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Memorandum submitted by the Department of Energy and Climate Change (SG 1) Introduction UK Onshore Oil & Gas Activity in General 1. The onshore oil and gas industry has been operating in the UK for well over 60 years and production, although currently only 1.5% of overall UK oil & gas total, nevertheless contributes usefully to UK security of supply and to the UK economy. 2. Close cooperation between the industry and the planning authorities has allowed the industry to develop with minimal environmental impact. Alongside DECC licences and consents, all exploration and development activities also need to be authorised by the Health & Safety Executive . 3. Recent years have seen continued interest in onshore oil and gas activity as the response to the 13th Round in 2008 proved. That Round saw a good outcome with 97 licences awarded in total confirming the continuing commercial attractiveness of onshore oil and gas exploration opportunities in the UK, and there was renewed interest in coal bed methane. 4. Current estimates suggest that overall onshore potential proven and probable reserves equate to around 1.5% - 2% of the UK's overall reserves. Government wants to ensure that operators get the opportunity to explore and develop onshore and licensing is the first part of this process. 5. There are currently some 28 UK onshore oil fields and 10 onshore gas fields in production. Overall UK onshore oil production is around 24,000 barrels per day (2009). BP's Wytch Farm field (Dorset) is the largest onshore oil field in Europe, and, although production peaked over a decade ago, the field still produces around 20,000 barrels a day (around 83% of UK onshore oil production). UNCONVENTIONAL GAS 6. In the UK, as elsewhere, gas (and oil) is predominantly produced from permeable rock formations such as sandstones. But there have been many attempts over the years to develop other kinds of petroleum resources. The commercial development of “unconventional” gas resources has been limited until the last decade, when new production techniques have enabled a rapid development of shale gas. 7. Natural gas can also be extracted from coal deposits by drilling (“coal bed methane” or CBM – also known as “coal seam gas”). The energy of coal can also be exploited by gasifying the coal in the ground (“underground coal gasification” or UCG), though the gas produced is not “natural gas” (i.e., predominantly methane), but a mixture of combustible gases.
Conventional versus unconventional shale gas, tight gas and coal bed methane (CBM)
UK Potential & Licence Rounds 8. Although there may be significant resources of unconventional gas in the UK, this has not so far been demonstrated. It should not be assumed that the commercial success of shale gas and CBM in the US will be transferable to the different geological and other conditions of the UK. We are however encouraging exploration and appraisal actively for both shale gas and coal bed methane. The Coal Authority is similarly encouraging exploration and appraisal for underground coal gasification actively. 9. DECC aims to launch a new (14th) onshore round this year, and expects a fair amount of interest from the industry, for both conventional and unconventional prospects. 10. The map below shows the location of CBM wells drilled, the three approved CBM developments, the Underground Coal Gasification licences awarded by the Coal Authority, the current onshore licences and the area under consultation which may be offered in the 14th licence round.
Map showing onshore licences, coal bed methane activity, and potential 14th Round licence acreage.
SHALE GAS 11. The Technology - Shale gas is natural gas produced from shale. Shale has low permeability, so gas production in commercial quantities requires fractures to provide permeability. Although a small amount of shale gas has been produced for years from shales with natural fractures, the shale gas boom in recent years has been due to modern technology in hydraulic fracturing where fluid is pumped into the ground to create fractures to make the reservoir more permeable, then the fractures are propped open by small particles, and can enable the released gas to flow at commercial rates. Horizontal drilling is often used with shale gas wells, with lateral lengths up to 10,000 feet within the shale, to create maximum borehole surface area
in contact with the shale. The US experience suggests that successful production techniques are quite specific to particular formations.
Ranges of Total Organic Carbon in typical tight gas sand, shale gas, and coal bed methane prospects
12. As the diagram above shows, there is a continuum of unconventional gas prospectivity from tight gas sands, gas shales to coal bed methane (CBM). 13. Some conventional sandstone wells that failed to flow gas are being re-examined in light of American tight gas successes and 56 billion cubic metres (bcm) of tight gas potential reserves have been identified in the sandstone reservoirs of the Southern North Sea. 14. Gas can be found in the pores and fractures of rocks but also bound to the matrix, by a process known as adsorption, where the gas molecules adhere to the surfaces within a shale or a coal. 15. UK Potential - While there is growing interest in European potential for shale gas, the UK potential is as yet untested. The UK shale gas industry is in its infancy, and ahead of drilling with fracture stimulation and testing, there are no reliable indicators of potential productivity. There is variable data available on the geology, depending on whether oil and gas exploration has been undertaken and the extent of existing seismic data available. 16. A DECC commissioned British Geological Survey (BGS) study has recently concluded that, with the present state of knowledge about relevant UK geology, the only means of estimating the resource is by analogy with similar shales which have been successfully exploited in America. The study has been placed on DECC’s Oil and Gas website and can be found via the following weblink: https://www.og.decc.gov.uk/upstream/licensing/shalegas.pdf It is also attached to this report for ease of reference. 17. If the prospective shale area of UK shale gas potential did prove to be as prolific as the analogous basins in the US, it could be of the order of 150 bcm of gas (900 million barrels of oil equivalent). To put this in context, this compares with the UK’s overall remaining conventional oil and gas reserves of some 20 billion barrels (including offshore).
18. However it is not yet clear whether there is any economic shale gas resource in the UK, as testing of our shales may show them to be less productive that those in the US. In addition, bearing in mind planning and environmental issues, it would be unrealistic to assume that the drilling density achieved in the US (thousands of wells) could be replicated in the UK. So this figure may be more representative of the theoretical top end reserves, rather than what it might be ultimately recoverable through practical development. COAL BED METHANE (CBM) 19. The Technology - In addition to exploiting methane from abandoned and existing coal mining operations, the opportunity also exists to exploit methane which is still locked into the reserves of coal and coal measures strata that remain unworked. This concept is referred to as Coal Bed Methane since it involves directly drilling into unworked coal and coal measures strata to release methane held (or adsorbed)within the coal. CBM offers a method of extracting methane without detrimentally affecting the physical properties of the coal. 20. UK Potential - In the last 5 years over 40 CBM exploration and appraisal wells and 12 pilot production development wells have been drilled. IGAS and Nexen are generating electricity from CBM production, a first for the UK, at their Doe Green development, near Warrington and are currently flow testing in Staffordshire at Keele Park as part of the Potteries CBM development. In Scotland, Composite Energy drilled 18 multi-lateral wells in their Airth CBM development, which is currently suspended, but produced water and gas in 2008 and 2009. 21. The theoretical CBM resource in the UK is estimated to be 2900 billion cubic metres (bcm) using only coals with the right depth, thickness, gas content, and separation from underground mine workings. Given that the 2009 annual UK natural gas consumption was approximately 86 bcm this corresponds to about 33 years consumption. However, the part of this CBM resource that is economically viable to produce is likely to be very much smaller, possibly around 10% or less. This is largely due to perceived widespread low seam permeability, low gas content, resource density and planning constraints. More drilling and testing is necessary to refine the estimate. At the moment only modest amounts of CBM gas has been shown to be economic and realistic estimates of the size of the resource are not possible until drilling and production demonstrates more generally the economics of production in UK conditions. A BGS study on UK CBM potential is available on DECC’s Oil & Gas website at: https://www.og.decc.gov.uk/upstream/licensing/cbm.pdf
UNDERGROUND COAL GASIFICATION (UGC) 22. The Technology: UCG is the partial in-situ combustion of a deep underground coal seam to produce a gas for use as an energy source. It is achieved by drilling two boreholes from the surface, one to supply oxygen and water/steam, the other to bring the product gas to the surface. This combustible gas can be used for industrial heating, power generation or the manufacture of hydrogen, synthetic natural gas or other chemicals. The technique has not yet been demonstrated to be commercial anywhere in the world, though there is one long-running project in Uzbekistan.
23. UK Potential: Although trials were conducted in the UK as long ago as the 50s, the technical and economic viability of underground coal gasification (UCG) has not to date been demonstrated. It is too early to judge, therefore, what contribution this fledgling technology might make to future UK energy needs. Notwithstanding, there is active interest in the sector’s potential. The licensing body, the Coal Authority, has over the last year or so granted 14 Conditional Licences for UCG (all in relation to undersea reserves). DECC is monitoring progress with interest and continues to work with other parties (the Coal Authority, Environment Agency) to help ensure clarity around the regulatory aspects of the process. WHAT ARE THE PROSPECTS FOR SHALE GAS IN THE UK AND WHAT ARE THE RISKS OF RAPID DEPLETION OF SHALE GAS RESOURCES? 24. The Namurian Bowland Shales in the Lancashire basin (which are the source rock for the Irish Sea fields) are the most prospective, but also the Jurassic Kimmeridge and Lias shales (source rocks for the North Sea and English Channel fields) are being considered in the Weald basin in southern England. Indications of gas have often been encountered while drilling through these shales for conventional exploration of sandstone and limestone.
UK Shale Gas potential
Upper Bowland Shale of the Pennine Basin Kimmeridge Clay of the Weald Basin Lias of the Weald Basin. Deeper Dinantian shales in the Pennine Basin and possibly in the Oil-Shale Group of the Midland Valley of Scotland Higher risk target is the Ordovician and Upper Cambrian source rocks on the Midland Microcraton.
25. The first UK exploration well designed to evaluate shale gas potential, using state-of-the-art fracture stimulation and testing procedures, is currently drilling west of Blackpool (Cuadrilla’s Preese Hall 1 well), shown on the far right (North end) of the diagram below.
