The Gap Between Aspiration and reality March 19 th 2014, Howard Rogers CEng, FIChemE Director of Natural Gas Research, OIES

Transcription

1 The Gap Between Aspiration and reality March 19 th 2014, Howard Rogers CEng, FIChemE Director of Natural Gas Research, OIES OIES NATURAL GAS RESEARCH PROGRAMME

2 WE ARE: A gas research programme at a Recognised Independent Research Centre of Oxford University, specialising in fossil fuel research Probably the only European academic research group focussed on natural gas. WE PRODUCE: independent research on national and international gas issues OIES Natural Gas Research Programme WE ARE FUNDED BY: sponsorship by 20 companies and governments in gas producing and consuming countries WE ARE NOT: consultants, sellers of exclusive, high price business reports In 2013 the Oxford Institute was voted the world s No.1 Energy and Resource Policy Think Tank

3 UK Gas Balance Demand LNG imports Pipeline Imports Domestic Production Exports - Ireland Exports - Continent

4 An Island Market Connected to Global Supply Import Capacity bcma Pipeline 100 LNG 50 Vesterled, Tampen & Gjoa UK Annual Demand Teesside Langeled BBL Global LNG Supply Pool Dragon South Hook Grain IUK Russian Supply

5 Factors Driving UK Wholesale Gas Prices Through pipeline connections with the continental, the UK wholesale gas price is firmly linked with European traded hub prices. Europe is also linked to the Asian spot LNG market through arbitrage. Russia supplies 25% of Europe s gas demand and can influence prices though managing physical supply. Major forces which will shape wider market fundamentals and prices are: new LNG supply from Australia, East Africa, Russia, US and Canada, Asian demand growth. Regional linkages will strengthen and competition for Russia in Europe intensify. It is highly unlikely that UK shale gas production will materially influence UK gas prices in this increasingly linked global trading system. But UK gas price could fall as a result of the next LNG supply wave.

6 US Shale Gas Production by Play

7 US Shale Gas Play Drilling Activity and Longevity Wells now take days to drill (12 to 15 wells/year/rig) Cost $7 million to $10 million/well Total 7,350 Source: Enterprise Products Partners Fundamentals Group zyn8mb1axa6idadg&usg=afqjcnge7woh1lf70sjp1urbz_mojlap7g&sig2=ildmemqmxyaknqoepwwphw&bvm=bv ,d.d2k

8 Shale Play Well Performance Importance of Sweet Spots Source: Arthur E Berman

9 Shale Gas Well Decline Curves

10 UK Production from 300 wells per year (25 pads) over 10 years (Based on Barnett Shale Well Analogue) Source: Analysis based on well data from A. Berman, Labyrinth Consulting Services, Inc

11 UK Shale Gas Resource Assessment On June 27 th 2013 the British Geological Society doubled its estimate of shale gas resources (in place, as distinct from recoverable) in the north of England to (a central estimate of) 1,329 Trillion Cubic Feet. The UK, one of Europe s largest natural gas markets, consumes some 80 bcm (2.8 Tcf) per year. Assuming a shale gas recovery factor of 10% this implies that shale gas from this area of the UK would meet consumption requirements at current rates for some 50 years. Sources:

12 UK Shale Gas Technical & Operational Uncertainties Bowland Shale thickness very promising, but need to test well flowrates. Cost base probably above US at least initially. Need a 2 3 year exploration programme to test viability of UK shale plays realistically may need 50 to 100 wells. Planning and consent process (not to mention disruption from protestors) will make this difficult to achieve.

13 Blackpool Rock(ed) Drilled a well in May 2011 in the vicinity of Blackpool. Earth tremors recorded. It is highly probable that the hydraulic fracturing of Cuadrilla s Preese Hall-1 well did trigger a number of minor seismic events, (Daily Telegraph). Currently Seeking permission for a second horizontal well at a different location. Cuadrilla claim Bowland Basin has 200 Tcf of resource (UK Gas reserves 9Tcf at end 2010). (Multiply by 0.1 to 0.2 to get max recoverable) But..numbers are just estimates in the absence of well flowrate tests. The UK shale gas potential will be what eventually flows from economic wells. Patience for a while but cause for some optimism? 13

14 The NIMBY / Gasland Factor The Upstream Industry until recently has appeared reticent in outlining both the reality of shale gas development and the positive aspects of potential shale gas production in the UK. These include jobs, local economic stimulus, a revenue base of 2bn for each 10% of UK demand met by shale gas additional tax revenue. Unless industry gets its voice in the room the public only has the NGOs to listen to.

15 West Virginia Shale Gas Pad Drilling Phase..

16 Production Phase Same Location

17 Scale of US >> UK US Shale Gas Play Areas

18 The US Shale Basins are simple km 100km Source: J. Cartwright, Department of Earth Sciences, University of Oxford

19 Source: J. Cartwright, Department of Earth Sciences, University of Oxford UK geology is complex highly faulted 25km BGS Report for DECC 2013 Implications for horizontal drilling/ safety: If we can t see the faults- should we drill and frack? Seismic from site of Blackpool earthquakes

20 US Shale Gas Summary of Key Success Factors years of onshore oil and gas industry. Extensive geological data, generally accepted industry footprint, existing regulatory framework. Mineral rights mostly reside with landowner. Facilitates rapid access on bi-laterally negotiated terms. Many upstream players (majors, independents, mom & pop enterprises) competition. Competitive and innovative upstream service sector. Above all an environment which allows a multi-play gold rush dynamic to develop. Sheer number of wells drilled in short time window locates sweet-spots and best techniques, (though many players lose money initially). 7,500 Shale Gas Wells Drilled Annually!

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22 Outside of US, Shale Gas More a slow motion game of Battleships?

23 Thank You for Your Attention Howard V Rogers Director, OIES Natural Gas Programme howard.rogers@oxfordenergy.org OIES Gas Programme Webpage: