Bishop Hill Chinese whispers
Oct 24, 2012 Energy: gas Last week, Dan Byles MP asked energy minister John Hayes about shale gas - his question was very specific and received a reasonable response.
Dan Byles: To ask the Secretary of State for Energy and Climate Change what recent estimate he has made of the potential size of domestic UK shale gas reserves; and if he will make a statement. [123150]
Mr Hayes: A British Geological Survey study in 2010 estimated that if UK shales were similar to those in the USA they could yield some 150 billion cubic metres of gas, equivalent to roughly two years of UK demand.
This prompted the following tweet from Zac Goldsmith
Shale: if UK levels are similar to US, if we get it all & with no planning probs: that = just 2yrs of UK demand (Govt)
Which was instantly taken up by Roger Harrabin:
Belatedly, via @zacgoldsmith, the relatively meagre reality of UK shale gas deposits. http://bit.ly/ReCA6E
Now there was me thinking that we had lots of shale gas deposits. Worth checking out, wouldn't you think?
In fact John Hayes alluded to the possibility that there is a lot more gas out there in the rest of his answer:
The BGS has been undertaking more detailed work which also takes into account last year's drilling results of Cuadrilla in Lancashire. BGS expect to be able to publish revised estimates of the resource, that is, the amount of gas in the rocks, towards the end of the year.
However, little drilling has taken place and commercial potential of shale gas has not been quantified , so it is not yet possible to make a reliable estimate of recoverable reserves, that is, the amount of gas which might be economically producible from the resource.
So, as you see, the 2 years' supply figure predates Cuadrilla's recent drilling in Lancashire. The latest figures for onshore amount to 60-70 years' supply at current demand levels, with several hundred years' worth offshore. Now, of course, not all of that will be economic to extract, but even if only ten percent is worth the effort, it's hard to see how it's credible to characterise the UK's gas resources as "meagre". And as technology develops, that characterisation will look even worse.
Reader Comments (76)
...What if it was being sold into a British market with gas prices at current levels and output was carefully regulated?
Aside from cheaper gas, if it guarantees the UK's supply for even 20 years it sounds like a good idea.
First of all, I am sure that British costs would be significantly higher because the drilling industry is not nearly as well developed and there is no supply chain to keep up with changing demand. That would make the average gas well just as uneconomic because the more important issue is the energy return on the energy invested. As I pointed out above, outside of the core areas of the good formations the return is negative. That cannot be overcome by the usual productivity gains but requires a new technology or new methods that are better able to extract more gas at a lower energy input cost.
And the problem with Britain as I see it is the regulatory system. Like most of the EU the UK has far too many regulatory burdens that do not accomplish anything positive. As such companies and individuals have a very difficult time creating wealth by making things so we have seen a migration towards playing games in rigged financial markets and moves towards wasteful political entrepreneurship that is concerned with the transfer of wealth from one group to another rather with wealth creation by producing products and services that consumers want. If you want solutions your primary efforts should be the removal of regulatory barriers, not new regulations in the energy markets. Let companies and individuals succeed or fail in competitive markets and stop seeing the tax-payers as prey for the tax-eaters.
On a more-serious note.............
http://www.thedailymash.co.uk/news/science-technology/windmills-preferred-to-cracking-open-the-earths-crust-2012102446178
Vangel
The US developers of shale gas did so at the then-existing price of gas - expecting a very profitable return based on those prices. LOTS of companies jumped on the bandwagon expecting the same lucrative returns only for the subsequent rush-to-gas to put a spanner in their plans. The take-up rate for gas-powered systems (trucks, cars, CCGT etc will soon reverse that price fall and they will eventually stabilise at a working profit level (else they go out of business and prices rise). Note that they will have a market based on demand, not one based on subsidies. What's not to like?
Dave_G
Agree, simple supply and demand; you never get three years of high (or low) potato prices either. Well you didn't until politicians and beaurocrats thought it was a good idea to turn food into fuel. Given a free market the price will flucuate up and down but won't be at an extreme for very long.
Sandy
The US developers of shale gas did so at the then-existing price of gas - expecting a very profitable return based on those prices.
Yes they did. But they were very wrong because the returns outside of the core areas were negative.
LOTS of companies jumped on the bandwagon expecting the same lucrative returns only for the subsequent rush-to-gas to put a spanner in their plans. The take-up rate for gas-powered systems (trucks, cars, CCGT etc will soon reverse that price fall and they will eventually stabilise at a working profit level (else they go out of business and prices rise). Note that they will have a market based on demand, not one based on subsidies. What's not to like?
