Articles from 2013
The new reality of UK shale gas
- Written by Nick Grealy
- Published: 22 July 2013
Shale gas in the UK has a myriad of complications, but last week saw yet another key myth about shale gas bite the dust.
To my mind, a key misunderstanding by UK Greens has been to see UK shale gas operating in a vacuum. Despite their alleged concentration on the global problem of climate change, their argument has been to concentrate on the narrow issue of UK climate targets and to insist that on the rest of the planet, gas and oil prices would invariably move upward. This concentration on the domestic instead of the global makes the UK Independence Party look positively internationalist and cosmopolitian. Greens and UKIP are further united in refusing to see how vital the role of the EU has been in moving along discussion of shale gas.
It was significant then that last October when DECC asked for tenders to study The Potential Impact of Unconventional gas on UK energy prices they reached out of their normal coterie of UK experts and hired Navigant Consulting. Navigant published the first major report on US Shale Gas five years ago this month. US shale revolution happening over such a short time explains a lot as to how UK experts haven’t gotten shale until recently. British people are certainly not alone in being cautious, but my experience in the UK Civil Service tells me how in that organisation particularly, change happens glaciallly. The sudden emergence of shale was not only mistrusted as a seemingly miraculous solution that needed to put into years long context, but was also terribly inconvenient. Every other energy scenario invariably depended to some extent on price perceptions that depended on insecure and insufficient energy supplies.
Rick Smead, one of the authors of the US report and a contributor to the UK one, has two great lines in his presentations:
My name is Rick Smead and for 35 years I worked in a very boring industry.
When we published our report, everyone laughed at us. ExxonMobil made fun of us; the next year they bought XTO for $40 billion dollars.
Navigant provides the global context to a complex issue, but does so in a very accessible way. They have some very interesting points about what is happening in the world independently of a narrow UK focus. A key takeaway is,that whether the UK accesses their own gas, prices are headed down organically:
We believe that if the US exports LNG in large quantities these are likely to act as a price support on UK prices – they won’t reduce prices down to US levels, but the imports may well be sufficiently disruptive that prices could decrease by 10‐20% (in real terms) as long as the US prices stay low, as currently predicted.
US exports appeared outlandish five years ago, and even Navigant didn’t dare predict them at the time. On the other hand, the first stirrings of the idea were swirling through the US Department of Energy even back then, and sources at Statoil told me that their 2008 investment in the Marcellus considered the potential so huge that the development of exports from Cove Point Maryland’s LNG terminal would be possible.
Two other drivers on world gas prices that Navigant has considered are equally disruptive on world gas prices independent of UK shale. Firstly,
We also assume that oil prices will fall somewhat from their current level, following the current forward curve down to around $90 in 2019.
Worth saying again to Russia and the rest of the Gas Exporting Countries Forum: Be careful what you wish for in beleiving in the eternal nature of the gas oil link.
Another issue is something that Peak Oil thinking has insisted as being impossible. The world is considered to be on an eternal upward slope in consumption. A key error the Peakers have made has been to underestimate the impact of technology in reducing consumption. Site’s like the Oil Drum, which significantly is soon to suspend new content, invariably saw the future as continuation of the past. Peakers, blindsided by the sudden emergence and ubiquity of shale resources, now seem out of date, and increasingly have the wild-eyed Mad Men air of a 1970 typewriter sales convention. They simply refused to believe that anything new could happen, not entirely unreasonable considering the long-standing influence of coal and oil on energy.
But it was heartening to see Navigant stressing what I have been seeing as the key driver for world energy, and thus climate
(Our base case scenario) also assumes significant unconventional gas production in China, so that Chinese LNG import prices are moderated and the Asian LNG arbitrage gap is not as large.
That returns us to the question of UK and European shale gas. It is obvious that prices for gas will fall irrespective of UK production. This surely explains why this report, dated December 19 2012, did not see the light of day until July 17. Throughout this period, the UK energy policy has had to be re-aligned to reflect the new global price reality. Nuclear looks increasingly problematic in a gas abundant world. Similarly, the economics of both renewables and coal carbon capture have been disrupted.
I’ve always said that the problem of shale gas in Europe is that we have multiple competitors who simply wish shale would go away. The Greens do the work of the Russians, the coal industry and nuclear in opposing shale as a perceived threat. Why they become so surprised at the return of coal never ceases to surprise. That’s especially unfortunate because natural gas is the key companion fuel for renewables, a fuel that more pragmatic greens, if they existed more often in Europe, would see as the realistic alternative.
If we had more shale in Europe, we would have even cheaper natural gas.Fighting against natural gas prevents more supplies of low carbon fuel that can not only replace coal, but make substantial inroads on trucking and shipping. It promises a quadruple win
- Energy prices will fall thanks to shale gas (and oil).
- Replacing as much coal as possible with natural gas is good for public health in pollution.
- Replacing as much oil as possible in maritime, public transportation, trucking and electricity generation is good for public health and the economy. Greens especially need to learn the good news here, because there are simply no large scale green alternatives for powering buses, ships and trains.
- Finally, if it comes down at the end to an urgent need to reduce CO2 levels, (as I think it must), gas can do it far sooner than alternatives.
So how realistic is shale in Europe? I’ve always been an optimist, but there will be issues. But one of them, hidden away in the Navigant report and missed by the mainstream, is whether we have the gas. Navigant quite rightly point out the geological uncertainty surrounding shale, but what if we did have recoverable reserves. How big could they be?
Shale opponents have been desperately trying to downgrade shale expectations, most recently by stating that only small percentages of shale could be accessed. But Navigant, benefiting from their wide experience of US shale gives potential recoverability rates far in excess of the 10% or less rates considered up to now. In that respect the International Energy Agency reporting on shale is found wanting:
The (IEA) report puts forward a low unconventional gas scenario where resource base could turnout to be much smaller than currently estimated or production and recovery factors are lower than initially thought due to a myriad of potential reasons, such as complex extraction, problems with water availability and government support for development
But Navigant share my view on recoverability:
Supporting this analysis, many commentators have pointed out that (a) in the US, at least for shale gas, recoverability rates are between 20% and 50% of OGIP and (b) the shale gas OGIP estimate is only for the current Petroleum Exploration& Development Licence areas and more than half the Bowland shale plus extensive areas of the Lyassic shales in Southern England lie unexplored. So actual technically recoverable gas could be very considerable indeed. Several geologists we have spoken to believe that these shales are also very likely to contain liquids, making their exploitation more likely to be economic.
Simply put, the question in Europe, as in the USA, is not of gas supply, but of gas demand. But only if we want it.
Francis Egan of Cuadrilla put it very simply at last year’s London Shale Making it Happen:
It’s not how much gas we have. It’s how much do you want?
This year, Francis stated that all Cuadrilla need are six six-inch holes in the ground. Then they’ll know enough about flow rates to either continue or to pack up and look elsewhere.
It would be bad for Cuadrilla, and unfortunate for the UK if that happened. But overall, shale gas, wherever it comes from, will succeed in lowering CO2 and lowering prices. A win-win for most everyone except the noisy few.