Cross section from England’s south coast to the Lancashire basin near Blackpool
26. Reserves can be estimated for conventional oil and gas prospects by applying a recovery factor to the hydrocarbons in place, but for shale gas, the reserves are dependent upon the number of wells drilled, the success of the fracture stimulation, and the use of horizontal drilling to increasing the area that can be drained around each borehole. 27. Shale gas success can only be measured after a number of wells are drilled and tested. The initial production rates and ultimate recovery of gas for each well then are averaged to estimate the reserves in the various parts of a large shale gas play. 28. An estimate of UK potential can only be made by analogy to productive areas. On an area basis, comparing the size of the prospective UK Namurian Carboniferous (Upper Bowland Shale) shale to the Barnett Shale play in Texas, the Lancashire basin could potentially yield up to 133 bcm of shale gas. If the onshore UK Jurassic shale gas play is analogous to the Antrim Shale in Michigan, the Weald/Wessex basin could potentially yield 6 bcm recoverable shale gas. There is higher risk potential in older shales, and some offshore potential too. 29. However, as noted above, it is difficult to imagine that a US model for shale gas development, with thousands of wells in each trend, can be replicated in the UK. Planning and environmental considerations are likely to limit the number of surface locations from which wells can be drilled, but there is hope that a smaller scale development with numerous horizontal wells from central sites could be economically viable. But it is too early in UK shale gas exploration to know if commercial development can be established. 30. Unlike some other countries where landowners own the oil and gas under their land, in the UK the Crown controls the right to produce hydrocarbons. DECC licenses these rights to exploit oil and gas resources; and, together with the environmental control through the planning system (by Local Authority supported by the Environmental Agency and other consultees), and safety regulation (by the Health and Safety Executive), this should result in a well ordered development of the resource. This has already been achieved with the UK’s long experience of development of its more conventional onshore oil and gas resources.
Risks of Rapid Depletion of Shale Gas Resources? 31. While there has been debate in the industry regarding the forecasting of future shale gas production profiles, it is too early to know what decline rates we might experience. We don’t yet have UK data to estimate the initial production rate, the initial rate of production decline, and the degree to which that initial decline rate flattens out over time. We have significant potential reserves – but no proved prospectivity for shale gas, and only pilot production data for CBM. WHAT ARE THE IMPLICATIONS OF LARGE DISCOVERIES OF SHALE GAS AROUND THE WORLD FOR UK ENERGY AND CLIMATE CHANGE POLICY? Prospects for further production in the US 32. Production of unconventional gas in the US is expected to increase with the growth in unconventional gas production being driven largely by shale gas production rising from 14% of total consumption (around 3 trillion cubic feet) in 2009 to 45% (around 12 tcf) in 2035, according to the EIA (US Energy Information Administration) chart below 1 . U.S. Dry Gas Production (trillion cubic feet a year) by source: 1990 – 2035.
Source: US Energy Information Administration
33. This growth is expected to help put downward pressure on the US’s demand for imports. The US’s net imports peaked in 2007 at around 3.5 trillion cubic feet of gas, most of which was imported from Canada. The US’s net imports are projected to fall from 2.6 tcf in 2009 to 1.3 tcf in 2025 and 0.3 tcf in 2035. The EIA are expecting imports of gas from Canada and from LNG to fall over the next two decades.
NB: 1 tcf is equal to around 28.3 bcm.
34. The EIA has continued to revise up its expectations for shale gas production and the impacts this will have on the US market. For example in contrast to the Annual Energy Outlook 2010 reference case, the EIA now: • Has doubled the technically recoverable unproved reserves of shale gas; • Projects higher shale gas production; • Projects lower US prices; • Projects lower total U.S. net imports of LNG (due in part to less world liquefaction capacity and greater world regasification capacity, as well as increased use of LNG in markets outside North America); and • Assumes the Alaska pipeline will not be constructed as projected due to both the projected lower US prices and higher capital costs which makes this unattractive. It should be noted that such projections are sensitive to a number of assumptions, relating for example to the pace of technological innovation and economic growth. 35. The impact of further growth in gas production in the US on global markets will depend on a number of factors: • The extent to which the increase in production is offset by increases in US demand for gas; • The extent to which it exceeds, or falls below, market expectations and therefore helps push the global market into over- or under-capacity; and • Whether the US will be able, and the extent to which it will be able to export natural gas in other markets.
Prospects for unconventional gas production in the rest of the world Global Unconventional Natural Gas Resources in place (trillion cubic metres)
Tight 23 22 25 51 10 20 6 16 39 37 12 2 10 210 Coalbed 0 1 112 49 34 13 1 0 85 1 8 3 4 256 Shale 72 8 18 174 100 65 0 9 109 60 16 1 14 456 Total 95 31 155 274 144 99 7 24 233 98 35 7 29 921
Middle East and North Africa Sub-Sahara Africa Former Soviet Union Asia-Pacific Central Asia and China OECD Pacific South Asia Other Asia North America Latin Europe Central and Eastern Europe Western Europe World
Source: Rogner (1996), Kawata and Fujita (2001), Holditch (2006). Taken from World Energy Outlook 2009 table 11.3, International Energy Agency.
36. While North American production is expected to continue to increase, there are significant uncertainties over the extent, the timing and the location of production elsewhere in the world. This is due to a number of factors including: • the limited understanding of reserves: The table above shows estimates for the unconventional gas reserves thought to be in place in various regions across the world. On these estimates, the resource could be very large. For comparison, global consumption of gas is around 3 tcm per annum 2 . However, comprehensive assessments are few and far between. And there is a lack of production experience outside the US, which leaves substantial uncertainty about how much of the resource might ultimately be producible. Nonetheless, the current IEA estimate is that around 380 tcm could be recoverable based on current data. This compares to an estimated 404 tcm of recoverable conventional reserves and 184tcm of proven gas reserves; prices: the price required to incentivise investment will depend on a number of factors, such as the productivity and cost of the well, access to transport infrastructure etc. The IEA has estimated recoverable unconventional resources can be produced at prices between $2.7/MBtu 3 and $9/MBtu in the US. environmental controls and population density: unconventional production is more land intensive than traditional methods. Either factor could restrict development, particularly in Europe which has high population density and a well developed regulatory framework; land ownership: US legislation differs from most, including that in Europe, in that it grants landowners rights over hydrocarbon resources rather than conferring ownership on the state. This has provided a huge incentive for landowners to agree to invasive drilling on their property. The lack of such an incentive could be particularly significant in parts of Europe with strict planning laws; availability of infrastructure: the US and Canada have highly developed gas grids, something that is lacking in China, India and some other potential sources of unconventional gas; and access to technology and expertise: the technology required to exploit unconventional resources is highly specialised and has been largely, though not entirely, confined to the US.
37. Notwithstanding the uncertainty it is clear that there is potential for additional gas to be brought to market in large volumes. Should this be the case, there could be significant impacts on global energy markets and climate change. 38. Price implications –The unexpected growth in unconventional gas production in the US has already, in conjunction with other factors, helped to depress UK and global spot wholesale gas prices over the course of 2009 by reducing the US need for LNG imports, although recently UK wholesale prices have rebounded strongly. Over the medium and long-term, the impact of new sources of unconventional gas on prices is
WEO 2010, Table 5.1, Primary natural gas demand by region and scenario (bcm), page 181. Millions of British thermal units.
uncertain. Increased supply of gas via increased production of unconventional is likely to reduce gas prices going forward. However, instead there might be upwards pressure on gas prices if expectations of unconventional gas being brought to market leads to under-investment in conventional gas or other energy sources. The EIA expects unconventional gas to exert downward pressure on natural gas price. Natural gas wellhead prices in AEO2011 (in 2009 dollars) only reach $6.53 per thousand cubic feet in 2035, compared with $8.06 in AEO2010 due in part to increased estimates on recoverable shale gas resources. 39. Security of supply – there is potential for security of supply to be improved due to the opportunities for consuming countries to diversity across a wider range of sources of supply. 40. Climate implications –increased unconventional production would result in lower emissions if it displaces fuels such as coal that are associated with higher emissions. However, the potential downside from reduced emissions in the short- to medium-term is that this reduces the incentive to invest in developing and deploying the low-carbon alternatives required to meet longer-term emission goals. If gas was to play a major longer-term role, this would suggest a greater need for effective CCS technology for gas plants. Tighter national emission targets and policies to support innovation and deployment of low-carbon technologies could be used to reduce these risks. With such measures, the increased use of gas could be an effective bridge to help deliver greater near-term reductions. 41. To reduce the uncertainty posed by these issues, the Department intends to closely monitor developments and will consider the need for additional research to improve our understanding of the implications for policy. In the meantime, DECC is continuing to liaise with the energy industry and academia as knowledge and experience develops. WHAT ARE THE RISKS AND HAZARDS ASSOCIATED WITH DRILLING FOR SHALE GAS? 42. The safety risks and hazards associated with drilling for shale gas should be no more onerous than those associated with drilling for any other hydrocarbons by a borehole (for instance, the worse case being a blow out leading to the release and possible ignition of gas). 43. The process of extending the borehole to the shale formations of interest, will follow those used for conventional drilling of oil and gas wells, with a number of casings of reducing diameter being run and cemented to form a conduit to surface. The principle of dual barriers to any potential flow of fluid will be maintained and equivalent safety features for the production phase of shale gas will be in place i.e. sub surface safety valves. 44. The risks to people from drilling a borehole for hydrocarbons under a production, or exploration and appraisal, license will be regulated by the Health and Safety Executive (HSE). 45. UK legislation requires the operator to assess not only the risks and hazards above ground but also those associated with the sub surface aspects of the operations. The operator must notify HSE of any proposed drilling operations which
will allow a dialogue to start on the management of the risks that have been identified. 46. More generally environmental risks of shale gas development have received some media attention in the US and have even resulted in a hydrofrac drilling ban in the state of New York which flanks the successful Marcellus shale trend. It is claimed that some incompetent operators have allowed gas to contaminate shallow aquifers, which should not be possible with proper well casing design. 47. The use of large quantities of water for fracture stimulation in areas with limited water supply and the safe disposal of the recovered fluids have also been reported as contentious in the US. Public health concerns there have resulted in a demand for greater transparency regarding the chemical composition of the fracture stimulation fluid and the US Environmental Protection Agency have recently changed their requirements. In the US, where the landowner owns the mineral rights, directly benefiting from drilling, consent to dense drilling has been allowed with reported possible negative effects on local communities. HOW DOES THE CARBON FOOTPRINT OF SHALE GAS COMPARE TO OTHER FOSSIL FUELS? 48. The carbon intensity of natural gas from shale formations varies between various shales and depends on the extraction process and emission management. Both the greater number of bore holes required to be drilled for shale gas in relation to field gas and the process of hydraulic fracturing of the rock add to the energy and carbon footprint of the extraction process. This carbon footprint can be increased further by fugitive emissions of methane released directly to the atmosphere as a result of the fracturing process. 49. Little investigation has been undertaken into the size and variability of greenhouse gas emissions from the extraction process and even less has been conducted on the potential impact of fugitive methane emissions. Estimates of the carbon intensity of shale gas should therefore be treated with caution until peerreviewed work is available. However, providing that fugitive emissions of methane can be managed adequately, shale gas can be expected to have a carbon intensity greater than that of natural gas from conventional fields, but significantly lower than that of coal.
