Bishop Hill Public relations, not research
Nov 12, 2014 Energy: gas Greens The UK Energy Research Centre - a proud member of the green blob, and a taxpayer funded one to boot - has launched a pair of reports into shale gas today, with a big bash to be held at the Royal Institution. As far as I can see the reports themselves have not been made public, and everybody is reporting the press release. This is usually a sure sign that something dicky is going on.
The headline is that shale gas development in the UK will not make a difference to prices. I assume this meanst that they are just channelling previous reports on the subject, but without the reports it's hard to say. I very much get the impression this is PR rather than research.
Bishop Hill
I have now located the report. This bit (p.36) is interesting:
This project has not been about shale gas in the UK ... The bottom line is that the industry in the UK is still in its infancy and a 2-3 year exploration programme is required before we can even begin to answer key questions about flow rates and prospects for commercial development at scale.
There is a passing reference to the scale of likely shale gas development being insufficient to significantly reduce prices, but that is it. So unless I am mistaken, the headlines this morning are indeed nothing to do with research and everything to do with PR.
Reader Comments (68)
Paging Mr. Vangel
It was largely the development of the already established hydraulic fracturing and horizontal drilling technologies in the last couple of decades that enabled the ‘shale gas revolution’. Those technologies are not static; they are continually advancing. The major objectives are refinements leading to cost reductions in all the processes, along with efficiency improvements across the board. A good example of this might be Weatherford’s Fracology: https://www.youtube.com/watch?v=b95Y-fYxgYg
As with most technologies, for a comparable product, the cost drops with time as development costs are paid down and economies of scale and competition come into play. In addition to this, there is evolution in the thinking with regard to where resources might be located and the best ways to exploit them.
In the UK, there is considerable debate as to whether the shale basins have suitable natural fractures to reproduce the successes of the USA shale industry. However, assuming they are similar then the greater height of the UK shale basins ought to bring efficiencies because any given vertical well could intercept a greater volume of shale by having more horizontal branches. Of course, that does not necessary translate to lower production cost as politics in terms of taxation, regulation, etc. have a greater impact.
@ Bruce
I've written several posts on this. What the US has done with shale gas is "a miracle". They are self sufficient and are maintaing production by only having 356 rigs drilling round the clock. Shale oil was making money at $100 / bbl in Bakken and Eagle Ford so all the rigs went off to drill oil plays while the gas plays lost money. But we are now in a melting pot.
Euan,
> I consult the Baker Hughes international rig count. It shows in Sep 2014 zero operational land rigs in the UK. 2 in August, 1 in July.
The link I provided is to a spreadsheet provided by the UK government listing every single land rig there has been in the UK from 1902 up until 7th Oct 2014. It provides the longitude, latitude and relevant dates.
On average, over the last decade, 27 wells are drilled every year. This would require a lot more than 2 rigs.
> What may I ask is the point of your question?
The point is, that claiming there is only 1 or 2 in the entire UK implies that we simply don't have the capacity to drill when the opposite is true.
Diogenes
No, no financial interest. Yourself?
If UK shale gas is to trigger a price drop it needs to come in at a lower price than the current import price. This is what, 11£ per mcu.ft?
Do Centrica expect to sell at the US price of £4, at £11 or even higher? All this conversation is meaningless without numbers.
Personally I suspect that the cost of UK production will be higher than the import price, in which case the whole debate is academic and the gas will stay in the ground. Note that an offshore gas field in the Irish Sea is currently mothballed as uneconomic. Will onshore shale gas be cheaper?
This could be the UK in just a few years:
http://www.eia.gov/todayinenergy/detail.cfm?id=17411
The futures market for NBP gas for delivery in 2021 is little higher than current prices - 55-60 p/therm according to season. That's still way higher than US values. The BG contract to buy LNG from Chenière FOB Sabine Point is Henry Hub +15% +$2.25/MMBtu, or a little over $7/MMBtu, which probably doesn't quite arbitrage into the UK at current prices allowing for freight and regasification/boil off losses - 55 p/therm for Jan 2015 is about $8.75/MMBtu. Gas is expensive to transport, which means that price differences can be quite large without causing an arbitrage flow. This price chart showing prices across the world for LNG gives some idea of the degree of insulation provided by transport costs:
http://www.timera-energy.com/wp-content/uploads/2014/08/LNG-prices-Aug14.jpg
Average import cost in 2013 seems to have been around 65 p/therm from the Netherlands/Belgium and Qatar (i.e. close to NBP, allowing for grid price adjustment and regasification of LNG to NBP basis from a landfall basis, but rather cheaper from Norway (about half that) where there are no doubt old contracts. As you would expect, the price reflects the marginal source of supply. Therefore, if we produce sufficient to back out imports from Qatar and Netherlands/Belgium the marginal source will be domestic production, and we can expect prices to fall by at least twice the shipment cost on the interconnector pipelines before any reverse flow arbitrage is possible.