What's not to like? How about the real world economics? We can talk and make all kinds of claims but to be credible we have to look at the actual reality. And when we do we note that the narrative about shale gas is changing as many previously very positive individuals and institutions have stepped back and changed their tune. It isn't as if the critics did not point out the problems early in the shale game. People like Arthur Berman, who wound up fired from his job because of his negative sentiment towards the shale gas sector, were telling us about the unrealistic EURs several years ago. They pointed out the energy industry's high-grading practices and the problems with extremely high decline rates that required constant drilling just to keep production level.
And if we look at the biggest early promoter of shale gas, Chesapeake Energy, we find a company that blew up its balance sheet, took massive losses, and finally took its lumps by selling off the bulk of its useful assets in order to stay in business. It is now trying to keep investor interest high by selling itself as a 'shale liquids' player. Exxon bought XTO energy when prices were higher but is now admitting that it is losing money on production. Of course, the SEC rules that permit Exxon to claim boe reserves by using the 6:1 rather than the 30:1 conversion ratio still serves a function as it hides from investors the reserve declines in conventional oil.
We already saw BHP and Encana write down shale assets from their balance sheets last quarter. Some time over the next 18 months many other players will follow suit and the shale gas bubble will burst. I wonder what the British proponents of copying the American Ponzi scheme will say then.
SandyS: the 33 K is universal in climate science. Google Hansen 1981 and you'll see how it's calculated.
The issue is that GISS claims all that 33 K is from GHGs when at most it's ~9 K, also it is not mainly from the absorption of surface IR, which is 1/5th of that claimed.
Bangel:
I'm sure they will blame it on some combination of deceit, lies, corruption, stupidity, regulatory capture by greens or conventional gas companies..., you know the games they play. We can be sure it will not be that the economics were just wrong.
Vangel and Bitty
maybe the people who ran those companies took poor options...it happens to oil company CEOs all the time, but perhaps there is less volatility there.
If someone supplies gas below cost, than the supplier will go bust. The market settles and hey! we do not have to pay the stupid climate subsidy part of the UK energy bills. Not that Bitty minds - because he lives in a cloud somewhere.
Leave it to the market. except that people like bitty, who know nothing about anything, always know what is best for everybody.
I'm sure they will blame it on some combination of deceit, lies, corruption, stupidity, regulatory capture by greens or conventional gas companies..., you know the games they play. We can be sure it will not be that the economics were just wrong.
It is sad that people who could see the failure of the alternative energy sector are blinded by the hype coming from the promoters of the shale story. In a way, many of them are just as unable to look at the empirical data as the people who blamed the minute amount of warming that took place after the end of the Little Ice Age on man's immaterial emissions of CO2.
Touché!
maybe the people who ran those companies took poor options...it happens to oil company CEOs all the time, but perhaps there is less volatility there.
I think that there is some confusion about this point. Some CEOs would rather make a huge amount of money over two or three years and fail badly than struggle for decades trying to make the same amount the old fashioned way. The fact that shale may be a terrible investment does not mean that those that got into the game early and left before the bubble popped made an error.
If someone supplies gas below cost, than the supplier will go bust. The market settles and hey! we do not have to pay the stupid climate subsidy part of the UK energy bills. Not that Bitty minds - because he lives in a cloud somewhere.
The problem is that the availability of cheap loans thanks to central bank injections of money and credit are allowing companies that should have gone bust a long time ago stay in business for much longer than even the pessimists thought possible. I cannot comment intelligently about the 'climate subsidy part of UK energy bills.' But I will state that given the nature of politicians they will always try to transfer money from a broad consumer base to their political supporters.
Leave it to the market. except that people like bitty, who know nothing about anything, always know what is best for everybody.
Sadly, few people on either the left or the right want the markets to do their jobs without meddling from the government. That is why things are as messed up as they are.
Vangel -
At the risk of sounding cynical, I put it to you that your statement "Sadly, few people on either the left or the right want the markets to do their jobs without meddling from the government" is explained by your prior assertion "given the nature of politicians they will always try to transfer money from a broad consumer base to their political supporters."
Vangel
Diogenes, HaroldW, Dave_G and myself have tried to explain some economic facts of life to you but you do not respond? You continue to post totally useless, uninformed thoughts on shale gas and it is becoming extremely boring.
If you have strong beliefs backed up by the facts then why not engage with us instead of simply pasting garbage everywhere?
250 billion cu metres = 8.8Tcf
The UK uses 4Tcf per year ?
Bishop
I am afraid I cannot agree that the reply Hayes Gave was reasonable. Agreed, he was asked for an estimate, but as the bloke in charge he should have said that the reliability of the estimate was very poor and the real answer is that nobody knows.