Memorandum submitted by the World Coal Association (SG 02)
1. Given the recent increase in shale gas extraction in the United States and the subsequent deliberations on shale gas development in other countries, including the UK, the World Coal Association (WCA) welcomes the call for written evidence for the forthcoming inquiry into shale gas, launched by the Energy and Climate Change Committee. As a non-profit, non-governmental industry association working internationally on behalf of the world’s major coal producers and stakeholders, WCA follows closely the work of energy research institutes and other international organisations. It is as an association analysing and disseminating information on energy-related issues that we would like to contribute to this public inquiry. In this response, the WCA has sought to address one of the four questions posed in the Energy and Climate Change Committee’s call for written evidence: • How does the carbon footprint of shale gas compare to other fossil fuels?
Academic studies and other documents referred to in this response are available in the annex to this document.
Possible greenhouse footprint of natural gas from shale gas formations 4. The carbon footprint of coal extraction and coal combustion is now well documented. However, due to the recent character of large scale shale gas extraction in the USA, the overall greenhouse footprint of the so called shale gas, including direct and indirect emissions of both CO2 and methane, is not yet fully understood. An assessment of greenhouse footprint of natural gas from shale formations obtained by high-volume, slick-water hydraulic fracturing, undertaken by professor of Ecology & Environmental Biology at Cornell University, Robert W. Howarth, indicates that high volume slick-water hydraulic fracturing, an extraction method which, combined with horizontal drilling techniques, allowed a substantial increase in shale gas extraction productivity in the USA, might substantially increase the overall greenhouse footprint of natural gas extracted from shale formations (Annex I and II) This is mainly due to potential leakages of methane gas which, according to the IPCC, is a greenhouse gas 72 times more powerful than CO2 during the first 20 years after its release (Annex III). This would make the overall greenhouse footprint of shale gas similar to the one of coal at a low end estimate and substantially greater at a high end estimate. In fact, in the light of this study, it seems important to consider the overall greenhouse gas footprint of shale gas, as opposed to a carbon footprint which takes account exclusively of CO2 emissions.
The importance of a full greenhouse footprint approach in the context of the current policy context 7. We encourage the Energy and Climate Change Committee to investigate the possible greenhouse footprint of shale gas before further encouraging the development of shale gas extraction in the UK and to take account of its findings when considering the introduction of an Emission Performance Standard (EPS). Given the current increase in natural gas consumption in the UK, as stimulated by the EU Emissions Trading Scheme and by parallel environmental policies and owing to the fact that more investors are now considering shale gas extraction on UK territory, it is important that the greenhouse footprint of natural gas from shale formations is more understood. This is especially important in the light of a possible introduction of an Emission Performance Standard, considered by the current government. In fact, if introduced, an EPS will likely take account of CO2 emissions associated with the combustion process of natural gas and coal. As a result, there is a potential that other greenhouse gas emissions at the extraction stage could be ignored. This could lead to shifts in the UK’s energy mix which might produce unintended and adverse environmental effects to the ones desired.
10. In fact, in the USA, where shale gas extraction is most developed, National Academy of Sciences and the Council of Scientific Presidents have called for caution before proceeding with further development of the unconventional technology of natural gas extraction. 11. The WCA hopes that this response to the Energy and Climate Change Committee’s call for written evidence will encourage further investigation of the overall greenhouse gas footprint of natural gas obtained from shale formations and will contribute to stimulating an informed debate about the possible environmental impacts of shale gas.
Annex I Howart, R., W., Preliminary assessment of the greenhouse gas emissions from natural gas obtained by hydraulic fracturing, Department of Ecology and Evolutionary Biology, Cornell University, 1 April 2010
Department of Ecology and Evolutionary Biology
Preliminary Assessment of the Greenhouse Gas Emissions from Natural Gas obtained by Hydraulic Fracturing
Robert W. Howarth
David R. Atkinson Professor of Ecology & Environmental Biology, Cornell University (1 April 2010
Natural gas is being widely advertised and promoted as a clean burning fuel that produces less greenhouse gas emissions than coal when burned. While it is true that less carbon dioxide is emitted from burning natural gas than from burning coal per unit of energy generated, the combustion emissions are only part of story and the comparison is quite misleading. A complete consideration of all emissions from using natural gas seems likely to make natural gas far less attractive than oil and not significantly better than coal in terms of the consequences for global warming. There is an urgent need for a comprehensive assessment of the full range of emission of greenhouse gases from using natural gas obtained by high-volume, slick water hydraulic fracturing (HVSWHF, or “hydrofracking”). I am aware of no such analysis that is publicly available. Some information suggests that one or more assessments may have been conducted by industry groups, but if so these are available only to industry on a confidential basis. If such assessments exist, they have not been subjected to external, unbiased scientific review. A first attempt at comparing the total emissions of greenhouse gas emissions from HVWWHF obtained natural gas suggests that they are 2.4-fold greater than are the emissions just from the combustion of the natural gas. This estimate is highly uncertain, but is likely conservative, with true emissions being even greater. When the total emissions of greenhouse gases are considered, Greenhouse gas emissions from HVSWHF-obtained natural gas are estimated to be 60% more than for diesel fuel and gasoline. HVSWHF-obtained natural gas and coal from mountain-top removal probably have similar releases. These numbers should be treated with caution. Nonetheless, until better estimates are generated and rigorously reviewed, society should be wary of claims that natural gas is a desirable fuel in terms of the consequences on global warming. Far better would be to rapidly move towards an economy based on renewable fuels. Recent studies indicate the U.S. and the world could rely 100% on such green energy sources within 20 years if we dedicate ourselves to that course. See Jacobson & Delucchi (2009) A Path to Sustainable Energy by 2030, Scientific American 301: 58-65. Presentation of assumptions and uncertainties behind estimates: Considering the release during combustion alone, greenhouse gas emissions from burning natural
gas average 13.7 g C of CO2 per million joules of energy compared to 18.6 for gasoline, 18.9 for diesel fuel, and 24.0 for bituminous coal (U. S. Department of Energy: http://www.eia.doe.gov/oiaf/1605/coefficients.html). Additional emissions of greenhouse gas occur during the development, processing, and transport of natural gas (due to the use of fossil fuels to build pipelines, truck water, drill wells, make the compounds used in drilling and fracturing, and treat wastes, and the loss of carbon-trapping forests). I am aware of no rigorous estimate for these additional greenhouse gas emissions, but they appear likely to equal at least one third of those released during combustion (4.5 g C of CO2 per million joules of energy). For comparison, the greenhouse gas emissions from obtaining, processing, and transporting diesel fuel and gasoline are in the range of 8% (Howarth et al. 2009: http://cip.cornell.edu/biofuels/), or perhaps 1.5 g C of CO2 per million joules of energy. Note that as fossil fuel energy resources become more diffuse and difficult to obtain (as is gas in the Marcellus Shale), the energy needed to extract them and the greenhouse gas emissions associated with this effort go up substantially. The leakage of methane gas during production, transport, processing, and use of natural gas is probably a far more important consideration. Methane is by the far the major component of natural gas, and it is a powerful greenhouse gas: 72-times more powerful than is CO2 per molecule in the atmosphere (Table 2.14 in the Intergovernmental Panel on Climate Change Fourth Assessment Report (AR4), Climate Change 2007: The Physical Science Basis. http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_wg1_report_t he_physical_science_basis.htm ). Note that this comparison of the global warming potential of methane with CO2 is based on a 20-year assessment time; the factor decreases to 25-fold for for an 100-year assessment time. The shorter time with the higher relative global warming potential is the appropriate one, if one is concerned about the effects of methane during the time a natural gas field is developed, and for the few decades after production in the field ends. Since methane is such a powerful greenhouse gas, even small leakages of natural gas to the atmosphere have very large consequences on global warming. The most recent data I could find for the US (from 2006) suggest a leakage rate from the oil and gas industry of an amount of methane equal to 1.5% of the natural gas consumed (based on leakage data reported in EPA (2008) Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990 – 2006 and consumption data from the U.S. Department of Energy: http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/natural_gas_monthly/current/pdf/ta ble_02.pdf). This leakage rate is roughly equal to that estimated by the EPA in 1997 (http://p2pays.net/ref/07/06348.pdf). However, as noted by Andrew Revkin in the New York Times in October 2009, the actual leakage is not well known, as monitoring is quite limited, and “government scientists and some industry officials caution that the real figure is actually higher” (http://www.nytimes.com/2009/10/15/business/energyenvironment/ 15degrees.html?_r=2&scp=1&sq=natural%20gas%20leaks%20tanks&st=cse). If we assume a 1.5% leakage rate, this would have a greenhouse gas warming potential equal to 14.8 g C of CO2 per million joules of energy. This would be additive to the emissions during combustion (13.7 g C of CO2 per million joules of energy) and to the emissions associated with obtaining and transporting the natural gas (very roughly estimated above as 4.5 g C of CO2 per million joules of energy). Total greenhouse gas emissions from natural gas from hydraulic fracturing may, therefore, be equivalent to 33 g C of CO2 per million joules of energy. For diesel fuel or gasoline, the total greenhouse gas emissions are equivalent to approximately 20.3 g C of CO2 per million joules of energy. The comparison with coal is difficult, as the energy needs and greenhouse gas emissions from mining and transporting the coal are not well known. As a first cut, it may make sense to assume that
these are roughly equal to those for obtaining shale gas. Some methane leakage also occurs when mining coal, but the amount varies greatly with the type and location of the coal and the mining technology used. A preliminary assessment suggests methane leakage is less than for natural gas. If so, total emissions from coal are probably quite similar to those for natural gas obtained from shale formations such as the Marcellus Shale.
