Three Cheers for UK Politicians on Shale Gas

David Finlayson an associate of Warren Business Consulting, comments on the challenges the UK faces with shale gas exploration.

David FinlaysonSo, after nearly 50 years of UK oil and gas production, the UK will get a sovereign wealth fund to benefit future generations in the North of England. But not based on the proven, possible and probable oil and gas reserves of the UK continental shelf as of today: this fund will be created from the revenues generated from future shale gas production.

But wait a minute, the Norwegians started their fund (originally the Petroleum Fund of Norway) in 1990. Production had started in 1971, so the announcement would have seemed like a fantastic boost for the future pensions of all Norwegians. In 1990 the ‘Proven’ oil reserves in Norway were 8.6 billion barrels and at end 2013 they stood at 8.7 billion barrels. Gas reserves in 1990 were 1.7 trillion cubic metres and at end 2013 stood at 2 trillion cubic metres (source: BP Statistical Review). If I were a Norwegian of any age I would find that very reassuring.

So where are we with shale gas in the UK? Well actually we don’t have any proven shale gas reserves at the moment or shale oil for that matter. In fact we are only a very few wells into an exploration programme which has yet to establish that hydrocarbons can flow at a commercial rate. Commercial shale exploitation in the UK, or anywhere else for that matter, is not a ‘Given’. While good science, and geological insight does make a contribution to identifying potentially viable targets and ultimately the ‘sweet spots’, the historical evidence from the US has shown us that a lot of trial and error is been involved, drilling multiple wells while experimenting with different completion strategies. Even within ‘sweet spots’, wells still disappoint. The whole US play has been developed on an industrial scale involving thousands of wells. The winners are those that have mastered subsurface definition, land acquisition and the supply chain on a heroic scale to ensure optimal operational efficiency. This has taken literally thousands of wells in the most prolific US plays. It’s is also clear that each unconventional play has its own characteristics so ‘learning’ in one play does not necessarily give you a head start in the other.

It’s clear that there are viable shale targets in the UK. The Bowland shale in the Northwest of England for example has delivered a lot of gas into the Morecambe Bay conventional gas field, and historical log and core data from the shale have suggested that it could emulate some of the US shale plays, like the Barnett. However the US experience tells us that not all shale gas plays work, and when they do they will invariably have sweet spots, with just the right combination of ingredients to make fracking commercially attractive. It’s well known that shale exploration and exploitation is disruptive to the communities affected. In a UK setting, there is a robust planning regime to negotiate, and a sceptical public to reassure on environmental issues. Some promising locations will never be accessed for testing.

All that said, three cheers for the UK politicians. With no prospect of meaningful production for several years, the government has committed to share the future benefits for the long term public good, in contrast to the previous 50 years of conventional exploration and production. It is great that as the industry starts to evaluate the shale play in the UK people will know that if it does prove to be commercial, and the North West of England is host to the next ‘shale gale’, their children and grandchildren will reap the benefit.

Comments

  1. Desmond OSWALD says:

    Unfortunately the british public have been led to believe that shale gas fracking is going to bring down houses, break up roads and disrupt the economy of the whole country. There will certainly be a great deal of traffic if a shale gas well is completed. The matter of earthquakes needs to be addressd. At the moment to govt. is allowing 0.5 on the Richter scale, this is far too small, it is no more than an 8-ton lorry driving past. As a sop to environmentalists the govt. should increse thi to Richter 1.0 for wells to 3000 feet and 2.0 for wells to 5000 feet or deeper. This is really quite meaqningless but might convince some of the sceptics that there was something being done. I hink is is also important to stress how the whole fracking business has changed the world oil economy.

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