Shale Gas News and Information
The no European Shale Gas service industry myth
- Written by Nick Grealy
- Published: 27 November 2012
In the library on the left you can see reports from 2010 by Stephens of Chatham House or Geny of OIES predicting the impact of European shale gas will be constrained by a lack of service industry. Write one report from name brand conventional wisdom, and it gets cited by others which explains why this year's Pøyry Report for Ofgem repeated the same rationale. A key reason the conventional wisdom can't quite get shale is the speed with which it can change. Energy 'experts' treated the field as a dusty academic subject.One could safely write a paper citing another from twenty yearsbefore. One could be equally secure in using the same outline for an undergrad course in 1998 or 2008: very little if anything would have needed to change. But two years is a long time in shale.
I have always thought of the lack of a European Service industry was always a bit of a red herring. This is Florence Geny on the subject
The service sector in the US was very responsive to a surge in demand for drilling and fraccing services, thanks to intense competition and an entrepreneurial spirit. However thesituation is different in Europe. Competition in the service sector, dominated by four international service companies (Schlumberger, Halliburton, Weatherford and Baker Hughes)and containing few local specialised manufacturers and service providers, is limited.Therefore, incentives for investing in the construction of new rigs, and at a competitive price,are far more limited than in the US. This situation may delay the development phase if there is high demand from operators.
Shale not only changes everything, it does so very fast. Judging by the crowds and the number of exhibitoris at Shale Gas World in Warsaw this week, service capability was most definitely not an issue. We're not yet at US levels, but we're a long way off from a couple of suppliers giving out pens at a table next to the coffee that has been the rule at the smaller shale conferences - there were over 40 exhibitors from around the world, chasing over 400 delegates. Halliburon told me they have had over 80 new hires or transfers just this year as they prepare capacity. But the question in Poland still seems to be, prepare for capacity for what? There is cautious optimism, but also undercurrents of nervousness. The geology didn't seem to be one of them, but the industry, still can feel unappreciated despite a government committment at national, county and local levels that we could only dream of in the UK. Coming from the UK, where the drilling, such as it is, will be concentrated in Lancashire for the next couple of years, we can't appreciate the problems involved in moving simply people, let alone heavy plant across a big country with three separate shale basins. Other barriers are around planning and permits and purchasing. Several supplers told me that while they appreciated this was Poland, writing highly complex tenders only in Polish and giving as little as eight days to answer them, problematic in English or German, was either a barrier to business or an advantage to the local operators.
International companies appreciate building up a local supply chain is a key long term objective of the Polish national government, but in this early stage of technology transfer, the best tecnology changes so rapidly, than any artificial barriers would be counterproductive
The overall tone this year was cautious optimism tempered by a feeling that big international investments can go out as quickly as they come in if the revenue doesn't eventuallycome through the door. It should be that heightened drilling activity of up to 300 well over the next five years posited by some government representatives, will provide a revenue stream strong enough to provide some certainty, but others did mutter that they if they didn't get a consistent level of activity, especially in currently under utilised drilling rigs, those who fly in, can as easily fly out.
But others, especially San Leon's John Buggenhagen are as optimistic as ever. San Leon are now the largest operator in Poland and are openly talking about oil potential. I think 2013 will be the year of shale oil in Europe. The US example shows oil can be produced as easily as gas, but it often has a higher value and, especially valuable in Poland, can be brought to market far sooner than gas.
Will there be another doubling of size of the exposition next year? It's too early to tell and Poland will be aware that it will have compeition elsewhere even in Europe developing. One thing for sure however is that the ExxonMobil exit signified nothing. Over the next few months some of the larger Canadian operators may pull out as well. Howver this will be based on larger events back in Canada. Conoco's experience with 3 Legs shows that once the geology shows promise, there will be no shortage of replacements.
Poland has three companies on the verge of success in San Leon, 3 Legs and BNK. What happens - or not - over the next year will be vital.
Interestingly, the next UN Climate Conference will be in Warsaw next year at the same time. I'd buy a ticket to see the climate community meets the frackers at last. Cynically I would add that the green nomenklatura used to jetting to Bali or Rio or Durban may suddenly find the climate subject not so fascinating in a November Warsaw, but the two sides are seriously overdue for a conversation based on reality.