Annex II Howart, R., W., Assessment of the greenhouse gas footprint of natural gas from shale formations obtained by high-volume, slick-water hydraulic fracturing, Department of Ecology and Evolutionary Biology, Cornell University, 15 November 2010
Department of Ecology and Evolutionary Biology
Assessment of the Greenhouse Gas Footprint of Natural Gas from Shale Formations Obtained by High-Volume, Slick-Water Hydraulic Fracturing Robert W. Howarth
David R. Atkinson Professor of Ecology & Environmental Biology, Cornell University (November15,
Natural gas is widely advertised and promoted as a clean burning fuel that produces less greenhouse gas emissions than coal when burned. While it is true that less carbon dioxide is emitted from burning natural gas than from burning coal per unit of energy generated, the combustion emissions are only part of story and the comparison is quite misleading. With funding from the Park Foundation, my colleagues Renee Santoro, Tony Ingraffea, and I have assessed the likely footprint from natural gas in comparison to coal. We have now submitted a manuscript for publication in a peer-reviewed journal. A summary figure from the submission is shown here. Please note this should be treated tentatively, as changes or refinements in response to reviewer comments are likely. We nonetheless post the update now due to the tremendous interest in the topic, and its importance in deciding the wisdom of viewing natural gas as a transitional fuel over the coming decades, with a lower greenhouse gas footprint than coal. The figure illustrates a comparison using a 20-year horizon for the relative importance of methane and carbon dioxide. We urge caution in viewing natural gas as good fuel choice for the future. Using the best available science, we conclude that natural gas is no better than coal and may in fact be worse than coal in terms of its greenhouse gas footprint when evaluated over the time course of the next several decades. Note that both the National Academy of Sciences and the Council of Scientific Society Presidents have urged great caution before proceeding with the development of diffuse natural gas from shale formations using unconventional technology. See:
National Research Council (2009). Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. National Academy of Sciences Press; and Letter to President Obama and senior administration officials, May 4, 2009, from the Council of Scientific Society Presidents. http://www.eeb.cornell.edu/howarth/CCSP%20letter%20on%20energy%20&%20environment.pdf
Annex III Lifetimes, radiative efficiencies and direct global warming potential relative to CO2, source: Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 2007, page 212.
Memorandum submitted by British Geological Survey (SG 03) Unconventional hydrocarbon exploration can be defined as obtaining fossil fuel energy directly from hydrocarbon source rocks, whereas conventional exploration targets hydrocarbons that have migrated to a reservoir, mainly sandstones and limestones. Organic-rich shale contains significant amounts of gas held within fractures and micro-pores and adsorbed onto organic matter. Shale gas prospectivity is controlled by the amount and type of organic matter held in the shale, thermal maturity, burial history, micro-porosity and fracture spacing and orientation. In the UK licences have already been taken up by forward-thinking companies and the interest will be high for the next licensing round. The initial success has been exploring for gas but in a few US basins oil is being targeted. Four different types of exploration are possible: 1. Gas window source rock maturity areas 2. Biogenic gas in source rocks immature for oil 3. Biogenic gas in older source rocks which have been rejuvenated by bacterialaden freshwater flushes 4. Oil window source rock maturity areas 1 What are the prospects for shale gas in the UK? It is too early in exploration of UK shales to be certain about the contribution which shale gas production could make. In the US shale gas extracted from regionally extensive units such as the Barnett Shale currently accounts for ~6% of gas production. Comparisons with the US suggest that there will be some production in the UK and all organic-rich shales in the UK are likely to be tested for their resource potential. Company exploration information will be confidential for several more years because the license holdings are not yet resolved and information on new hydrocarbon plays is always tightly controlled. The lowest risk exploration is where source rocks have accompanying conventional hydrocarbon fields, which in the UK include the Upper Bowland Shale of the Pennine Basin, the Kimmeridge Clay of the Weald Basin and possibly the Lias of the Weald Basin. Deeper Dinantian shales should also be tested in the Pennine Basin and possibly in the Oil-Shale Group of the Midland Valley. Higher risk is attached to the Upper Cambrian source rock on the Midland Microcraton, which although it has not been severely tectonised, has not sourced conventional fields that have been preserved. The highest level of risk is attached to black shales within the Caledonian and Variscan fold belts, which have high organic carbon but are tectonised (affected by thrusts, intruded by igneous intrusions and converted to slates) and also have no overlying fields. The BGS have written reports on Worldwide Shale Gas and UK prospectivity for DECC, parts of which have been included in their Promote website prior to the 14th Round of Onshore Hydrocarbon Licensing. https://www.og.decc.gov.uk/upstream/licensing/shalegas.pdf These reports contain a fuller analysis of the prospects, data and risks. Key data relating to shale porosity, permeability and gas content has not been acquired in the
past because conventional hydrocarbon exploration has concentrated on sandstones and limestones. The properties of shales have been largely ignored. The BGS also have a paper, based on our work up to March 2009, just published in the 7th Petroleum Conference proceedings (I sent this to you as a pdf).
Conventional gas Associated gas Coal bed methane field Outcrop of formations with best shale gas potential Kimmeridge Clay Fm Oxford Clay Fm Lias Millstone Grit (Carb.) (overlies Upper Bowland Shale)
Map showing some of the main potential source rocks at outcrop, in relation to the conventional gasfields and gas discoveries. Larger subsurface extents of the source rocks are excluded from this simplified map. Lower Palaeozoic, higher risk prospects not all shown and partly underlie Mesozoic formations. 2 What are the risks of rapid depletion of shale gas resources? For a number of reasons exploration in the UK is likely to be slow at first. Only three licences in the 13th Round of Onshore Hydrocarbon Licensing in 2008 were targeted on shale gas. On one of these the first exploration well has been drilled (Preese Hall by Cuadrilla Resources). Hydraulic fracturing will commence in January 2011 according to their website. It is unlikely that existing licence holders on acreage taken for other (Coalbed methane or conventional hydrocarbons) targets or new awards in the 14th Round could achieve a faster completion than that of Cuadrilla, in view of the planning laws, lack of benefit to locals (in contrast to US) and the technological advances (not all applicable to conventional exploration) that need to be applied. The relatively densely populated state of the UK is also a hindrance to development.
