Why is shale gas important?
On 27 June the Department of Energy and Climate Control (DECC) released a study by the British Geological Survey (BGS) showing that the shale gas resources under a swath of northern England, called Bowland-Hodder shale, could be enough to fuel the UK for 40 years.
As a headline this is remarkable; with hopes of emulating the boom experience by the US over the last 30 years, there is much excitement that UK shale gas could bring economic prosperity to regions rich in this resource and because it could mean UK energy independence. Looking deeply into the report and other materials suggests that we may want to hold off celebrating just yet.
1. The study is not complete
The DECC / BGS estimate comes from data provided by a number of studies and by assuming that the Bowland-Hodder shale has the same characteristics as the Barnett Shale (Dallas Fort Worth area) in the US, as these shales are similar. This only gives the potential amount of gas ‘in place’ – 1329 trillion cubic feet. Recovery rates (how much we can get out) will be determined by ‘top down’ surveys (eg using exploratory wells). The numbers announced by commercial organisations, at this date, are also for gas ‘in place’.
Oil and gas companies in the US measure the financial viability of shale gas resources using thirteen criteria. Overall, in the Bowland-Hodder shale, five criteria are clearly met, two are satisfied using partial data, one fails and three are unknown. The failed criteria is the size of the ‘basins’ (small), and the high number of faults present in the UK prospectives; small basins and faults make gas extraction less productive.
Commercial experience of current fracking techniques date back to 1996 in the US which also has a mature supply chain for equipment and chemicals. China has also – very quickly – become proficient at extracting tight gas, though it is not known how much money they have spent to develop their own fracking industry. The earliest proposed date for commercial gas production from Bowland-Hodder is 2015 and to succeed techniques specific to our geology have to be developed and proven.
3. Economic prosperity doesn’t happen automatically
In 1977 the Economist coined the term Dutch Disease or Oil Curse to describe the decline of manufacturing in the Netherlands after Natural Gas was discovered there in 1959. The full potential of the oil curse is seen in countries such as Nigeria where the wealth of oil has had no beneficial impact on the economy or the people or Venezuela where oil wealth was used to boost the economy for political ends. Some people feel that the wealth from North Sea oil and gas has been squandered in a similar way.
Given that fracking expertise and supply chains lie outside the UK, the best jobs are likely to go to foreign contractors and foreign factories will make the equipment and chemicals needed. While UK government will get income from licences and taxes, local industry will have to adapt very quickly to make the most of the boom.
Production from the Barnett shale started to ramp up in 2000 and is believed to have peaked in 2010. If the comparison is valid, then UK industry has around 10 years to build up expertise and put it in the field, because demand for equipment and experts will drop off with production.
4. What happens when the gas is all used up
As early as ten years and certainly in forty years’ time, extraction will have slowed, any economic benefits that have ‘trickled down’ will have dried up. Gas communities will face the same future as those built with coal and steel.
At the same time countries with larger reserves will be more than willing to sell gas to us…
5. Fracking is not a pretty industry
In the Barnett shale an average of 1.15 wells per km2 have been drilled. In some areas there are 6 wells per km2. Based on an average extraction rate of 1.44 billion cubic feet of gas per well, this means we will need 92 wells to extract 10% of the gas in place in the Bowland-Hodder shale. Wells sit on a pad that has space for equipment. Each well pad is a touch smaller than a football pitch. A pad can hold as many as six horizontal wells; each with a reach of up to two miles.
Good road access is needed to transport heavy equipment. Road transport may also be required to remove waste water and gas, unless the pad is connected to a gas pipeline or rail transport can be used.
If fracking licences are even-handed with quarrying and open cast mining licences, land disturbed by fracking will have to be restored when wells have stopped producing gas.
6. Safety and environmental record of the industry
Every oil and gas field has, inadvertently, let their product spill into the local environment; transport such as pipelines leak; rail and sea transport is equally prone to escapes. Methane is not like oil, it is invisible and doesn’t smell, leaks can be hard to find, with devastating consequences. The industry is not known for actively seeking to reduce such leaks, as demonstrated by our own experience.
The North Sea oil and gas fields have been active since 1851, next year will be the 50th anniversary of high volume production, this year saw the 25th anniversary of the Piper Alpha explosion (which killed 167 men) and during last month there were 55 reported leaks (reported to the DECC). Just over two years’ ago an explosion in a refinery in Pembrokeshire took the lives of four workers, there has been no inquest into the deaths as the enquiry into the cause of the explosion is not complete. That means there have also been no lessons learnt by the industry.
At all US fracking fields (oil and gas) burn gas in situ (flared) because it is disruptive, uneconomical to sell or because the infrastructure doesn’t exist to get the gas to market. US fracking fields can be seen from space and light pollution is one of the factors that the neighbours of fracking sites complain of the most. Noise and air pollution are also sources of disturbance.