Varigel
Of course the amount of gas available from shale (or anywhere else) depends on how much it costs to bring to the customer, irrespective of whether the price is subsidized or not. Either the customer or the taxpayer will pay.
AlecM
And what better reason?
Dung, Mike Haseler
The reason we have to wait for the BGS to ask Cuadrilla is because it drills no holes itself (We taxpayers would have to pay if it did.) but, using a law doubtless designed for the purpose, demands borehole records from anybody who drills a hole deeper than I don’t know what. So, if they do not yet have Cuadrilla’s records they will be sitting on their bureaucratic AXXes waiting for the records to flop on to their desks.
Dung alone
I do not doubt that you are correct about the rest of the UK. Nobody knows how much gas there is there, and until someone antes up the lucre and drills holes we will remain ignorant. If the government feels pushed enough over energy supplies it might contrive to get someone to drill, but they will have to risk the cost because the only people who might be able to help them to reduce it –the BGS – are going to have to tell them they do not know enough to be helpful – and if the Government really want the help – give us the money to find out.
ssat
The BGS may or may not have been wrong but the required answers lie at the frontiers of knowledge and more probably nobody knows. However the BGS have the best information available. Nobody else could come close. They may or may not make a good job of interpreting the data, but I think the accumulated records are open for public inspection, so anybody is free to do their own further research.
BoFA
BGS have a long term deal to buy US shale gas. Tell me more.
A continued interesting debate. I note all the comments from fans of shale gas and those who think it is a ponzi scheme
What I know, as a fact, is that gas works.
Note that nobody is suggesting that the poor unwashed taxpayer and energy user must hose obscene subsidies into gas.
I also know that ruinables don't work.
And that without enormous subsidies, all the wind turbine and solar panel promoters would vanish like a snowball on a hot afternoon in the Sahara.
MB
"And that without enormous subsidies, all the wind turbine and solar panel promoters would vanish like a snowball on a hot afternoon in the Sahara."
Already posted on unthreaded but worth repeating one of the snowballs (Siemens) is melting
http://www.reuters.com/article/2012/10/22/us-siemens-solar-idUSBRE89L09D20121022?feedType=RSS&feedName=innovationNews&rpc=4
'The economics of horizontal fracking are horrid. With all wells, production drops over time. But instead of years for traditional wells, decline rates for shale gas wells are measured in months. After a year, production may be down by 80%, after a year and a half by 90%. High production early in the lifecycle allows drillers to show a big upfront profit.' - http://www.zerohedge.com/contributed/2012-10-22/price-natural-gas-%E2%80%9Czero%E2%80%9D-dirt-cheap
Dear E Uncle,
http://www.bbc.co.uk/news/business-15464867
"The economics of horizontal fracking are horrid. With all wells, production drops over time. But instead of years for traditional wells, decline rates for shale gas wells are measured in months. After a year, production may be down by 80%, after a year and a half by 90%. High production early in the lifecycle allows drillers to show a big upfront profit.'
- http://www.zerohedge.com/contributed/2012-10-22/price-natural-gas-%E2%80%9Czero%E2%80%9D-dirt-cheap"
The commentary is flawed for a number of reasons. One is that it requires that money losing companies continue to sell their product at a loss but that can only continue until the funding gaps stop being closed by asset sales and new borrowing. Another problem is with the comment that the drillers can 'show a big profit.' The so-called profit is actually an accounting gimmick that is the result of high EUR claims that allow depreciation costs to be much lower than they should be. These 'profits' will have to be written down some time in the future as the SEC and other regulators force companies to recognize reality.
And that is the problem. You cannot continue a business on the basis of hope and dreams; it has to make economic sense in the real world. Sadly for the believers, shale gas makes no economic sense in the real world.
Of course the amount of gas available from shale (or anywhere else) depends on how much it costs to bring to the customer, irrespective of whether the price is subsidized or not. Either the customer or the taxpayer will pay.
No. If it makes no economic sense shale gas will be replaced by a source that is far more competitive as long as the government stays out of the way. The trouble is that the government bureaucrats (and voters) love central planning and meddling with free markets. Which is why things cost far more than they should and why the economy wastes resources on so many non-value-added activities.
Back a while Jamspid posted that individual Americans "own everything under their land." I live in the US and have occasionally dealt with licensing mineral rights for property owned by my family, so I know at least a little about the typical reality here.
It would be more accurate to say "at one time mineral rights were bundled together with the general title to the land." The difference is crucial. In many areas, some or all of the mineral rights may have been sold long ago. For example, the right to mine coal beneath my house in Pittsburgh PA was sold sometime in the late 1700s, when the property was part of a farm. The farm was sub-divided for residential development sometime in the late 1800s. My title notes that coal mining rights are not included. By comparison, other mineral rights remain part of the property. That said, I have absolutely no clue who owns those coal mining rights. I'd bet that the mining company that purchased them (and dug the mine that runs under my side yard) is no longer in business under the name it then had. Indeed, it may be so long defunct that it would be impossible to determine the correct successor (I believe the proper legal term is "heirs and assigns" or something like that).
So, should some company gain a drilling lease on the portion of the Marcellus shale that extends beneath much (but NOT all) of the city of Pittsburgh, that company would need to license or purchase drilling rights from the various land-owners of the properties beneath which they intend to drill. This could be rather complicated, as the status of the drilling rights may vary from one property to another.
For example, some property owners may lack ownership of the drilling rights because a previous owner sold them at some time in the past. Other property owners may own those drilling rights. It can be quite difficult to track down information that would show the status of those rights for any individual property, much less for many individual properties (e.g., three quarters of the city of Pittsburgh, if I can believe the maps). Consider the instructive example of the coal mining rights beneath my land as an example of the problems.
Typical practice is to negotiate directly for the mineral rights where ownership is clear, and to pay the landowner a much-reduced sum (whether royalty for licensing, or money for outright purchase) in cases where the ownership of the mineral rights is unclear. "Much-reduced" may be as little as 5%-10% of what a clear owner would receive. In any case, the drilling company pays a professional title search company to track down such evidence as may be available regarding ownership of mineral rights. They also purchase "title insurance" to indemnify them in cases where they wind up paying the wrong "owner." Such insurance is inexpensive when the evidence is clear, and quite expensive when evidence is lacking.
All of this may sound complicated, but I'm told that it's a normal cost of doing business for drilling companies. Likewise for mining companies, etc.
There is a humungous amount of total bullshit being posted here about shale. Hello Vangel ^.^
You are posting half truths and you even misinterpret them as well.
When you drill down, then drill horizontally, then frack you get an initial rush which slows down fairly quickly; that part is fact. However firstly the well does continue to deliver gas for some time, meanwhile you have drilled another well in the field and that is now delivering its first rush.
Once production at the first well has really slowed to a trickle, you drill horizontally in a different direction and frack again and good grief you get another rush of gas. When you have drilled and fracked in as many directions as you think appropriate you drill down further and repeat the process, simples.
They have been fracking for years in the US and I don't hear of any shortages Vangel, do you?
As I already tried to explain to you (although I am sure you know full well) the US problems are too much gas in too short a time and an inability to adjust their economy fast enough plus a short term inability to export their gas.
Why don't you go read up on the facts, they are all freely available on the Internet?
Having said all of the above, I still believe coal is the fuel we should be exploiting first. Coal has been clean since the 70s, we have lots of it and it is cheap. The UK is truly blessed with coal, conventional (although running down) oil and gas, shale oil and gas, methane hydrates and even Thorium.
The UK could not run short of energy even if it tried hard. Ah, I forgot we have Liberal Democrats in government, ups.
Gas...
I still find it awesome that Nigeria reputedly flares off around the same quantity of gas in about a month as the UK burns in a year to heat and power itself...
Urban myth?
Anybody care to contradict that assertion?
As far as shale is concerned - better to allow it to go ahead and monitor how it's going than to simply decide on against - based on one of the proffered prejudiced precautionary positions that are two a penny at the moment.
There are so many folk arrayed against it - Gazprom, HM Treasury, Gweenpiece, FoE, EU, WWF, Centrica etc., etc... that it must have something going for it.
Where's Frack Nation btw?
Tsk tsk Alec M, you sound like an 18C bigot. The dissolution of the monasteries destroyed much of England's cultural and historical heritage in one fell swoop. There is of course much evidence that Henry VIII was an out-and-out psychopath, as shown by his conduct towards the Pilgrimage of Grace. By the 19C many of the English had returned to a very high church form of Anglicanism, as shown by the beautiful neogothic church built by my landowning gentry forebears in the young colony of NSW.
My estimation of you, hitherto reasonably favorable, has gone down immensely. Please stick to what you know about, i.e. thermodynamics, radiation physics and the like.
I said:
> > What if it was being sold into a British market with gas prices at current levels
> > and output was carefully regulated?
BitBucket asked:
> You mean so that it doesn't move the price?... ☺
Yes, even to that extreme.
If it guaranteed the UK energy supply for the next 20 years at current prices it would buy time for other (working) technologies to be explored.
> There is of course much evidence that Henry VIII was an out-and-out psychopath
He was so crazy he used to promote the theory of back radiation!