If only small quantities of gas can be produced from the shale horizons then it is inevitable that there will be a rapid depletion. If there is success in any of the plays then large parts of the country will be opened up, but it will be a slower process than in the US. ‘It is estimated that the UK could be producing 10% of its current gas needs from shale if it can be extracted at a commercial rate’ This statement from the call for written evidence is based on the position reached in the US about a year ago, and reported in the press, when US shale gas contributed about 10% of their needs. This needs several qualifications to be applicable to the UK. Firstly in 10 years time the figure will be 30% or more in the US because nearly all the discoveries there are now in ‘unconventionals’. Secondly in the US there is no significant offshore gas production. Thirdly, assuming near complete discovery of conventional fields, there is likely to be a relationship between conventional and unconventional production in any basin because they both derive from the same hydrocarbon source rocks. Therefore in the UK, dominated by (current) large offshore gas production and large offshore basins, it is not realistic to compare these figures with the UK’s likely onshore unconventional production. UK onshore basins are small in comparison with UK offshore and US onshore basins. Offshore shale gas would have the size to affect the figures more dramatically. The US has no need to look offshore and no plans as yet, so we would have to lead the way (very difficult from our level of ignorance so far) but a lot of the existing infrastructure in the North Sea could be used. BGS unconventional hydrocarbon resource reports have not looked at the offshore. 3 What are the implications of large discoveries of shale gas for UK energy? If shale gas can be produced in the rest of the world this will temporarily reduce the importance of the large LNG exporters. The US has mothballed some of its projected terminals and the tankers are being diverted to Europe. The security of supply both for domestic and imported gas will improve because producers will need to sell and prices are likely to fall, perhaps marginalising the more difficult shale gas exploration. January 2011
Memorandum submitted by Martin Quick (SG 04) Summary S1 This submission proposes that if shale gas turns out to be a large scale environmentally acceptable energy source, it should be used to provide the funding and energy for the development of a sustainable long term energy system. Assuming such a system incorporates a high proportion of intermittent renewables, as well as methods of demand management and demand time shifting and possible means of energy storage, sufficient gas should be reserved for power generation in the relatively small number of hours in a typical year when there is a shortage of generation relative to demand. S2 Leakage of shale gas to the atmosphere in other than very small quantities would offset any climate change benefits this gas could have S3 The UK should investigate its shale gas potential, but (assuming environmental factors are acceptable) we should delay exploitation until global energy prices become very high. 1 Implications of global exploitation of shale gas on climate change mitigation 1.1 The exploitation of shale gas in a number of countries, particularly the USA, is likely to extend the availability of gas at reasonable prices for a number of years, but for how long is uncertain. While this must ease issues of energy security, its impact on climate change mitigation efforts is less clear. In principle, if uncontrolled leakage is minimal (see 1.3 below), if this gas were to be used in power stations to substitute directly for electricity generation in coal burning power stations, the immediate effect in the shorter to medium term would be beneficial. This is because of the lower amount of carbon per unit of energy in gas compared with coal, and the generally greater efficiency of gas fired power stations. However, if the exploitation of shale gas were to reduce the drive to develop low carbon energy sources as fears of an energy crisis in the near term are lessened, this could have an adverse effect on longer term climate change mitigation efforts. 1.3 If the exploitation of shale gas gives rise to any significant leakage of gas to the atmosphere, any climate change mitigation potential from shale gas could be negated. The fact that shale gas (methane) has penetrated the water
supplies in some sites in the USA suggests that the escape paths for the gas are not very well controlled. As the global warming potential of methane is ~20 times that of CO2, if, for example, 5% of the gas were to escape the climate change impact of gas from this source would be about twice that of gas produced more locally under tighter control. This would make the climate change impact of energy from shale gas greater than that from coal. If power stations were operating with CCS, the climate change impact of such escaping gas would be many times that from the fuel actually producing energy. 2 Implications for the UK of shale gas exploitation 2.1 If it turns out that the UK has significant reserves of shale gas, these should not be exploited as soon and as fast as possible, as in effect happened to the UK North Sea hydrocarbon resources. We continued to extract oil and gas from the North Sea at a high rate even when prices were very low, for example in the 1990s when oil was priced at about $10 per barrel. Now, when prices are much higher our reserves are very much depleted, we have become net importers of oil and gas. While global gas costs remain tolerable, any UK shale gas should be conserved until global gas supplies become very expensive. 3 Role of shale gas in UK and European energy systems 3.1 The government’s target for reduction of CO2 emissions is 80% reduction by 2050. Many climate change scientists believe that to achieve an acceptably low risk if dangerous climate change and an equable distribution of greenhouse gas emission allowances between countries, even more stringent reductions may be needed(1). Some studies for the UK (2) (3) and Europe (4) have proposed energy systems based totally or largely on renewables. However, to achieve the last few percentage points of energy from renewables may be disproportionately expensive, and in the case of a Europe wide system, there could be political delays. To achieve very major reductions in greenhouse gas emissions, in the longer term, the electricity system will need to be almost totally decarbonised. Some sectors currently largely dependent on fossil fuels such as heating and transport will need to switch largely to low carbon electricity. Nearly all fossil fired generating plant would require carbon capture and storage (CCS) to meet very low greenhouse gas emissions targets, but it must be recognised that CCS still is not fully proven and has its own problems. 3.2 In an energy system with a high proportion of intermittent renewables (in the UK, mainly wind power), demand side management will have an important role to play. Some electricity demands can be shut down, possibly by a signal from the utility, for varying lengths of time without adverse consequences.
Heating provided by heat pumps on a community or district scale could incorporate heat storage in large hot water stores for a few days supply. Electric vehicles and plug‐in hybrids can be charged mainly at night or at other periods of low demand. There are also different forms of energy storage. Today, these are applicable only in some geographical locations (eg pumped storage), or are at the development stage (eg flow batteries) and may remain expensive. If there is a Trans European electricity grid, possibly with connections to North Africa, as being promoted by a number of organisations (4) with generation from a variety of renewable sources, the likelihood of large scale loss of power generation would be reduced. 3.3 However, it is likely there will be some periods when wind and other renewables cannot meet demand, and there may be insufficient “dispatchable” power (ie power that can be turned on at will) from renewable sources such as biomass or hydro power. It is for such conditions that generation by gas should be reserved. Gas fired power stations, including those with Carbon Capture and Storage are more suitable for catering for intermittent use and load changes than comparable coal fired stations, and their lower capital cost makes them more suitable for low load factor operations. 4 Optimum use of shale gas 4.1 The supply of easily accessible hydrocarbons is likely to fall short of potential demand within a few years. Even the International Energy Agency, for many years in denial over this, now accepts this is likely. Coal, the most plentiful fossil fuel, may become expensive as China becomes a significant purchaser of coal on the world market, as is predicted by some analysts (5). If significant shale gas is produced globally, this would postpone the energy crunch when the supply of relatively low cost fossil fuels falls short of potential demand. Any such postponement should not be used as a “get out of jail free” card, but should be used to ensure a sustainable energy system is developed while funds and energy are less constrained. The main costs and energy input for most renewable energy systems (eg wind, solar, tidal) and for efficient transport and energy efficient buildings are in the construction stage. While the energy for manufacture of wind turbines (mainly for producing steel and cement) is relatively low in relation to the lifetime energy generation, this energy is required up front. Building a super‐grid for linking varied sources of renewable energy to centres of consumption will require large amounts of copper and aluminium and energy is required to produce these. Any period of easing of energy supplies should be used for constructing the infrastructure for a long term sustainable energy system.
5 Risks and hazards of drilling. 5.1 From the experience in the USA it is clear that there are significant risks of pollution of water sources and of methane getting into water supplies. Given the higher population density in the UK, such risks may be more significant. 6 Recommendations 6.1 The potential for leakage of gas from shale gas exploitation should be fully investigated, and means of monitoring leakage developed. If there are circumstances where it is not possible to guarantee leakage remains very low, exploitation should be discouraged. The global warming potential of any leaking gas should be included in assessing allocations of greenhouse gas emissions between countries in any global agreement. 6.2 If significant shale gas able to be tapped in an environmentally acceptable way is found in the UK, it should not be rapidly exploited, but reserved until global energy prices reach very high levels. 6.3 Any postponement of the global energy crunch anticipated by many analysts provided by shale gas exploitation should be used to build a long term sustainable energy system with minimal greenhouse gas emissions. References 1 James Hansen “Climate target is not radical enough” Guardian 7.4.2010 2 Zero carbon Britain2030. Centre for alternative technology www.zerocarbonbritain.com 3 The offshore valuation www.offshorevaluation.org 4 The European roadmap www.roadmap2050.eu 5 China set to become largest importer of thermal coal. Financial Times 23 6 2010 Martin Quick is a Chartered Mechanical Engineer, having graduated from Cambridge University and done practical training with Rolls Royce Motors and GEC. Most of his professional career was in the electricity supply industry, and he has also carried out consultancy on building energy efficiency
Memorandum submitted by Professor Richard Selley (SG 05)
The submission addresses the issues requested by the inquiry in the order in which they were listed in the terms of reference: 1. What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? 1.1 Prospects: Gas has been produced in the USA from naturally fractured shale since 1821. In the past the artificial fracturing now used in the shale gas renaissance was too expensive. Wells flowed gas from naturally fractured shale for several decades. A single well could produce enough gas to supply a school, hospital or shopping mall indefinitely. Production rates and profit margins were too low for major companies to be interested. For some 175 years shale US gas production was a local ‘cottage industry’ run by small operators. In the early 1980’s Imperial College used the US paradigm to study the feasibility of UK shale gas production. The research concluded that the UK had considerable potential for shale gas exploitation. The Carboniferous rocks of the West Midlands in particular were identified as highly prospective. This is, of course, the area where IGas and Cuadrilla are now operating. The Imperial College study also concluded that exploration was not economically viable under the then prevailing tax regime (Corporation Tax + Petroleum Revenue Tax). These conclusions were conveyed to the Department of Energy at a meeting on 8 January 1985.
1.2 Risks of rapid depletion: The shale gas renaissance of the last decade results from 4 factors: 1.2.1 1.2.2 1.2.3 1.2.4 Increasing energy prices. The ability to drill wells horizontally. The ability to image the shape & volume of shale gas reservoirs seismically, and Artificial fracturing, which increases the permeability of rocks and hence fluid flow rate. This technique, as old as Moses, has been used in the petroleum industry for decades. There are question marks, however over long term flow rates over years or decades. Until recently artificial fracturing has been too costly to use in shale gas wells. There are plenty of data showing the cumulative shale gas production of wells, fields and basins. There are few data available for the long term production rates of recently drilled and fractured individual US shale gas wells. Most published data, and most simulations carried out by independent researchers (E.g. the United States Geological Survey), only model depletion curves for two or three years.
2. What are the implications of large discoveries of shale gas around the world for UK
energy and climate change policy? The shale gas renaissance began in the USA in the 1980’s with the application of artificial fracturing and horizontal drilling. There are currently over 900 rigs drilling for shale gas across the USA. The Colorado School of Mines has recently raised its assessment of US gas reserves by 35%. US gas prices have declined from a peak of 7$US per MBTU (Million British Thermal Unit) in 2005 to some 4$US per MBTU today, bringing the price down to pre-1980 levels. Many countries around the world (Including Argentina, Canada, China, the Ukraine, Poland, France, Sweden & India) are beginning to develop their shale gas resources. In Europe the ‘land grab’ for prospective shale gas acreage is now over. The geopolitical importance of the UK developing its own shale gas resources is axiomatic. The combustion of shale gas contributes to global warming, obviously. Shale gas may however be a temporary stop gap, providing energy while the combustion of other fossil fuels declines, until replaced by nuclear or renewable energy sources.
3. What are the risks and hazards associated with drilling for shale gas?
The artificial fracturing of shale gas wells has been blamed for contaminating aquifers with petroleum (A common phenomenon in petroliferous areas), for what Americans call ‘temblors’ micro-seisms in English, and for flocks of dead black birds falling from the sky. British TV audiences will have been amazed at film showing flammable gas emerging from a bathroom tap, and its attribution to adjacent shale gas extraction. The media has not been so fast to report that the preliminary results of an independent enquiry reveal that this phenomenon had been ongoing before drilling commenced. The committee could usefully enquire as to how many of the thousands of shale gas wells drilled in the USA in recent years have caused environmental damage. It is the squeaky wheel that gets the oil.