There are claims about methane from fractured rocks reaching underground water. None of these claims have been substantiated, however, Duke University has shown that methane escaping from poorly sealed wells has contaminated water and that injecting waste water into poorly sealed wells can result in pollution of waterways. Neighbours of fracking operations have also complained that holding ponds have leaked fracking fluid (a mix of water and chemicals).
Each well requires 20 to 30 million litres of water. Compared with Barnett shale that means we will use 2 billion litres of water (over forty years this is 0.000003% of the total amount of water we are likely to use in that time). It doesn’t sound much until you think that this means we will have to dispose of 2 billion litres of fracking fluids, contaminated with various other chemicals. In the US waste water is pumped back into old wells.
The Bowland-Hodder shale is in areas rich in cave systems and underground waterways, most of which are unmapped. It seems unlikely that this will be a suitable way of disposing of fracking fluid in the UK.
8. Local government will have to give planning permission
Outside of energy, one of the biggest issues facing the UK is a lack of housing, yet many people oppose government proposals to relax planning constraints for housing. Wind turbine projects do not leave the drawing board because of local opposition. It is likely that planning permission will be equally hard to get.
The government is already testing the water with plans to give communities a share of fracking profits (1%), but in a country where protestors live in trees to prevent road building will such pay offs work?
9. Access to land
In the US getting land to drill through is relatively easy – land prices are lower than in the UK – and in the US land owners have mineral rights, so those in fracking areas are incentivised to allow fracking on their land. The government owns all mineral rights in the UK, with one exception: the Duke of Devonshire owns oil rights for his lands in Derbyshire and Nottinghamshire.
As you can see from the map the Bowland-Hodder region covers several urban areas; outside these areas the country is rural and includes the North Yorkshire Moors. Who is going to sell land for well pads, roads and pipelines?
From the previous nine points you are possibly already thinking ‘that will make UK shale gas more expensive’ and you would be right; each of the points above will increase the cost of extracting gas from Bowland-Hodder shale.
In December 2012 The Independent reported the release of a study by Wood Mackenzie “Wood Mackenzie estimates that in order to develop UK shale reserves, potential operators would need a gas price of $9.68 per million British thermal units (mbtu) for the project to make economic sense. This is considerably more than this year’s average UK spot price of $8.69 per mbtu and the $8 per mbtu that Bloomberg forecasts it will hover around between 2015 and 2020.” While the BGS report has the potential to improve these figures, in the US shale gas wells are closed when the gas price drops too far.
The bad news on pricing doesn’t end there. Supply and demand would suggest that, as gas replaces other fuels, ie coal and oil, it will be in greater demand and its price will rise.
Much is made of a huge price decrease in the US. I have pulled the Energy information Agency’s data on prices and can’t find much evidence of such a reduction. Here is that data in graphical form
Indeed in the ten years from January 2002 to December 2012, the price increased. It increased at the well head and at hubs, it also increased for every customer type – by up to 29%. I only found five instances where a previous price was more than 3 times larger than the price in December 2012, four improved Well Head and Hub prices and one gave Commercial users a bonus (though it was ten years earlier so they could be forgiven for not noticing).
The 29% increase came in the price of natural gas sold to electricity markets – the much heralded displacement of coal. As you would expect this price increase has been passed on to all electricity markets.
Previous ‘energy’ booms have brought prosperity because they enabled trade, commerce and consumerism. Coal allowed mass production and fuelled the railways. Oil brought cheaper energy, mass and personal transportation, and incredible materials. So far, the Shale gas boom has increased the profits of oil and gas companies.
You might think I am anti shale gas – but you would be wrong. I am against blindly putting all our energy eggs in one basket. Some shale gas extraction – done to our standards of safety and environmental care – is necessary and could be profitable / beneficial. But shale gas is not an energy silver bullet, it is an opportunity to power investment into renewable sources of energy and, if that is how we choose to go, nuclear power. We can’t afford to let political expediency and short-term thinking blind side us into an energy cul-de-sac .
 An earlier report listed three other areas of interest, the Weald and Wessex basins (pretty much the south coast, up to London / Bristol and ending around the Devon / Dorset border) and the Midland Microcraton (a triangle north of the Weald and Wessex basins, excluding East Anglia and taking in parts of western Wales). The Weald basin is being studied by the BGS and is of interest to Boris Johnson as it includes some parts of London. Return
 Horizontal drilling was introduced in 1991 and ‘slickwater’ or fracking fluid in 1996. Return
 Wood Mackenzie are a multinational research and consultancy group, specialising in global energy, metals and mining industries. Return
© Michelle Spaul and Leaving the world of work, 2013. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michelle Spaul and Leaving the world of work with appropriate and specific direction to the original content.