While welcoming all the new readers recently, those who have been following NHA for a while know that when it comes to shale, I'm a very big bull. But even I'm not sure about this Reuters story from yesterday After having zero stories on shale ever, much of the UK press start some type of expectation inflation.Don't get me wrong: there are several decades if not centuries of shale in Europe, but approach this story with caution:
Britain may have enough offshore shale gas to catapult it into the top ranks of global producers, energy experts now believe, and while production costs are still very high, new U.S. technology should eventually make reserves commercially viable.
UK offshore reserves of shale gas could exceed one thousand trillion cubic feet (tcf), compared to current rates of UK gas consumption of 3.5 tcf a year, or five times the latest estimate of onshore shale gas of 200 trillion cubic feet.
The story certainly isn't the exclusive Reuters touted:
"There will be a lot more offshore shale gas and oil resources than onshore," Nigel Smith, subsurface geologist and geophysicist at the British Geological Survey (BGS) said. UK offshore reserves could be five to 10 times as high as onshore, said.
We were pioneers in the North Sea with conventional oil and gas and the technology has gone around the world, so why not become one in the unconventional sector," Smith said.
Offshore geological information is already available, and superior to onshore shale reserves data, he said.
He told the British parliament's House of Commons shale gas energy and climate change committee that Britain could become energy self-sufficient if it went offshore with its unconventional oil and gas industry.
That's the catch here: This testimony is over a year old. I was present (I testified a month later), so let me refresh my memory:
Q37 Christopher Pincher: I was also taken by this rather fine colourful map of the onshore deposits, but can we talk about offshore shale gas for a moment? The briefing note I have says that "UK onshore basins are small in comparison with UK offshore basins". Can you say what the magnitude of difference is between offshore and onshore deposits?
Nigel Smith: I cannot offhand, but I would say five to ten, something like that. It is massive, the North Sea.
Q38 Christopher Pincher: That is where it is—in the North Sea?
Nigel Smith: Well, that is where they start, yes, where the existing infrastructure is. They might start drilling from the onshore into the offshore or perhaps across a bay or something like that, where they can connect up their wells. I think that is quite likely. I mean, they have already drilled once in southern England from the coast into the offshore. They have also drilled on the Moray Firth from the onshore towards a field that is offshore, so there is a precedent for that, but the oil companies say it is the cost. I am sure they will make proposals or think about developing shale gas offshore, but it is the cost at the moment that stops them.
Q39 Christopher Pincher: What do they say is the cost? What sort of price are they talking?
Nigel Smith: I have not seen the figures. They will know the cost. You can ask them perhaps.
Q40 Christopher Pincher: Given your background and experience, and given that you said that there is shale gas in the North Sea where we have conventional drilling platforms, what do you think the opportunities are for drilling for that gas offshore compared with onshore? What is the relative opportunity?
Nigel Smith: I would say it is more in terms of time—20 years forward, perhaps.
Q41 Christopher Pincher: As I understand it, if we drill offshore, then we would be pioneering because nobody else is doing that. Why is that? Has nobody else found any offshore shale gas anywhere?
Nigel Smith: Bear in mind the Americans are the only ones who have any production at the moment. There are one or two other discoveries in Argentina. There was one mentioned recently, but they are the only people who are producing from shale. They have got a huge continent to work on, massive basins, not a lot of deformation in those basins, so they are going to pick off the easy things first, learn how to do it, and then eventually we will all be able to go offshore.
Q42 Christopher Pincher: Professor Selley, do you have a view?
Professor Richard Selley: I think it all depends on the economics. I am sure the technology is there to look for and produce shale gas offshore, but I suspect at the moment it is an economic issue rather than a technical one.
When I gave evidence the Committee remained eager to push the offshore scenario. Let's face it, it would be nice if we simply could replicate the shale revolution under water, but this seems something more attractive politically than physically. No one elsewhere is dong shale off shore and we have to ask the reasons why, and as Richard Selley says, it could come down to economics.I don't think Reuters is right on off shore shale and both the committee and the journalists were getting the wrong end of the stick in their eagerness to find the perfect solution: Plenty of shale, yet zero neighbours short of the herrings.
But later on in the story, reality over offshore intrudes:
"For the offshore industry to become viable, you'd need vastly higher energy costs, perhaps as high as $200 (per barrel) or more. But we're dealing with a finite resource, so it will happen," the BGS's Smith said.
But $200 oil is not happenng anytime soon - if ever. Technology may improve but for now, I think offshore is not going to happen. But there remains plenty on shore, and later on in the Reuters story there is an even bigger bull than I've ever been:
Petroleum engineers say that shale oil and gas reserves of vast potential stretch over different formations across Europe.
"We have potentially huge volumes present in the subsurface - the volumes are mind-blowingly big," Melvyn Giles, global head of unconventional gas and light tight oil at Shell, said of Europe's unconventional gas resources.
"The figures appear to suggest the shale resources are so large that the question is not how much is out there, but how much can be retrieved - how much can be economically accessed in an environmentally acceptable way," he added.
Giles said that although the pace of shale oil and gas development was hugely faster in North America than elsewhere, interest in the industry was building up quickly elsewhere.
"The challenge is being taken on, and there comes a point when this industry will explode out of North America, and in my opinion it will happen when we start to get a few test results showing an economic development outside North America. Just one success will breed interest elsewhere and will help develop these industries outside North America," he said.
We seem to be approaching more than success in both Poland and the UK. The naysayers of shale have pointed out Europe lacks a service structure, but that is more of a chicken and egg scenario. When the need arises, there will be plenty of people willing to sell you a wide range of services. Service companies are global by nature and can ramp up quickly anywhere. Europe is going to be very attractive compared the risks of many other markets.
BTW, seeing Richard Selley's name here reminds me that a Royal Society shale report is due out as early as next month, which should enlighten us further.