4. How does the carbon footprint of shale gas compare with other fossil fuels
Gas in general, and shale gas in particular, produces some 45% less carbon greenhouse gases and fewer particulates than oil or coal fired power stations.
Selley, R.C. 1987. British shale gas potential scrutinized. Oil & Gas Jl. June 15. 62-64. Selley, R.C. 2005. UK shale-gas resources. In: Doré, A.G. & Vining, B. A. (eds.) Petroleum geology of NW Europe & Global perspectives. Proc. 6th Petroleum Geology Conference. Geological Society. London. 707-714.
Memorandum submitted by National Grid (SG 06)
Introduction to National Grid 1. National Grid owns and operates the national gas transmission system (NTS) throughout Great Britain and, through its four gas distribution networks, distributes gas in the heart of England to approximately eleven million offices, schools and homes. National Grid also owns and operates the high voltage electricity transmission system in England and Wales and, as National Electricity Transmission System Operator (NETSO), operates the Scottish high voltage transmission system. In addition National Grid owns and operates significant electricity and gas assets in the US, operating in the states of New England and New York. In the UK, National Grid’s primary duties under the Electricity and Gas Acts are to develop and maintain efficient networks and also facilitate competition in the generation and supply of electricity and the supply of gas. Activities include the residual balancing in close to real time of the electricity and gas markets. Through its subsidiaries, National Grid also own and maintain around 18 million domestic and commercial meters, the electricity Interconnector between England and France, and a Liquid Natural Gas importation terminal at the Isle of Grain. The wholly owned subsidiary National Grid Carbon Limited has advanced the transportation and storage elements of the Carbon Capture and Storage (CCS) supply chain. This response is on behalf of National Grid Gas (NGG).
Shale Gas inquiry 5. If UK produced shale gas can be developed economically then it could make a useful contribution to the UK’s gas supply in terms of diversity and security of supply. There are likely to be technical challenges associated with the use of shale gas (in particular the UK requirements for gas quality and for entry capacity). However we do not anticipate that these should be insurmountable and we have experience of working with shale gas from our US operations which may be beneficial in developing the use of this new source of gas in the UK. If shale gas becomes a significant contributor to UK gas supplies, this would represent an important development that we would need to take account of in relation to future network investment (potentially in relation to both the NTS and the Distribution Networks), so it will be important that developers provide us with a clear understanding of the scale, timing and locations of shale gas developments. This inquiry into shale gas is therefore timely given the fact we are currently undertaking a Price Control Review under the 1 new RIIO framework as it should give us some ability to reflect the implications of UK shale gas development in our submissions to this process. If plans for significant UK shale gas development are forthcoming, we will reflect the impact of this new source of gas in our “Ten Year Statement”. This report is published annually and provides a ten-year forecast of the gas transportation system usage and likely system developments. It is produced in response to obligations placed on us under our Gas Transporters’ Licence and the Uniform Network Code and is designed to help current and future potential users of the NTS who are contemplating connecting to or using our system to identify and evaluate opportunities. Subject to meeting existing network entry arrangements (including in relation to gas quality) NGG would welcome the additional supply diversity that indigenous shale gas production would deliver. NGG are not in a position to comment further on the questions raised in the call for evidence. NGG would look forward to supporting and working with the Energy and Climate Change Committee, DECC and other stakeholders to address the challenges that development of shale gas may present.
Revenue using Incentives to deliver Innovation and Outputs
Memorandum submitted by IGas Energy (SG 07)
Executive Summary • IGas Energy believes that shale gas could make a valuable contribution to the UK energy mix, assuming it can be shown to be commercially viable in the UK. The full extent of shale gas resources in the UK is currently unknown; Together with Coal Bed Methane (CBM), shale gas could have clear positive implications for UK energy security. The potential supply of hitherto untapped unconventional sources of gas (both CBM and shale) mean that the UK could be significantly more self-sufficient in terms of gas supply for longer than previously expected; Compared to other countries, the UK has the advantage of a clearer framework for the licensing and permitting of drilling for unconventional gas, both at the surface and sub-surface. Operators have a number of clear and well-understood obligations within a consistent and predictable regulatory framework. This requires operators to communicate their intentions early, to identify all HSE hazards and explain how these will be managed, and to obtain pre-approval for all significant activities; IGas Energy believes that the UK’s system of regulation governing unconventional gas exploration and extraction is more rigorous and effective than in many other countries; in particular because of the separation of responsibilities between the licensing authorities and the HSE, which occurred post Piper Alpha. There is also an added element of transparent control provided by the planning process; Shale gas (as distinct from CBM, which can be extracted without hydraulic fracturing) can only be extracted using complicated and extensive hydraulic fracturing techniques which use a mix of chemicals and which carry a degree of environmental risk. However, these risks are required to be identified and mitigated to the satisfaction of the Health and Safety Executive and, where appropriate, various Environmental agencies; Onshore unconventional gas supplies offer potential carbon savings relative to gas sourced offshore or from overseas. This is due to closer proximity to customers and distribution networks and a less carbon intensive extraction process. In particular, shipping gas over distance consumes significant energy and thereby has an environmental impact of its own; Russian gas, even on conservative estimates, has a carbon footprint which is 30% greater than domestically produced gas.
1. IGas Company Profile 1.1. IGas Energy (IGas) was set up in its current form in 2003 to produce and market domestic sourced gas from unconventional reservoirs, particularly coal bed methane (CBM). IGas is now producing gas from its pilot production site at Doe Green in Warrington and selling electricity through its on-site generation. This is a UK, and potentially European, first in terms of unconventional gas. Coal Bed Methane 1.2. IGas is the largest independent CBM producer in the UK. Extraction of CBM involves drilling into virgin coal seams and removing the gas trapped therein. Like other forms of natural gas, this gas is used to provide both industrial and domestic power. IGas has ownership interests of between 20 and 100 per cent in eleven Petroleum Exploration Development Licences (PEDLs) in the UK, wholly owns two methane drainage licences and has a 75 per cent interest in three offshore blocks under one Seaward Petroleum Production Licence. These licences cover a gross area of approximately 1,756 km² across Cheshire, Yorkshire, Staffordshire and the North Wales coast. The mid-case estimate for gas initially in place (GIIP) in these holdings is 3,823 billion standard cubic feet of gas (bcf) (source: Equipoise Solutions Ltd), excluding any shale potential. Based on the contingent recoverable resource estimates prepared by DeGolyer and McNaughton, IGas has enough gas to supply electricity to over 7 per cent of UK households for 15 years. 1.3. IGas Energy remains on track to establish the UK’s first CBM commercial production site in 2011. Shale Gas 1.4. Whilst IGas is currently focusing on developing its CBM resources, the company has identified a significant potential shale resource within its acreage which is estimated (on an unrisked basis) to comprise up to 1.9 trillion cubic feet of gas initially in place. IGas intends to conduct further work to better understand the potential of this shale resource. 1.5. That said, IGas is currently concentrating on extracting its CBM resource. Extraction of CBM is less complicated, less impactful on the local environment, more targeted and, currently, more commercially viable than shale extraction. It is therefore IGas’ priority at this point in time. 2. What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? 2.1. IGas Energy believes that shale gas could make a valuable contribution to the UK energy mix, assuming it can be shown to be commercially viable in the UK. DECC has identified the Upper Bowland Shale of the Pennine Basin, the Kimmeridge Clay of the Weald Basin and the Lias of the Weald Basin as offering the best shale gas potential onshore in the UK 1 . IGas Energy’s shale acreage lies within its Point of Ayr license in the Cheshire Basin and consists of Holywell Shale (Upper Bowland Shale equivalent). This acreage extends over 1,195km², has an average thickness of 250m and has a high potential to be hydrocarbon bearing. These findings have led IGas Energy to retain independent consultants to evaluate the potential of these shales. 2.2. In 2010, Equipoise Solutions Ltd (acting on behalf of IGas Energy) undertook an independent review of the shale gas potential of Holywell shale within the Point of Ayr license. This is spread across the
DECC, 2010 – ”The Unconventional Hydrocarbon Resources of Britain’s Onshore Basins – Shale Gas”.
