Bishop Hill Birol on geology
Nov 13, 2013 Energy: gas 
Today, Fiona Harvey watches from the sidelines as European industry is priced out of existence and concludes that it just can't be helped. Her case seems to be that high energy prices are simply unavoidable, firstly because green energy levies are nugatory and secondly because the shale revolution can't happen here. The second part of this argument is justified with a quote from Fatih Birol, the chief economist at the International Energy Agency.
Europe is unlikely to be able to emulate the US's exploitation of shale gas and oil, partly because it lacks the natural resources and favourable geology, and also because the continent is so much more densely populated.
This seems a bit strange to me. What are these "natural resources" that we lack? There's undoubtedly an enormous resource of oil and gas-bearing shales in Europe, not least here in the UK.
The unfavourable geology argument is also one that has been contradicted by actual shale geologists. It seems that the geology is different in every shale play:
the Appalachian Plateau is a foreland fold thrust belt of the first order.......fractured, faulted, and folded to no end...Other North American Gas shale plays that are about as structurally complex including the Woodford and Fayetteville. While the Barnett and Eagle Ford are somewhat less complex they are also faulted. Only the Haynesville might approach a layer cake and even this as some subtle complexities.
And as for the dense population, this cuts both ways. Although shale developments make a very small impact on the environment, there will be inevitable planning delays this side of the pond, but the dense population also brings great advantages, with gas and other infrastructure likely to be close to the wells, bringing cost advantages and avoiding the large numbers of truck movements needed stateside.
Reader Comments (94)
"will be no significant effect on prices." I didn't say that. I said it wouldn't lead to cheap gas. It might prevent cripplingly high energy prices and/or power shortages, which is what we're in line for at the moment.
oh no...so Chandra has reawakened after the hammering he took on an earlier post on exactly the same topic...new entrants with lower cost bases will undercut incumbents, if the government/regulator allows them to do so.
Why do you keep arguing against this, Chandra?
" What are these "natural resources" that we lack?
Intelligent politicians."
NATURAL resources. "Intelligent politicians" is not only unnatural, it's an oxymoron.
Steve Jones
The breakeven cost of shale gas in the US is 8$ per mcf. Dumping of gas from shale oil wells and the necessity for shale gas producers to keep paying interest on their loans have led to massive overproduction into a closed market.
The result is a market price of $3.80 per mcf, at which none of the producers are making enough to survive in the long term.
It is unlikely that the UK will ever approach such a situation. or such low prices.
There is a lot of gas in the US. It is bringing massive investment into the USA along with a lot of jobs. And it has lowered the amount of CO2 the US produces.
Of course the greens hate shale gas. It ruins their plans to destroy the economy.
However, it appears many European countries wish to commit economic suicide, which I think is the EU's plan all along.
From the viewpoint of one who spent a career in the resources industry, albeit in Australia, much of this is deja vu.
There are some basic principles that mostly govern the final outcome. Assuming similar geological potential between countries for the sake of this discussion, the main principles include:
1. The best people to know about a new resource development are those who volunteer to put money into it. (Tapping appropriate skills).
2. Governments seldom know the intricacy & scope of inputs into a decision to proceed to develop. (Developers have the most risk so they do the most detailed study).
3. Others looking on seldom know the intricacy & scope of inputs into a decision to proceed to develop.
4. If a resource developer makes an imprudent decision to proceed, it can bring a company down. (It is vital to get it right).
5. If a government has policies that are hostile to development, companies will steadily depart that country.("Sovereign risk" figures heavily).
6. The best outcomes are from a country with a government that respects progress through resource development, combined with companies that are willing to risk development and its costs.(There are plenty of past templates).
7. Interference from outside minority groups can be neglected when the government resolve is adequately strong.
8. Governments are bodies created to express the collective will of the majority of electors.
That's it in a nutshell.
In the case of fracking in Great Britain, (apart from geological potential), the main obstacle is lack of policy clarity and guts in government. Did not people in GB think that they had elected a government that favours progress and low energy costs?
It's really a matter needing a government with direction, not one that flutters around trying to appease minority groups.
Personally, what you have looks to me a like a government of the right colour that has lost its way. The alternative colour looks worse from here.
Nov 14, 2013 at 1:32 AM | Entropic man
You don't know that so stop trying to assert your opinion as fact.