The recent announcement of geological findings from IGas' Barton well was encouraging, leading to an upgrade in their estimates of gas in place in producible strata, with comments on the favourable nature of the geology, comparing it to Marcellus. Everyone is waiting for the Infrastructure Bill and the SlowUGO regulator before serious drilling can start - and that will be delayed by bureaucratic process.
I'm sure Baker Hughes would be delighted to sell us a few drill rigs when we get serious. With all those platforms in the North Sea, not to mention British toolpushers working around the world, there is no shortage of those with the requisite drilling skills (at least until the present generation retire). Horizontal wells are meet and drink to offshore operators these days. The real gurus will be those who understand how to frac in tight formations to best effect.
It's worth pointing out that the new wider channel for the Panama Canal late next year will have an important impact on LNG shipping patterns that are currently limited to 80,000 tonne Panamax vessels.
http://www.timera-energy.com/uk-gas/panama-canal-upgrade-impact-on-the-lng-market/
It doesn't add up
Does that mean that it's okay to extract and provide shale gas within the UK but if it were to be sold to Europe it may become too costly? That really shale gas is best used as an internal resource?
So sayeth the Entropic one! And there can be little doubt that his "suspicions" will trump reality every time! It's "tradition", of course ...
https://www.youtube.com/watch?v=gRdfX7ut8gw
@ Messenger on Nov 12, 2014 at 3:05 PM |
Site still shows up on Google maps (search Cormwal Drive, St Pauls Cray) - runoff from the site would appear to go into the River Cray. Lots of 'green' algae growing on the surface there.
@Entropic man
tip: Take a look at offshore shale gas using existing infrastructure :-)
Micky H Corbett:
Since exporting achieves a lower wellhead value it only comes into play if the economics are favourable. That can easily happen on a seasonal basis if a shortage develops - the UK was used as an offshore LNG terminal for the continent during the very cold winter for example - but it might prove a natural limitation otherwise. Clearly in the US the economics are sufficiently favourable to justify not only pipeline exports to Mexico and Canada, but also LNG to the wider world. It's worth noting from Bruce's link (just above my contribution) that gas prices in Pennsylvania are now even lower than at Henry Hub - at least until they develop more infrastructure to widen its market base. Of course, we have to see some actual production in the UK to confirm costs - but the indications seem to be that it is the regulators and anti-campaigners that are holding things up, rather than the economics.
Tomo
I looked as you suggested and found this.
To quote the engineer planning offshore shale gas-
Cornelius, whose previous company Cuadrilla is behind attempts to begin fracking operations in Lancashire, admitted it wasn’t clear that Britain’s offshore shale gas could be economically extracted.
‘Certainly offshore shale gas is a new concept, and there’s no reason with the UK’s history of offshore development that we can’t develop these resources offshore,’ he told the BBC.
‘We’re very comfortable that the resource is there and the numbers are absolutely ginormous. Is any of that exploitable? That’s the billion dollar question and we won’t know that for many years.’
I find it curious that the same people who pride themselves on their sceptical approach to climate change are so credulous when a politician promises cheap shale gas.
Re: EM,
> I find it curious that the same people who pride themselves on their sceptical approach to climate change are so credulous when a politician promises cheap shale gas.
But I am sceptical. When politicians, Greenpeace, Friends of the Earth, World Wildlife Fund, Grantham Institute, pretty much any climate scientist or anybody involved in the environmental movement tells me that shale gas will be uneconomic I am sceptical of what they say.
As for whether it will be profitable or not, I will wait and see. I am content to let private investors get on with extracting the gas and if it proves not to be profitable then I have lost absolutely nothing. There is no downside for me. Either it produces cheap gas and I benefit from lower prices or it doesn't and I am in no worse a position than now.
TerryS
Fair enough.
The green idea of anti-shale skepticism is that they are 100% convinced shale gas won't happen and won't be economic and then they demand the laws be rewritten to ensure shale gas can't happen.
"...when a politician promises cheap shale gas..."
In fact this was always a Greenpeace strawman. No politician ever promised anything of the sort for the UK. The most that has been done is to point out the situation in the USA; ie at the known facts. Nobody here expects anything, least of all when a politician promises it and the nimby's in the UK are a far greater obstacle than the greenies. We live in hope.