North West of England (predominantly Cheshire) and North Wales (off the coast to the north of Rhyl and Prestatyn). Estimates of GIIP aggregated over all of these interests indicate a low net total of 31 bcf shale gas, a middle net total of 412 bcf shale gas and a high net total of 1,945 bcf shale gas. These values assume that the Holywell shale is normally pressured. There is a possibility that part of the Holywell shale is actually over-pressured (although the company currently has no evidence of this). This would mean much higher gas content and higher initial production rates in those areas. 2.3. IGas intends to conduct a focussed programme of activity which will enable the Company to understand better the shale potential that is both contained within its acreage and complementary to its primary objective of commercial CBM delivery. The shale related activity would include 1) data acquisition (core/log data etc.); 2) core analysis (geochemistry/geomechanical); and 3) sponsorship of an M.Sc at a major UK University to further study the Holywell shale. The feasibility of further development of the shale potential in IGas’ acreage will depend on the outcome of these studies and experience elsewhere within the UK and Europe. 3. What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy 3.1. It is broadly acknowledged that the discovery and subsequent extraction of unconventional gas in the United States played a major role in significantly reducing that country’s imports of liquefied natural gas and increasing its security of supply. Whilst we do not know the full extent of shale gas resources in the UK, it is likely that there is sufficient quantity to make a significant and substantive contribution to the UK energy mix. Uncovering such a sizeable untapped domestic resource could have clear positive implications for UK energy security. 3.2. Within the broader context of UK energy and climate change policy, the UK’s commitment to longterm development of renewable energy resources will demand new, low-carbon, flexible gas-fired power plants to compensate for the intermittency of wind generation. The potential supply of hitherto untapped unconventional sources of gas (including shale gas) mean that the UK could be more selfsufficient in terms of its gas supply for longer than previously expected. Given that the Government’s proposals for Electricity Market Reform are already geared towards meeting the UK’s EU emissions targets and managing the transition to renewable energy sources, there is arguably little impact on UK energy policy beyond the assurance and reduced cost of domestic energy security. Given that domestically sourced gas is generally cheaper than gas sourced overseas, it is reasonable to assume a positive impact in terms of the cost of energy to the consumer, which may have an impact on the necessity or otherwise of fuel poverty measures. 3.3. In order to encourage the investigation of the potential of this resource, there is a need to ensure a robust licensing and regulatory system that protects the public while maximising the rate of extraction. We believe that the system as it stands provides both sufficient oversight and sufficient incentive for the potential of the UK shale resource to be properly assessed in a safe and responsible manner. 3.4. Compared to other countries, the UK has the advantage of a clearer framework for the licensing and permitting of drilling for unconventional gas, both at the surface and sub-surface. DECC awards licences based on work programmes and competency to search for hydrocarbons. Well programmes are independently reviewed by HSE-approved third party well examiners and the HSE approves well programmes in line with their own health, safety and environmental requirements. For onshore wells, various approvals are required from a number of agencies specific to the chosen site. These include
(but are not restricted to) local authorities, the Environment Agency, various conservation agencies, utility bodies, Network Rail and the Highways Agency. Operators have a number of clear and wellunderstood obligations within a consistent and predictable regulatory framework that assists both operators and interested parties to communicate their intentions and concerns in a constructive manner. 4. What are the risks and hazards associated with drilling for shale gas? 4.1. Shale gas (as distinct from CBM, which can be extracted without hydraulic fracturing) can only be extracted using complicated and extensive hydraulic fracturing techniques which use a mix of chemicals and which carry a degree of environmental risk. However, these risks are required to be identified and mitigated to the satisfaction of the independent HSE and, where appropriate, various environmental agencies. 4.2. Unlike other forms of gas extraction, the main safety issue associated with unconventional gas is not the risk of explosion – it is the protection of aquifers in proximity to the area of operation. Where an aquifer lies in close proximity to a well, the relevant sections of the well would be encased in steel and cement in order to reinforce its integrity and to protect the aquifer completely. As it is, shale in the UK typically lies significantly deeper than nearby aquifers, so any contamination risk in this respect is substantially reduced. 4.3. Whilst there have been claims of contamination of drinking water in the United States in recent months, these have been comprehensively rebutted by US natural gas producers. 2 In fact, there has never been a documented instance of water contamination caused by hydraulic fracturing. In 2010, the US Environmental Protection Agency announced that it was undertaking a new study 3 into the potential impact of hydraulic fracturing on drinking water, human health and the environment. It is due to report in 2012. 4.4. Safety and protection of the local environment remain the primary concerns of any responsible operator. In all drilling operations in the UK, operators are required to demonstrate their suitability to operate and their ability and commitment to give due regard to the safety of workers, communities and the local environment. Community relations in particular are a vital component of onshore activity, including in relation to the environment. IGas is committed to working broadly and closely with members of the public and community leaders in all of its areas of operation. Indeed, the welldeveloped nature of the planning process in the UK means that such relations are absolutely essential to operate effectively. 4.5. IGas Energy believes that the system of regulation governing unconventional gas exploration and extraction in the UK is more rigorous and effective than in many other countries. The UK system of regulation benefits greatly from its origins in the North Sea and the considerable experience of the UK authorities (particularly the independent HSE) in other industries. The onshore industry has also inherited the culture of safety that has pervaded the UK offshore oil and gas industry since the Piper Alpha disaster and the Cullen Report, whilst the separation of responsibilities between the licensing authorities and the HSE allows for more effective oversight than in other jurisdictions. There is an added element of transparent control provided by the planning process.
5. How does the carbon footprint of shale gas compare to other fossil fuels? 5.1. Onshore unconventional gas supplies, such as shale gas and coal based methane (CBM), offer potential carbon savings relative to gas sourced offshore or from overseas. This is due to closer proximity of supplies to customers and distribution networks and a less carbon intensive extraction process. There will also be a subsequent carbon saving with respect to domestic gas as large volumes will not have to be transported through the transmission systems of Russia and Europe. Shipping gas over distance consumes significant energy and thereby has an environmental impact of its own; Russian gas, even on conservative estimates, has a carbon footprint which is 30% greater than domestically produced gas. 5.2. Compared to other forms of unconventional gas, shale drilling is deeper and more complex than CBM and therefore imposes a heavier carbon footprint. CBM has the potential added benefit of future CCS application. January 2011
Memorandum submitted by Cuadrilla Resources Holdings Ltd (SG 08) 1 1.1 EXECUTIVE SUMMARY Cuadrilla Resources Holdings Limited (“Cuadrilla”) is an English independent oil and gas company based in Lichfield, Staffordshire, pursuing an unconventional hydrocarbon exploration programme in selected European geological formations. The company’s most advanced activities are located in the Bowland Shale in Lancashire, in the north-west of England. Cuadrilla welcomes the opportunity to discuss prospects for European shale gas, our own operations, and the potential risks associated with shale gas exploration. We commend the Energy and Climate Change Committee for embracing this important topic. Cuadrilla believes that prospects for shale gas in the UK and parts of continental Europe are promising. This assessment is based on the presence of a number of geological formations that are similar in several important respects to geological formations located in the United States and Canada, where significant deposits of natural gas have been discovered. Natural gas produced from shale is commonly referred to as ‘unconventional’. It is critical to highlight that the only unconventional aspect of shale gas is the reservoir or rock type in which it is found. Shale gas exploration techniques, including directional drilling and hydraulic fracture stimulation (“fracing”) 1 , are conventional and have been used across the oil and gas industry (including previously in the UK) for many decades. What has changed is that these techniques have become progressively more technologically advanced and lower cost over time, allowing exploitation of shale gas at scale to become increasingly economically viable. Cuadrilla believes that shale gas can offer a ‘triple win’ for governments, including the UK government, contributing to the three key policy objectives of (1) enhancing energy security, (2) lowering the cost and price volatility of energy to consumers and (3) reducing greenhouse gas emissions. Cuadrilla also recognises the potential for an emerging shale gas industry to create new jobs and inject investment into local economies, for example in the north-west of England, thereby helping governments pursue broader economic growth and industrial rebalancing objectives. By being a first mover in shale gas, the UK could be at the forefront of a potentially significant new European energy industry, bringing multiple economic benefits for the northwest of England and for UK Plc. Shale gas has low carbon content compared with several other fossil fuels. Carbon dioxide emissions can be further mitigated by adopting certain production processes, such as drilling multiple wells from the same ‘pad’. Shale gas exploration and production sites typically occupy a small geographical footprint and their visual impact can easily be minimised.
“First hydraulic fracturing treatment was pumped in 1947 on a gas well operated by Pan American Petroleum Corporation in the Hugoton Field”; Gidley, SPE Monograph 12, 1989; further quoted in Department of Energy, EPA 816-R-04-003 – Hydraulic Fracturing White Paper, June 2004.
All hydrocarbon exploration, including shale gas exploration, involves potential health, safety and environmental risks. However, these potential risks, which are not unique to shale gas and are common to all hydrocarbon exploration, are mitigated through stringent regulatory requirements and through established operating processes, procedures and controls. With around 200 years of cumulative experience, including involvement in the drilling and/or fracing of more than 3,000 wells, Cuadrilla’s management team is implementing industry leading health, safety and environmental risk mitigation practices across all its activities. We would be happy to provide further information to the Energy and Climate Change Committee should this be requested.
ABOUT CUADRILLA RESOURCES Cuadrilla Resources Holdings Limited (“Cuadrilla”) is an English independent oil and gas company based at Lichfield in Staffordshire, formed in 2008 by a group of veteran unconventional gas explorers from the US and the UK with the support of specialist energy investors. The company is currently assembling an extensive exploration portfolio of shale gas, tight gas sand and oil-from-shale plays in established hydrocarbon provinces located in several European countries including the UK, Poland and The Netherlands. The company’s most advanced activities are located in the Bowland Shale in Lancashire, in the north-west of England. Cuadrilla employs 14 people full time: 9 based in the UK, 3 in the US and 2 in Poland. In addition, the company currently uses 19 consultants and 7 contractors, employing roughly 40 people who regularly work on Cuadrilla projects. The company considers its investment in local services to be of significant economic benefit to the local communities where it operates, in turn underpinning further employment. The majority of Cuadrilla’s shares are owned by two energy specialist investors, Riverstone and A.J. Lucas, which each hold a 41% stake in the company. The remainder of the equity is held by the senior management team. More information on the two main investors is available at www.riverstonellc.com and www.lucas.com.au. With deep technical expertise and an extensive and proven track record, Cuadrilla is poised to become a leading European unconventional hydrocarbon explorer. The company also owns and operates the only integrated drilling, cementing, fracing and well testing equipment currently available in Europe. This equipment includes the latest technology from North America. Cumulatively, Cuadrilla’s six-person senior management team, led by Mark Miller and Dennis Carlton, have nearly 200 years of natural gas exploration experience and have played leadership roles in the drilling and/or fracing of more than 3,000 natural gas and oil wells. Members of the senior management team previously led Evergreen Resources Inc., a US-based company which has drilled and/or fraced more than 1,500 unconventional gas
wells in the US, Canada and Europe. Fourteen of these wells were drilled in the UK. Based on this extensive experience, Cuadrilla is implementing industry leading drilling, fracing and health, safety and environmental practices throughout its exploration programme (discussed further in Section 5 below). 2.6 In the United Kingdom, Cuadrilla has received full local and national regulatory approvals, including planning permissions, environmental authorisations and health and safety approvals, to explore for natural gas at five onshore locations in Lancashire. We maintain active and positive relationships with the Department for Energy and Climate Change, the Health and Safety Executive and other UK regulatory bodies. Cuadrilla began drilling at its first location, Preese Hall 1, located approximately five miles east of Blackpool, in August 2010. The company completed its first phase of exploration at the Preese Hall 1 site, which involved drilling a vertical exploratory well with total depth of around 9,000 feet, in December 2010. During the drilling process Cuadrilla encountered indications that natural gas is present in the rocks through which the well has been drilled. Phase 2 of the Preese Hall 1 exploration programme, which the company expects to commence in the first three months of 2011 and to last 3 to 6 months, involves stimulating rocks surrounding parts of the vertical well at depths greater than 5,000 feet. Cuadrilla is using fracing techniques which have an extensive, safe and proven track record in the North America, as discussed further in Section 5 below. Only after this second phase is complete will Cuadrilla be able to determine with confidence whether commercial quantities of natural gas are present at its first drilling site. Once drilling and fracing activities are completed at the Preese Hall 1 site, Cuadrilla intends to redeploy its drilling equipment to commence drilling at one of the other four sites in Lancashire where it has received full local and national regulatory approvals.
