CAN the American shale gas revolution be replicated in the UK, Peter McCusker reports.
LOWER natural gas prices are having a profound effect on American industry with many of the world’s chemical majors looking to build new US facilities after decades of investing elsewhere, particularly in the Middle East.
The glut of shale gas has seen America become almost self-sufficient and this, combined with a lack of export facilities, has seen the price plummet.
In Europe and the UK gas is trading at around $12 per mcf (thousand cubic feet), in Asia it’s over $14 per mcf whilst in the United States it is $3 per mcf
Consequently, over a dozen chemical majors are looking to invest in new US plant and take advantage of the substantially lower feedstock costs.
Even Saudi Arabian-based SABIC (Saudi Basic Industries Corp), the world’s largest petrochemical company, is in talks about possible new US plant.
In the UK there is much speculation about the extent of the UK’s shale gas reserves with the results of the latest British Geological Survey (BGS) being eagerly anticipated.
This is due out next month and The Times newspaper recently reported how the BGS is set to dramatically raise its official estimate, suggesting reserves are 200 times greater than experts previously believed.
The survey is slated to show there is between 1,300 trillion and 1,700 trillion cubic feet, of shale gas in the UK dwarfing its previous estimate of 5.3 trillion cubic feet.
If these reports are correct then this is enough to heat every home for 1,500 years.
Nigel Smith, a geologist at the British Geological Survey (BGS) would not be drawn on the speculation but confirmed that the best prospect areas in the North of England are in a belt that runs from North Yorkshire to Lancashire, where the shale reserves can be found in seams around 50 meters thick.
He also says there is potential in many sites across the UK including stretches of territory in North Northumberland and straddling the Pennines in Northumberland.
He says these Northumberland shales are found in thinner seams and offer “riskier” plays for exploration companies.
Late last year the UK Government lifted the moratorium on hydraulic fracturing, or fracking, allowing tests to continue into exploring the potential of the UK’s shale gas industry.
The tests had been suspended in 2011 when experiments by Cuadrilla, in Lancashire had produced earth tremors – although the British Geological Survey said at 2.3 and 1.5 on the Richter scale they were “way too small to cause any damage”.
The joint report from the Royal Society and Royal Academy of Engineering say the technique of fracking - which involves pumping water and chemicals into shale rock at pressure - is safe if firms follow best practice and rules are enforced.
Caudrilla’s activities are now said to be attracting the attentions of some of the industry major players with many media outlets speculating that a bid for the company from Centrica is imminent.
Christopher Causer, a commercial consultant at Newcastle law firm Ward Hadaway, says that aside from the indirect environmental concerns regarding further use of fossil fuels, there are a number of additional concerns.
He said: “The principle claim is that, given that the majority of shale gas reserves lie below aquifers and it is often necessary to drill through an aquifer to extract the gas.
“Whilst the well-hole created by the drilling will be encased in concrete, there is a potential for the casing to become damaged, allowing gas (or the fracturing fluids) to leach into the aquifer.
“In addition to well integrity concerns, the circulation of fracturing fluids means that a significant volume of contaminated liquids needs to be stored on the surface. These are controlled substances which need to be disposed of safely, and, as such, can raise concerns where storage facilities become defective.”
Referring to the temporary moratorium placed on Cuadrilla’s activities on the Fylde Coast he continued: “Proponents of the technology comment that the three reported quakes have to be considered in the context of more than 10,000 drilling activities and is a far lower frequency than traditional mining.
“Whilst this moratorium has now been raised, operators will now have to undertake an extensive seismic monitoring during drilling activities
“Finally, concerns have been raised in respect of the increased pressure on water infrastructure near to fracking sites, as large volumes of water need to be used to driving the fracturing fluids down to the relevant shale.”
Chris Wilson, a senior energy analyst at London-based global oil and gas specialists Evaulate Energy explained that following the shale success in the US, the rest of the world has taken notice.
He said: “A gigantic shale oil play was discovered in Argentina, and amidst a legal battle between many companies and Repsol, development is slowly ongoing. America’s Petrogas is one company quietly making significant progress here.