Entropic Man: "How many have applied for licenses?"
I really shouldn't have to do your homework for you and you clearly have no idea how the UK Oil & Gas licencing scheme works. From the parliamentary briefing dated 10 September 2013 (www.parliament.uk/briefing-papers/sn06073.pdf) :
So no-one is going to be in a position to generate production until they have done some exploring. And when they try and explore even with a conventional well a la Balcombe, in case you hadn't noticed, a load of drama greens got quite agitated. In addition to having exploration licenses, they will also have to get fracking permission and planning permission. Still early days yet. If you want to understand how the licensing works (and its not "apply for a production license"), its actually a series of terms representing the typical explore-appraise-develop-produce lifecycle, nominally set as the following for onshire PEDLs:
Exploration - 6 years
Appraisal & Development - 5 years
Production - 20 years
You can read more at https://www.gov.uk/oil-and-gas-petroleum-licensing-guidance
even better:
http://www.nohotair.co.uk/index.php?option=com_content&view=article&id=3089:china-s-shale-gas-breakthrough&catid=203&Itemid=417
TinyCO2, well again, for shale to "prevent cripplingly high energy prices and/or power shortages", it would have to be supplying (supplying, not holding) a large amount of gas in proportion to existing European gas supplies. Neither you nor anyone else here knows or will even make a guess at how many wells would be needed to achieve that. All the same, your statement that there will be no "cheap gas" is refreshingly realistic for this blog.
Diogenes, you keep on with your fairy tale of white knight gas companies coming to rescue dashing prince Albion, bearing fracking rigs and promises to sell gas at a fraction of market prices. Trouble is, when you eventually get to kiss your frog, you'll find that it remains a frog.
Geoff Sherrington, your number 7 is classic resource industry: "Interference from outside minority groups can be neglected when the government resolve is adequately strong". You can see that playing out all over the world where the interests of indigenous or local peoples are trampled on by the "resolve" of governments, their palms suitably greased, of course. And your number 8, "Governments are bodies created to express the collective will of the majority of electors", is a naively wrong or incomplete a reading of purpose and duties of a democratic government.
TinyCO2, well again, for shale to "prevent cripplingly high energy prices and/or power shortages", it would have to be supplying (supplying, not holding) a large amount of gas in proportion to existing European gas supplies. Neither you nor anyone else here knows or will even make a guess at how many wells would be needed to achieve that. All the same, your statement that there will be no "cheap gas" is refreshingly realistic for this blog.
Diogenes, you keep on with your fairy tale of white knight gas companies coming to rescue dashing prince Albion, bearing fracking rigs and promises to sell gas at a fraction of market prices. Trouble is, when you eventually get to kiss your frog, you'll find that it remains a frog.
Geoff Sherrington, your number 7 is classic resource industry: "Interference from outside minority groups can be neglected when the government resolve is adequately strong". You can see that playing out all over the world where the interests of indigenous or local peoples are trampled on by the "resolve" of governments, their palms suitably greased, of course. And your number 8, "Governments are bodies created to express the collective will of the majority of electors", is a naively wrong or incomplete a reading of purpose and duties of a democratic government.
Nov 14, 2013 at 2:11 PM | Chandra
Just admit that you don't want shale to be a success in the UK and then we will be able to make sense of your certainty regarding future events.
"Neither you nor anyone else here knows or will even make a guess at how many wells would be needed to achieve that."
The UK imports about 2TCF of gas.. The average new Marcellus well produces 15bcf.
132 wells to end imports.
http://seekingalpha.com/article/1777122-20-bcf-per-well-new-operating-standard-in-the-marcellus-shale
"Nowhere has this growth been more profound than in the Marcellus, where dry gas production has grown" to a current estimate of 7.5 Bcf/d from 400,000 Mcf/d in December 2009, Adkins said."
Currently there are 85 rigs operating in the Marcellus (#3) behind Permian (451), Eagle Ford (221) and Williston (181).
Oops. I mean Marcellus has the 4th highest rig count ... not #3.
Steve Jones, the only certainty I have about the future of gas is that it is not in producers' interest for gas ever to be cheap. They will do their best to avoid cheap gas.
Bruce, your 15bcf is the Estimated Ultimate Recovery, not the annual supply. Try again.
...and the rig count is not the same as the well count.
