The data’s in and the numbers are big. Trapped in rocks, somewhere beneath Blackpool, the UK has lots and lots of shale – more than anyone imagined in fact. The story is it could revitalise our economy just as it has in the US.
It could be right. Anyone who wishes to idly dismiss shale gas on the grounds ‘it will never work here’ should remember – as the FT’s Nick Butler powerfully argues – that similar claims have been made about it since its inception. Shale gas, ultimately, is a reality and one which challenges the fossil fuel sector and clean economy alike.
But here at Energydesk towers we’ve become used to being promised our energy jam tomorrow – from nuclear fusion (always 15 years away) to the claim solar panels can fall in price for ever (not quite how cost curves work fellas). Fracking may be the exception – but here are six reasons to go easy on the hype for now:
1. We have no idea how much we can get out
Most journalists tend to go with a figure of 10-20% to convert the ‘gas in ground’ to how much we can get out we look at what it would mean further down.
A recent analysis by the US Energy Information Agency (EIA) suggests that once you take into account extraction history and geological risks only around 4% of the gas in in the rocks is ever likely to be extracted – if it is economic to do so. That’s about 17 years worth of gas.
And economics isn’t a given. The last country to pre-announce a shale gas boom was Poland which has since seen Exxon, Marathon and Talisman energy quit because shale reserves proved non-existent or too costly to extract.
In fact, the very different geology and limited space have led analysts including the IEA, Ernst and Young and Deutsche Bank to caution that shale in Europe is likely to be far pricier and more difficult to extract than in the US – so reducing the amount extracted still further.
That said shale gas explorer Cuadrilla, and more convincingly Nick Butler, say all this will be fine. Cuadrilla say that our shales, whilst deeper, are also thicker, meaning we can extract more gas from less space with fewer wells.
They may be right but, then again, they may be wrong. Most geologists say you need to drill around 50 to 100 wells before you can have any accurate idea.
2. This thing’s gonna take a while
When we talk about the economy recovering – or even about the lights going out – we tend to mean sometime in the next few years, which introduces a snag where shale gas is concerned.
Using Cuadrilla’s own best-case data an analysis by Poyry found that Lancashire shale will not reach full production until 2034. Indeed by the time of the next general election production probably won’t have started.
By the time of the election after that (in 2020) shale gas might account for around 10% of UK demand – or a quarter of what we currently get from the North Sea. Two elections down the line – by 2034 – Poyry estimates shale will still supply just 21% of our gas needs.
Again, Cuadrilla may be hedging here and with British Gas’s involvement, we could see more gas coming on stream – it’s just there is no evidence for that yet.
3. About your fuel bill – and your job
What this means is that there won’t be any immediate impact on bills. Further down the line too there are a few reasons not to get over-excited.
Unlike the US the UK is connected to a wider European market which means that shale gas, like North Sea gas, will be sold to the highest bidder. The cost of extraction will likely also be higher than in the US. A recent study by Ernst and Young estimated the cost at 7.5 Euros per MMBTU, not far from the current wholesale cost of gas.
So it’s not too surprising that, based on analysis by Poyry, Cuadrilla accept the impact of UK shale on bills will be ‘basically insignificant’. Their report claims that Lancashire shale, if exploited to Cuadrilla’s scenario will reduce bills by between 2 -4% compared to what would otherwise of been the case.
Indeed almost no reputable analyst expects a US style fall in the gas price. An analysis by the International Energy Agency (IEA) found that even with a ‘golden age’ of shale, EU gas prices will be 40% higher than they were in 2010, in line with DECC projections.
The impact – or otherwise – on bills is extremely important when estimating the jobs impact of shale gas as the claims of hundreds of thousands of new jobs in the US are largely based on lower costs for industry. It’s also worth noting that the ‘re-industrialisation’ of the US predicted due to shale, doesn’t really seem to stack up.
Technology could develop lowering extraction costs and so much shale gas could be produced either in the UK or EU as a whole that the market is flooded – pushing down prices. It could certainly happen – but the evidence doesn’t currently suggest it certainly will.
