In all the debate and discussion about the possibilities for shale gas in the UK and in wider Europe, there has been little rational discussion about the practical implications of large scale development of shale gas. In this article we seek to debunk a few myths, and point out some as yet undebated realities.
“Shale Gas has transformed the US economy”
Shale gas now accounts for 30% of total US gas consumption compared with approximately 1% in 2000. This greater availability of gas has pushed US domestic prices lower (recently hitting the lowest level since 1999).
The main beneficiaries include chemical companies that use natural gas liquids as feedstock benefiting from lower raw material costs; nitrogen fertiliser manufacturers benefiting from lower material costs; and much needed new power stations that are almost entirely gas-turbine driven. These developments bring benefits for engineering companies as business expands, and the personnel industry as the increased capital spending demands more specialist roles. This is likely to hand pricing power to those companies that specialise in providing staff to the energy sector. Finally, the increased gas supply has reduced demand for imports. In just four years, the US has gone from being the world’s largest importer of gas (in 2007) to being largely self-sufficient. [Shale will Power the US Economy FT 07/04/13]
However there are some significant business issues which may take the shine off this success. Oil companies small and large are struggling to make sustainable returns from shale gas, suggesting that the current high level of supply may dwindle, pushing prices back up again. The US would still reap the balance-of-payments and security of supply benefits, but the low gas price is almost certainly not sustainable. [Why America’s Shale Oil Boom Could End Sooner Than You Think Forbes Magazine 13/06/13] The other issue is the sheer number of rigs – and the associated skilled workers to operate them – required to sustain the current level of production.
“Shale Gas is unlikely to transform the UK and European economies”
The UK and Europe have similarly large shale formations that could yield large volumes of gas. The British Geological Survey (BGS) has completed an estimate for the resource (gas-in-place) of shale gas in part of central Britain in an area between Wrexham and Blackpool in the west, and Nottingham and Scarborough in the east. Reflecting natural geological uncertainty the lower limit of the range is 23.28 trillion cubic meters (tcm) and the upper limit is 64.59 tcm, with a central estimate of 37.63 tcm (Trillion = 1012).
In the US it is estimated that 10% of the “in place” resource is actually recovered. 10% of the UK “in place” resource would be 3.7 tcm, which is similar to the current UK maximum proven plus probable plus possible recoverable reserves of 3.08 tcm – so it’s clear why politicians and industrialists are keen on the idea. [New shale gas resource figure for central Britain British Geological Survey/DECC Study 2013, www.gov.uk/oil-and-gas-uk-field-data DECC Production Statistics, Conversion used 1 cubic meters = 35.31 cubic feet] Estimates of the volume of recoverable gas in Europe vary widely, because little test drilling has been carried out to date. Estimates range from 2.3 – 15.9 – 17.6 tcm, compared with 13 – 20 – 47 tcm in the US. [Can Shale Gas Transform Europe’s Energy Landscape, D. Buchan July 2013]
However, even with significant potential reserves, four factors point against large scale development of shale gas in the populated countries of Europe.
- The huge number of wells required: In a conventional gas field wells are drilled, and the gas flows until the pressure has fallen so low that it won’t flow any more – often 10-20 years later. In a shale gas well the flow rate falls rapidly, such that the well is uneconomic in 1-3 years. More wells are then required to sustain production. As an example, in the Marcellus Shale in the US there are currently around 12,000 wells. Industry estimates suggest this number could eventually exceed 100,000 wells. Scaling this to the UK would imply 10,000 wells across Northern England. It is unlikely that this density of wells would be acceptable in the UK or wider Europe.
- Environmental concerns: Environmental obligations and planning legislation creates a need for a more stringent assessment of shale gas operations in Europe than in the US. This adds cost and time to operations and may constrain development potential. In addition, experience to date suggests that public opinion with respect to shale gas activity can be negative and may influence development potential in Europe. This is set against the generally successful existing onshore developments at locations such as Wytch Farm, where environmental concerns have been effectively managed.
- Mineral rights are not linked to land ownership: The US is unique in that ownership of land gives ownership of the mineral rights beneath that land. As a result farmers and other land owners have a simple personal incentive to accommodate shale gas operations, and have done so in their thousands. In Europe the state controls the mineral rights, and hence benefits from any development. For the land owner, shale gas development is at best an opportunity to extract a modest rent, and at worst is seen as detracting from property values, from visual amenity and from personal peace and quiet.
- Lack of onshore drilling equipment and expertise: The US has had a thriving onshore drilling sector, with between 600 and 2000 land drilling rigs active. The number currently stands at 1800. Associated with this are the rig crews, service support and frac trucks which make US shale development possible. In the UK and wider Europe there are relatively few land rigs and associated expertise and equipment. Of course with the correct investment and sufficient time it would be possible to build and develop this capability, but it is a huge step at a time when investment focus is increasingly on low carbon options.
So whilst shale gas has had significant impact on the US economy and there are significant potential shale gas resources in the UK and Europe, there are major differences between Europe and the US, which make a European shale gas revolution much less likely.
This article was written by Ian Phillips.