Chandra, you are correct on both of the last two points you made:
"Bruce, your 15bcf is the Estimated Ultimate Recovery, not the annual supply."
"...and the rig count is not the same as the well count"
Regarding your cheap gas argument, I must disagree. Gas and oil are sold in global competitive markets. There is clearly a desire for companies to make a profit, but it is not the oil and gas prices that they control, they can't - that is supply and demand. Unless you are a swing producer acting as a cartel and the only ones with the clout to do that historically have been OPEC.
There is also a disincentive for the price of oil and gas to be too high, in that switching to alternative energy becomes economically sensible. Also, if prices of oil are high enough, lots of tar sands become economic.
ThinkingScientist, that sounds like agreement with me that the UK is not going to see cheap gas as a result of fracking. UK gas companies will not become "swing producers", as you call it, and so must accept the market price. But would not agree that they would be loath to see gas prices fall from their current levels? I mean which gas company is going to say, well we could supply X bcf at the market price but we could also sell 2X bcf at half the market price and get the same income - lets sell at half.
" 13 wells were completed with a total of 272 frac stages and had a peak production rate of 323 MMcf/d"
25 Million Cubic feet per day per well average (peak production)
9 billion cubic feet per year per well average.
UK gas imports are around 1500bcf annually.
Ok ... 166 wells.
http://seekingalpha.com/article/1777122-20-bcf-per-well-new-operating-standard-in-the-marcellus-shale
"...and the rig count is not the same as the well count."
Correct. But all you need is 166 wells at peak production to handle UK gas imports.
Of course there will be more wells. But the technology keeps getting better and the UK shale fields are so deep ...
Ooops. Maybe today is not a good math day.
"Shale in England’s Bowland basin is about three times as thick as the Marcellus deposit in the northeastern U.S. according to a geologist at the U.K.’s Keele University. "
So .. potentially triple the production per well?
The recent stories about the US are only the tip of the iceberg. The already massive investment in new crackers and the like is just the first wave. The commodity materials from these new plants will provide all sorts of manufacturing with cheap materials and intermediates. The US will enjoy prices for plastics, chemicals, steel etc well below its competitors'.
Yesterday there was a report that Apple and Motorola (I think) have re-started manufacturing of some items in the US, apparently because lower costs, the savings in shipping and supply chain benefits make it worthwhile.
Cheap gas also means cheap fertiliser - new plants are being built - with benefits for farmers and the cost of food.
While we see ever-rising utility costs, many American families have seen a drop in power bills and heating costs which feed through into more disposable income.
Europe is being left in the dust - this is just the start.
(With apologies for the doom-mongering).
Chandra misunderstands the nature of markets pretty much completely. To shift market price does not need vast quanties of production, or numbers of wells. To shift market prices you need to shift market sentiment. Do do that, you need one (1) well to start production. All things will follow from that. There are vast reserves that have potential, and it is potential that is the driver of markets (and economics).
That is of course why the Dramagreens scream and shout at even the possibility of a single successful well.
Bruce, you are confusing peak production rates with EUR. Peak production is what it says - the most it will ever be, just after the well is fracked. Shale wells decline rapidly. There have been many discussions of shale on BH and elsewhere, so you should have no trouble confirming these things. Your figures are way off the mark. You are also assuming that British shale wells will match Marcellus shale, which is unknowable until they are drilled. They might even be better, but that is not known. And as far as I am aware, the extra shale thickness does not mean extra production per well.
Chandra, are you arguing that the UK shouldn't allow shale gas development because it might not bring down prices as it has done in the USA?
If so, I agree with the second part - nothing is guaranteed. I mean, look at what happened to the "free" energy touted by wind proponents. But the first part is just daft. You don't refrain from increasing supply just because your contribution might not alter the market very much. If you did you'd be following the opposite logic to the supporters of "renewables" .
"Bruce, you are confusing peak production rates with EUR."
No I'm not.
I'm not saying the UK won't need more than 166 wells, I'm just saying (backed by references) that the UK will only need 166 wells producing at peak rates (of the type I referenced) to cover all imports.
And with great likelihood, because the UK shale formations are 3x as thick, and because the UK will have the opportunity to benefit from all the new technology, that number may be lower.
The UK won't know until the drilling gets going. But the numbers I've referenced indictates the sooner the UK gets drilling the sooner it won't have to import any gas at all.
What bonanza for the UK. If only morons weren't running the UK.