4. You’ll need lots and lots of wells
A report by the Institute of Directors (IOD) for Cuadrilla suggests that UK shale could replace declining production from the North Sea with just 1,000 wells spread across 100 drilling sites – or well pads producing between 853 and 1389 bcf worth of gas, just under half UK demand.
The report claimed that because the UK’s shale was thicker than that in the US each well could effectively multiply by four underground (something done almost nowhere) and that each and every ONE of those four ‘laterals’ could itself extract gas equivalent to the most productive wells in the most productive region of the US, a so-called sweet spot (each lateral extracting 3.2 billion cubic feet worth of gas over it’s lifetime).
Assuming Cuadrilla was unable to pioneer this technology they would have to drill at least 4,000 wells. In fact, a study by Bloomberg based on average well extraction data (rather than just sweet spots) found that to meet North Sea production levels (1,460bcf) and sustain it for ten years would require between 10 and 20,000 shale gas wells.
But some are likely to argue we can get more gas out of the ground than Bloomberg think – say the 10% we’ve mentioned of the 1300 tcf the British Geological Survey (BGS) have found.
If you assume that every well is equivalent to the most productive wells in the US – found in the Haynesville Sabine Platform – that would work out at around 50,000 wells if you use the next most productive region that figure doubles to 100,000. (The Haynesville Wells has an estimated ultimate recovery of around 2.6 bn cubic feet according to the US Geological Survey, the next region is 1.3 bn cubic feet). If you use Cuadrilla’s more heroic assumptions you would still need 10,000 wells.
Each of these wells will need to be carefully monitored. A recent study by Dukes University found methane levels in water wells near shale gas wells were, on average, 23 times higher than those not near fracking sites – most likely due to leaks from shell casings.
The government has, of course, offered communities £100,000 in benefits for each well ‘fracked’, so to get 10% of the total resource out of the ground could cost around £5bn – before you’ve drilled an inch.
5. And a large amount of water
The IOD’s report suggests that meeting less than half of UK demand would need about 5.4m cubic meters of water per Annum and 1.6m cubic meters of waste fluids – which, it argues, is together less than UK milk production.
Fracking fluid requires small amounts of chemicals (especially acid) are added to it and waste fluid often contains radioactive isotopes (from the rocks) so both tend to need to be transported outside the mains supply – unless chemicals are stored and added on site. To move that water in areas where intense drilling is taking place would need between 6 and 17 trucks a day, according to the IOD.
To realise 10% of the reserve potential would far more than that.
The report estimated that each well – or lateral as it prefers to call them – would use 13,600 cubic meters of water – equal to the Eagle Ford wells Cuadrilla looks at in it’s analysis.
A drilling site with 10 wells would therefore use about 136,000 cubic meters of water and produce 40,800 cubic meters of waste fluids. One with 40 wells (or laterals) would need four times that. 10,000 wells would need 136m cubic meters, 50,000 would need 680m cubic meters.
Put another way – getting 10% of the gas in the ground could require an amount of water equal to the annual water consumption of 12.4 million UK household and produce, in waste, 30% of that again (assuming household water consumption of around 150 liters a day and UK milk production at 11 million cubic meters) – though it’s important to note this would, presumably, happen over decades.
Based on the IoD’s numbers (a truck being 30 cubic meters) getting our, rather absurd, 10 % out of the ground would also need about 22 million tuck movements in total.
6. Climate change could undermine the economics
From a global perspective, there are already more fossil fuels available than can be burned without triggering catastrophic climate change.
A recent report by the International Energy Agency (IEA) argued that two thirds of existing fossil fuel reserves should be left in the ground arguing that existing reserves of oil and gas were so large that it would be uneconomic to exploit new oil and gas, assuming the world intended to limit consumption.
Indeed with the UK committed to decarbonising it’s power sector by 2030 and heating sector by 2050, shale gas production could either undermine our chances of tackling climate change or end up a stranded asset. Ultimately this is the challenge Nick Butler set.