Hydrocarbons and Depletion : Shale gas technology to the rescue?

Transcription

1 Hydrocarbons and Depletion : Shale gas technology to the rescue? Professor Paul Stevens Senior Research Fellow (Energy) Chatham House Professor Emeritus, University of Dundee Visiting Professor UCL Australia Clark Maxwell Lecture IET 7 th March 2013

2 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 2

3 Hydrocarbons and depletion: Global fossil fuel resources reserve production ratios 140 Estimates of global fossil fuel proven reserves Years Coal Oil Gas SOURCES: Coal, Oil and Gas - BP STATISTICAL REVIEW OF WORLD ENERGY

4 Hydrocarbons and depletion: Global fossil fuel resources reserve production ratios 140 Estimates of global fossil fuel proven reserves 2010 Years HOWEVER be warned if this is all burnt; buy a house on a hill! Also r/p ratios are very misleading! Coal Oil Gas SOURCES: Coal, Oil and Gas - BP STATISTICAL REVIEW OF WORLD ENERGY

5 Hydrocarbons and depletion: Global fossil fuel resources reserve production ratios 140 Estimates of global fossil fuel proven reserves 2010 Years Case of oil At the end of 2011 r/p ratio = 46.2 years Thus the oil runs out in Coal Oil Gas SOURCES: Coal, Oil and Gas - BP STATISTICAL REVIEW OF WORLD ENERGY

6 Hydrocarbons and depletion: Global fossil fuel resources reserve production ratios 140 Estimates of global fossil fuel proven reserves Years Thus the oil runs out in 2058 Actually on the 15 th March at 8:50 GMT Coal Oil Gas SOURCES: Coal, Oil and Gas - BP STATISTICAL REVIEW OF WORLD ENERGY

7 Depletion is epitomized by the peak oil argument and Hubbert curves Quantity Cumulative past production Remaining recoverable reserves Time 7

8 This is a real Hubbert curve. What is it? Starts in 1700 supposed to peak in 2011 actually peaks 1927 Peak oil is a deeply flawed methodology. It neglects costs, prices and technology Simply assumes a fixed quantity of hydrocarbons. This is only true in a very geologically pedantic way In the words of Mori Adelman on oil - If costs rise or prices fall investment stops and the industry dies. What is left is unknown, unknowable and completely uninteresting". Production (billion t)

9 A brief history of fears of oil depletion Following the first oil shock of During the 1960s Leave oil to the oil companies. Thus the civil servants didn t know much about the industry. The economists also didn t know much and they discovered Hotelling s 1931 work on exhaustible resources US oil companies seeking deregulation needed lobby power based on fear of gasoline queues Club of Rome - Limits to Growth discovered gapology Barrels Gapology" The Picture in Year Years Total reserves as of year 10 Cumulative Past Consumption Cumulative Future Consumption 9

10 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 10

11 What about shale gas? Defining unconventional gas = drilling is not enough for a commercial flow. Something else is needed High Quality Low Quality Conventional Unconventional Tight gas Coal bed methane Shale gas Hydrates Source: IEA 2010 Resource base 11

12 Global Fossil Fuel Resources and shale gas BUT beware apples and oranges! Estimates of global fossil fuel resources Technically Recoverable Resources Years Coal Oil Gas Shale EIA Shale NPC SOURCES: Coal, Oil and Gas - BP STATISTICAL REVIEW OF WORLD ENERGY EIA World Shale Gas Resources: An initial assessment Covers only 32 countries. SHALE NPC, Unconventional Gas, Working Document of the NPC Global Oil and Gas Study, Topic Paper 12

13 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 13

14 Converting resources to reserves: Shale gas technology is not new Horizontal drilling developed in the 1930s Hydraulic fracturing First well fractured in the USA in

15 Converting resources to reserves: Shale gas technology Horizontal drilling Hydraulic fracturing How the industry continually shoots itself in the foot! Refusing to divulge the chemicals Visual howlers the reality 15

16 Converting resources to reserves: Shale gas technology Horizontal drilling Hydraulic fracturing 3-D and 4-D seismic Coil tube drilling 16

17 Environmental concerns over shale gas Extra energy required and CO2 implications Fracking and potential pollution of water tables Presence of natural radioactivity Creation of earthquakes by fracking Fugitive emissions of methane a potent greenhouse gas: key to the debate and very controversial Producing lots of gas to burn thus increasing CO2 emissions SAY MORE LATER. 17

18 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 18

19 The US Shale Gas Revolution What is it? US Gas Production by source Long time in coming! Billion cubic feet Conventional shale CBM Estimates suggest over percent from shale by the 2030s Medlock K B, Jaffe A M & Hartley PR (2011) Shale Gas and U.S. National Security. Baker Institute July US EIA Website 19

20 What consequences from the revolution so far? Gas Prices Fall in U.S. domestic prices but beware the recession U S $ p e r t h o u s a n d c u b i f e e t US Wellhead monthly gas price Jan-08 april july oct Jan-09 april july oct Jan-10 april july oct Jan-11 april july oct Jan-12 april july oct Source:EIA 20

21 What consequences from the revolution so far? U.S. Gas Trade Collapse in US imports of LNG LNG Imports to the USA Underutilization of LNG regasification capacity. 75% built between In 2011 some 90 percent is idle (EPRINC 2011) In 2011, U.S. Pipeline imports are the lowest since 1999 (EPRINC 2011) b n c u b i c f e e t Source: EIA