One other thing.
Average Initial Production has gone from 7.4 mmcfpd in 2008 to 17.4 mmcfpd.
And 30 day rate has gone from 5.9 mmcfpd to 14.5 mmcfpd in the same period.
http://static.cdn-seekingalpha.com/uploads/2013/10/27/3775371-13828897434768302-Richard-Zeits_origin.jpg
The UK is paying around 12$ per 1000 cubic feet.
So if IP was say 20mmcfpd, that would be worth 240,000 US$ per day. That would save the UK a lot of money in terms of balance of payments.
That means IP is worth about
The wind catches day pages on the wall calendar and they riffle and flip and tear off, drifting away on the breeze.
Government departments loaded with incurious, dogma spouting halfwits scuttle about delaying responding to permit applications, sit around having "innovation panels" to dream up new obstructions, their NGO mates conspire away and feed ideas in to mess up enhanced methane recovery,
That loss of face... - to be seen to have been ignorant fools and knaves, to be exposed as liars and dissemblers, to be shown to be incompetent.... is a powerful motivator.
Shale gas might be a salvation of sorts or it might be a miserable damp squib - for all the pro and anti - nobody actually *knows* how a given formation will behave until it's physically tested.
Certain anti fracking commenters play at being informed on the subject - apparently being in possession of fully functioning crystal balls and I'm really fed up reading a procession of tortured conjecture. If it can be done safely and cost effectively then at the very least - test wells must be a matter of very high priority.
The only priorities I see about on the government side is NGO bottom licking and face saving antics since a large slab of our public bodies have bought into and embroidered the creaking edifice of eco orthodoxy and they're still thinking they might be able to brass it out - that's now looking like a rather large misjudgement.
"DECC publishes drilling activity figures for exploration, appraisal and development wells drilled each year. Six onshore wells were drilled during the first half of 2013, but three of these were development wells, so these will be for conventional resources since shale gas drilling is only at exploratory phase at present."
"Exploration - 6 years
Appraisal & Development - 5 years
Production - 20 years"
Nov 14, 2013 at 10:41 AM | thinkingscientist
By my reading of your quote, there are three shale gas exploration wells under way at present.
A successful exploratory well drilled in 2013 will lead to production 11 years later , in 2024.
Neither the exploration rate nor the timescale look likely to bring significant shale gas production before the mid 2020s.
Incidentally, shale gas wells show a rapid decline in production, typically needing to be refracked after 5 years. The 20 year production you quote is grossly optimistic.
Entropic man
An onshore well that's tested good = 11 years between spudding-in and production? - you wish.
As to the frequency of stimulation that's geology dependent - could be less could be more - if it pays for itself ... whatever.
You Josh Fox wanabees are getting pretty tedious
Steve Jones
Two links.
The $8 per million BTU figure I gave for breakeven in the US was at the upper end of the range. The average quouted in my first link is a little below 5$. The second link suggests that the UK production cost will be between $7 and $12. This compares to a current UK wholesale price of $11.
http://breakingenergy.com/2013/08/06/how-much-does-a-shale-gas-well-cost-it-depends/
http://www.bloomberg.com/news/2013-10-02/u-k-s-shale-gas-costs-seen-limiting-price-curbs.html
tomo
Who's Josh Fox?
What I want is a quantitative idea what the prospects for shale gas look like. Most of what I get here is hot air.
My apologies if you think I'm pouring cold water on your collective enthusiasm for shale gas.
Cold water naturally results when a lot of hot air gets on thin ice.
Here in the US we are doing better with fracking, at least in some states, but don't be fooled, the greens are still winning. A few years ago the Supreme Court ruled that CO2 was a pollutant and as such must be regulated under the Clean Air Act. With that decision it was really game over for economic development in the US. Things which used to require political action, such as auto mileage standards or changes to air pollution regulations, are now subject to USEPA rule by fiat. So far they have upped mileage standards to 52.5 MPG and essentially outlawed new coal plants. Those might not seem onerous regulations by European standards and indeed, a case can be made that they are not unreasonable. But the important point is that the precedent has been established that democracy has nothing to do with such decisions. Next step, already announced, will be to close down the existing all coal plants. As long as they move slowly and carefully so that there is no one giant step opposition can coalesce around there is really nothing to stop this agenda.
