and casing or between casing and tubing, where fluid can flow) and for barite (barytes) suspension.

One of Australia’s largest attapulgite mining operations occurs at Lake Nerramyne, 150km north-east of Geraldton, in Western Australia.

The attapulgite clay at Lake Nerramyne covers an area of 2,700 hectares (27km2) and has a JORC compliant inferred resource of 23.4m tonnes, of which 9.4m tonnes are of a very high grade. Attapulgite mining at Lake Nerramyne is carried out on a seasonal basis by Hudson Resources Inc., with between 10,000 and 20,000 tonnes extracted each year.

Calcium carbonate, or chalk, is an acid-soluble mineral primarily used for controlling fluid loss and fluid density. Hematite ore, with its mica-like crystal structure, is used as a weighting agent, owing to its high density of greater than or equal to 5.05. This is 19% greater than the density of barite, which is also used as a weighting material.

Approximately 90% of world barite production is used as a weighting agent in drilling mud for oil and gas wells where its high specific gravity (SG) assists in containing pressures and preventing blowouts.

Specifications for oil drilling grade barite are generally >92% (Ba + Sr) SO4. Highest prices are commanded for fine-ground white to off-white paint and pigment grades – fetching more than twice the price of oil drilling grade. Most barite supplied in South Australia is of oil drilling grade.

Ore from the northern Flinders Ranges is treated at the Quorn treatment plant, producing three industrial grade products: A grade, standard grade and B grade, depending on colour. 

Currently the only deposit being mined is the Dunbar deposit in the Oraparinna region in the northern Flinders Ranges. The mine is estimated to contain 530,000 tonnes industrial and drilling grade barite and has an output of 11,000-17,000 tpa barite. 

Most Dunbar ore is used in the production of oil drilling grades of barite, but some is used to feed a magnetic separation plant at Quorn, which produces a super white AA industrial grade.

Archer Exploration Ltd, known primarily for its graphite and magnesite deposits in the same state, is exploring for barite in South Australia. The Mount James barite project, located approximately 25km south-west of the mining township of Leigh Creek, is host to a 2km long outcropping barite vein set. Results of preliminary test work conducted by Archer confirms that material from Mt James barite will produce API (13A) drilling grade barite. 

Barite has also been intermittently mined at Dresser Mine in Western Australia, at about 2,500 to 3750 tonnes per month in 2009.

A number of materials, including celestite, ilmenite, iron ore and synthetic hematite, have been used as alternatives to barite in drilling muds. However, they have had little impact on demand for barite because of their higher cost or inferior performance.

 

*Conversion made June 2016