“In Europe the picture is very interesting. The main movement has come in Poland which is looking for some energy independence from Russia.
“However, the task isn’t as simple as just transferring the technology and knowledge from the US to another country, as has been proven with ExxonMobil and Talisman both pulling out of the country following uneconomic well tests.”
Wilson went on to say that the main issues around shale gas and oil development, are water contamination and earth tremors.
He continued: “A lot of countries placed a moratorium on shale development until these issues have been resolved.
“France has banned fracking and even gone so far as to relinquish licenses from those companies who failed to display that fracking was not in their plans, even Total was not immune to this.
“Quebec in Canada, the only Canadian province to do so, and New York State have similar bans in place.
“The rest of Europe has also been very cautious, with the exception of Poland, although some countries which have moratoriums in place are expected to be retracted soon, as the UK has done.”
Mark Whitehead, a partner and head of the energy team at Ward Hadaway in Newcastle, said: “The impact of shale gas in the US market has been substantial, and has had an effect beyond the borders of the USA.
“The resultant drop in energy prices in the US market has led to relocation back to the USA of a number of significant energy-intensive businesses.
“Where previously products such as base chemicals and metals would be manufactured in low cost markets such as China, and subsequently imported, they are now made in the market for which they are intended.
“Indirectly, America's renewed confidence in their own energy security may lead to a review of their level of interest in global geopolitical issues. If they no longer need to secure sources of energy from trading partners, will they also become disinterested in international issues of concern?
“The US has historically had a libertarian view to development of its natural resources, a view which is not shared by the UK government. The size of the US, and its looser regulatory framework, has allowed operators to maximise shale gas activities within a very short timescale.
“Most commentators agree that the UK will not see the same level of activity due to various factors. This includes the impact of the regulatory framework, relatively high population density and limited social acceptance of drilling activities.
“Given the level of scrutiny commonly derived from the conversion of derelict pubs into supermarkets, it is hard to see that the public will not have a strong view of the prospect of a drilling rig arriving in their neighbourhood.”
However Smith from the BGS is less pessimistic citing the example of one drilling effort underway in Poole Harbour which has drilling tentacles over 10kms from the base pad.
He adds: “In Texas shale companies have drilled underneath Forth Worth Airport. This is a technically advanced industry, one which has the ability to avoid the potential surface obstruction.”
With the UK chemical industry crying out for cheaper supplies of natural gas this may be cheering news for Teesside.
US Sale Revolution
The US shale revolution began with George Mitchell when his company Mitchell Energy drilled the first horizontal test well in the early 1980’s
Mitchell and his engineers developed the techniques to exploit shale in the Barnett Shale formation Dallas, North Texas, and by the early 1990s they had produced their first gas.
This saw engineers drill down several thousand feet and bank a bit horizontally through the shale. Then they sent 4 million gallon mixture of water, sand and chemicals down to break open the rock and release the gas.
Mitchell, a father of 10 and sold Mitchell Energy & Development to Oklahoma-based Devon in 2002 for $3.5 billion in cash and stock.
The Barnett Shale, near Fort Worth, became one of the most prolific natural gas fields in the country and by 2005 fracking became the vogue method for extracting resources from these deposits.
Other shale gas plays to start after the Barnett were the Antrim play in Michigan, the Fayetteville in Arkansas and the Woodford in Oklahoma.
A play that developed a bit later, the Haynesville in East Texas/Louisiana sky-rocketed in 2009 and overtook the Barnett as the biggest producer in 2010.
Chris Wilson, a senior energy analyst at London-based global oil and gas specialists Evaulate Energy Wilson said: “The new glut of domestic gas however did have a negative impact on profitability, as gas prices tumbled. The US did not have the capacity to export any gas, and the gas was trapped, causing supply to overtake demand.”
Other countries with shale gas deposits include: Australia, Algeria, Bulgaria, Canada, China, Czech Republic, France, Germany, Lithuania, Ukraine