Learn Mandarin would be my advice to the next generation.
Then what you want is drilling and testing. There's no better way.
It's not unusual for even big offshore wells to need stimulation after five years, and re-fracking is no big deal. It doesn't even necessarily need a rig and can be done in a day or two if access to the site is not impeded.
I have to agree that the number of commenters in the media, on and off line, suddenly pretending to knowledge of drilling and well stimulation when they clearly haven't a Scooby is becoming beyond tedious.
Nov 15, 2013 at 2:13 AM | Entropic man
So is energy cheaper in the US or not as a result of shale gas/oil? If not, all those hard nosed manufacturers returning to the US must have got it wrong!
Regarding your last post to Tomo, when you said this, 'What I want is a quantitative idea what the prospects for shale gas look like.' You find that out by exploring and testing.
Why does the potential success of shale unsettle you so much?
Tiny CO2 says: European shale won't be cheap because the energy companies don't want it to be and don't need it to be. Which one of them is going to break from the fold and reduce prices or even freeze prices for any length of time? They're also going to continue to flog us high price electricity from wind wherever they can. Add the green taxes on top and hey presto, no cheap gas.
Not sure you know how it might work. In the US from 2005 to 2009 gas prices plummeted from $10 to $2 / mcf because a group of companies drilling for shale gas were essentially too successful and too much gas appeared on the market. From about 2009, the ratio of rigs drilling for gas versus oil switched from 80 / 20 to nearer 20 / 80 now. Companies still drilled shale but were looking for oil or condensate as well as gas. Result: the US just overtook Saudi Arabia as an oil producer. In the UK, if there truly was competitive drilling for shale, prices would have a very good chance of reducing.
Chandra
I refer you back to reality - eg air fares in Europe over the last 20 years as referenced by me on previous threads. Your ignorance of economics and reality is becoming tedious.
diogenes, he's not just tedious, he's a troll, who first appeared on Discussion threads a few months ago. He kept wanting us to prove the economic viability of this or that. I kept telling him that (a) if people want to invest their own money, why should he care; and (b)if he was so sure, how about investing his own money?
I guess that you can figure out what happened next.
"Nothing" would be close in the Lewandowsky sense - although I only vulgarly mention zero because as Steve McIntyre has recently explained, in chez Lewandowsky, anything is possible in that regard.
Bruce, I think your estimate is likely to be too low, but I think you are on better ground hoping for a positive effect on the balance of payments than others are in pushing the unlikely outcome of "cheap gas". With any luck the gas will allow us to live beyond our means for a few years more...
Johanna, "if people want to invest their own money, why should he care" - because oil/gas exploration affects more than just those investors. We all have an interest in ensuring that it is done responsibly, with the investors bearing the full costs of their choices (eg repairing roads, bridges, aquifers).
And, "if he was so sure, how about investing his own money?" - invest in fracking? Why should I be interested in that?
Chandra, in a free market, if something is not economically viable, it probably won't happen. Or it will happen, and investors will lose money. C'est la vie. Or the market is not free but distorted by subsidies and the smart ones get out before the government pulls the plug - I know of at least one couple of Australian solar energy promoters who cleverly and cynically sold at the peak of Green madness in 2010/11 and now live on their millions in Switzerland.
All industrial undertakings in the UK have an obligation to reasonably any damage they do to local infrastructure - indeed oil and gas companies often build new roads and bridges, not just repair old ones. They also have to comply with strict requirements regarding aquifers under existing laws. The protests by anti-shale gas/oil activists seem to ignore this and simply make accusations and allegations, which are dutifully parroted by certain sections of the media.
Chandra, Shale gas has made gas cheap in the US and gas is cheap in Canada. It will be cheap in the UK.
Fracking = Less Old People Freezing to Death in the Winter.
Why do the anti-frackers want old people to die?
Chandra
I know how you hate reality but take the case of a company called Emed. In 2001, RTZ closed a long-standing copper mine in Southern Spain because the global copper price made operations unviable. Since then, in 2008, a company called Emed bought rights to re-open the mine because it should now be viable again. They have spent the last 5 years getting permits and consents from a wide variety of environmental agencies. Every year, progress seems to be halted for another year by another raft of environmental requirements. The area of Spain in which the mine lies needs jobs. Why do the greenies not want people to live? Why do they prefer to erect wind "turbines" that do not produce electricity?