22 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 22

23 The Shale Gas Revolution The key questions? 9000 Can the Shale Gas Revolution continue in the United States? Can it be replicated elsewhere? shale coal bed methane tight gas conventional proven Conventional proven: BP Statistical Review of World Energy 2008 Others: NPC Unconventional Gas Topic Paper 29 July

24 Why is there uncertainty over whether it continue in the US? The economics of the projects look shaky under current gas prices There are also concerns about the negative environmental consequences of hydraulic fracturing The Cheney-Halliburton Loophole and the 2005 Energy Act Drilling moratoria in a number of shale plays awaiting EIAs New York State; Pennsylvania State forest lands; Delaware River Basin on the Marcellus; Maryland Marcellus; and many small towns e.g. Barnet 24

25 Why is there uncertainty over the answers? Can it continue in the US? Why not The economics of the projects look shaky under current gas prices Many smaller players hedged against lower gas prices Large IOCs (with deep pockets) getting involved Technology bringing costs down dramatically The liquids from shale gas production make the projects work There are also concerns about the negative environmental consequences of hydraulic fracturing Problem increasingly seen as poor well completion not fracking The use of horizontal drilling and fracking to increase domestic oil production thereby securing energy independence makes the technology ever more attractive. 25

26 Why the shale gas revolution in the USA Characteristic Favourable geology Lots of drill core data to help identify sweet spots Weak environmental regulation for fracking Tax credits + Intangible drilling cost expensing Property rights to the landowner Pipeline access easy large network + common carriage Selling gas into a commodity supply market very easy Dynamic and competitive service industry Population familiar with oil and gas operations Licensing large areas with vague work programs Significant government investment in basic R & D Much of the shale gas has high liquids content USA Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 26

27 What of favourable characteristics elsewhere? Characteristic USA EU Favourable geology Yes No Lots of drill core data to help identify sweet spots Yes No Weak environmental regulation for fracking Yes No Tax credits + Intangible drilling cost expensing Yes No Property rights to the landowner Yes No Pipeline access easy large network + common carriage Yes No Selling gas into the market very easy Yes No Dynamic and competitive service industry Yes No Population familiar with oil and gas operations Yes No Licensing large areas with vague work programs Yes No Huge government investment in basic R & D Yes No Much of the shale gas has high liquids content Yes? 27

28 Why is there uncertainty over the answers? Can it be replicated elsewhere? Europe. Wrong rocks Shale plays in Europe deeper, more fragmented, smaller, less material Shale is clay rich and less suitable for hydraulic fracturing Limited drill core data compared to USA Unwillingness of government to invest in basic scientific research Problems of regulatory framework Unconventional gas not part of the regulatory framework Very strict local environmental regulations No tax breaks or subsidies (except Hungary) Access to the pipeline network Europe third party access- USA common carriage 28

29 Why is there uncertainty over the answers? Can it be replicated elsewhere? Europe.. Lack of service industry capability Limited onshore service industry. Limited land rigs available. Peak of Barnett had199 rigs. July land rigs in Western Europe Access to water is key. Better methods = water requirements falling Environmental concerns (already discussed) are considerable Public acceptability in urbanized Europe with no property rights incentive and considerable disruption. MAMBA Land and NIMBYism : England 383 people sq km, US 27 29

30 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 30

31 Implications of the uncertainties surrounding gas? Investor uncertainties over gas inhibiting investment Prices LNG trade Uncertainties over renewables The UK Dash for Gas Mark II beloved of George Osborne is seriously flawed Assumes a shale gas revolution in Europe will lead to cheap gas Ignores gas s role in greenhouse gas emissions 31

32 Presentation outline Depletion - hydrocarbons running out Shale gas resources -Resources versus reserves Shale gas technologies Shale gas revolution in the USA Can it continue and can it be replicated? Implications of the uncertainties surrounding gas? What about liquids? 32

33 What about liquids? The impact Shale oil is transforming the US scene Fallow oil fields also playing a role - North Dakota as the next member of OPEC? Result in Figure 1 Published early December By mid January 2013 out of date! Decline of tight oil is in doubt based on shale gas experience of well decline and technology EIA Energy Outlook

34 What about liquids? The implications The end of the peak oil. Although oil will eventually peak but this will be because of demand not supply constraints already happened in the OECD (2005). US Energy Independence Long history: Nixon Carter s meow Mitt Romney by 2020 How realistic? Giving rise to much speculation Will the USA lose interest in policing sea lanes and/or what happens in the Middle East? Already imports very little from the Middle East (PG = 16% 2011) Hegemonic power Drivers of US foreign policy? Oil market as one big pool 34

35 Conclusions Plenty of hydrocarbon resources below-ground although if they are produced we are in serious trouble The constraints on production are above-ground issues There will be limited replication of the shale gas revolution any time soon, especially in Europe North American energy independence is feasible although the consequences will be much debated Takeaway message Shale gas technology means there will be plenty of oil and gas resources although that does not mean they will be available 35

36 THANK YOU FOR YOUR ATTENTION Recent relevant publications from Paul Stevens The Shale Gas Revolution : Hype and Reality. Chatham House Report October 2010 Paul Stevens - The Shale Gas Revolution : Developments and Changes. Chatham House Briefing Paper, August 2012