WHAT ARE THE PROSPECTS FOR SHALE GAS IN THE UK & WHAT ARE THE RISKS OF RAPID DEPLETION OF SHALE GAS RESOURCES? Cuadrilla believes that prospects for shale gas in the UK and parts of continental Europe are promising. This assessment is based on the presence of a number of geological formations in Europe that are similar in several important respects to geological formations located in the North America where significant deposits of unconventional gas have been discovered. The most important variables in determining where unconventional natural gas is present and the scale of the resource are as follows: • Thickness. In general, a thicker section of shale is preferred as it provides more potential gas bearing zones, increased gas storage and greater recoverable reserves. Natural Fracture Intensity. Because shale typically has very low permeability and porosity, natural fractures are important in providing a route for the natural gas from the shale rock to the well shaft. In
addition, natural fracture intensity aids the fracing process, which works most effectively when the artificial fractures created intersect with existing natural fractures in the shale. Of particular importance in estimating natural fracture intensity are the width of the natural fractures (ranging from micro-fractures thinner than a grain of sand to wider fractures of approximately 1mm width), their length, and the number of connections between them. High fracture intensity allows for increased production rates and recoverable reserves. • “Frac-ability”. In general, the fracing process generates more artificial fractures in more brittle shales, allowing a larger proportion of the gas reserve to be recovered. The degree of brittleness is determined by the chemical composition of the shale, for example silica and carbonates make it more brittle. Laboratory measurements on shale material collected during drilling operations are used to determine the natural stresses in the shale and how easily it will crack during the fracing process. Present Day Structural Setting. Shales can be found either in an extensional setting, in which they are being geologically ‘stretched’ apart, or a compressional setting, in which they are being geologically ‘pushed’ together. Those in an extensional setting exhibit more open natural fractures, allowing more natural gas to migrate from the rock to the well shaft, and increasing the amount of recoverable reserves. The Bowland Basin’s present day structural setting is extensional. Gas Content. The gas content of a particular shale is the amount of gas stored within the shale pore spaces and the naturally occurring fractures. Measured in cubic feet of gas per ton of shale, it is crucial in estimating the likely scale of a particular reserve. This measurement is conducted at the well site through laboratory analysis of the rocks. Total Organic Content (TOC). The TOC of a shale is the amount of carbon material remaining in the rock and indicates its potential to have generated hydrocarbons in the past. There is a range of TOC values which are optimal and determine how prospective the shale is for a given geologic basin. Maturity Level (“Ro value”). The hydrocarbon bearing potential of a shale depends on the temperature and depth at which it has spent its history. If it has been too cool then few hydrocarbons will have been generated; if it has been too hot then they will have been degraded or destroyed. A key tool for assessing a shale gas reserve is thus the determination of the ‘Ro’ value. Reservoir Pressure. Under a higher natural reservoir pressure more gas molecules can be stored and therefore ultimately recovered. Doubling reservoir pressure approximately doubles gas reserves. Study of surrounding wells to identify reservoir pressure is also important in preventing well control concerns, as described in Section 5.
Natural gas produced from shale is commonly referred to as ‘unconventional’. It is critical to highlight that the only unconventional aspect of shale gas
is the reservoir or rock type in which it is found. Shale gas exploration techniques, including directional drilling and fracing, are conventional and have been used across the oil and gas industry (including previously in the UK) for many decades. What has changed is that these techniques have become progressively more technologically advanced and lower cost over time, allowing exploitation of shale gas at scale to become increasingly economically viable. 3.4 In both conventional and unconventional oil and gas exploration and development around the world, it is very common to drill a number of wells in different directions from a single drill pad to target specific positions in the subsurface. Directional drilling uses “off-the-shelf”, proven and safe technologies. A good example in the UK is Wytch Farm near Poole in Dorset, where wells were drilled significant distances (in excess of 10km) from an onshore location to hydrocarbon deposits located offshore in order to minimise visual impacts along the coastline. Cuadrilla’s exploratory well programme at the Preese Hall 1 site employs vertical rather than directional drilling. However, Cuadrilla expects to use directional drilling in the future as its exploration programme develops. This technology will be used to minimise surface disturbance during drilling, fracing and production operations as well as to reduce the overall cost of exploration and development activities. Fracing involves pumping fluid, more than 99% (in Cuadrilla’s case 99.85%) composed of water and sand, under high pressure to open up millimeter sized gaps or cracks in shale rock formations typically found at depths greater than 5,000 feet. 2 We discuss the composition of fracing fluid in greater detail in paragraph 5.6.1 below. The cracks are held open by the particles of sand (as a “proppant”) contained in the fluid. Fracing increases the number of pathways a well bore has to the surrounding natural gas-bearing rock formation and thereby provides numerous channels through which natural gas can flow into the well. As discussed in greater depth in Section 5 below, fracing takes place thousands of feet below the shallow water table. As of 2009, out of hundreds of thousands of fracing operations that have taken place in the United States, US regulators have confirmed no cases of hydrocarbons or fracing fluid leaking into shallow water aquifers as a result of fracing. 3 Cuadrilla is not aware of any incidents since 2009. Cuadrilla does not have a detailed proprietary view of the full potential of shale gas outside North America. The shale gas industry in Europe and Asia is at a very early stage with a small number of exploration projects currently
“Water typically makes up 99 percent of the liquid phase of fracturing fluids”; American Petroleum Institute, Hydraulic Fracturing at a Glance, 2008
“Of the responses received, no state has reported verified instances of harm to groundwater as a result of hydraulic fracturing. Responses were crafted by the state oil and gas regulatory official in each state.”; Interstate Oil & Gas Compact Commission, IOGCC Hydraulic Fracturing Survey Facts 2002 and 2009, June 2009. A similar conclusion was included in an earlier report by the Environmental Protection Agency on the impact of coal bed methane exploration and production, which uses similar fracing techniques but normally at shallower depths; “In its review of incidents of drinking water well contamination believed to be associated with hydraulic fracturing, EPA found no confirmed cases that are linked to fracturing fluid injection into CBM wells or subsequent underground movement of fracturing fluids.”; Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs, June 2004
taking place. As well as Cuadrilla’s exploration activities in the UK, The Netherlands and Poland we are aware of other companies exploring for shale gas in Poland, Sweden, Australia and China. 4 3.8 Cuadrilla has undertaken its own analysis of the UK’s onshore shale gas resource potential. It is worth noting that these same shales are the source of hydrocarbons found in most of the UK’s conventional oil and gas fields. As a result of its analysis, Cuadrilla has targeted the Bowland Basin in the northwest of England (which is also the source of the natural gas currently being produced from beneath the Irish Sea) for its first European drilling programme. Cuadrilla believes gas-in-place volumes in the Bowland Shale could be substantial. However the volume of this resource that could be recovered economically has not yet been established and will not be known until further exploration and testing is complete. In terms of depletion of shale gas resources over time, there are two key factors: production rates and recovery factors. The only scientific method currently available to estimate these factors for UK shale formations is by analogy to commercial North American shale plays. Given the relative immaturity of even shale plays with the longest production record, such as the Barnett Shale, long-term shale gas production decline rates remain projections rather than based on scientific facts. These projections depend on a number of assumptions such as well operating costs and natural gas price forecasts. Cuadrilla’s expectation, informed by experience in North America, is that a typical shale gas well, in common with other unconventional gas wells, will witness steep early production decline rates – typically of around 30% to 40% for one to two years – followed by up to 50 years of commercial life at low decline rates – typically 5% to 7%. It is possible that UK shales may have a steeper decline rate than this, which would reduce their production rates and economically recoverable reserves. However it is also possible that UK shales may have lower decline rates and thus better economic recovery factors. This will become clearer over time after further exploration activity and geological testing in UK shale formations is completed.
WHAT ARE THE IMPLICATIONS OF LARGE DISCOVERIES OF SHALE GAS AROUND THE WORLD FOR UK ENERGY AND CLIMATE CHANGE POLICY? HOW DOES THE CARBON FOOTPRINT OF SHALE GAS COMPARE TO OTHER FOSSIL FUELS? Cuadrilla believes increased penetration of shale gas in the energy mix increases energy options, thereby improving energy security, has the potential to lower natural gas prices (tending to reduce electricity prices), and reduces carbon dioxide emissions compared with other types of fossil fuel based power generation. Shale gas can therefore offer a ‘triple win’ for governments pursuing the three key policy objectives of enhancing energy
The relative immaturity of detailed scientific knowledge on the extent and location of European shale gas reserves is discussed in a recent study by the The Oxford Institute for Energy Studies; e.g. “Europe has little knowledge about the potential, quality, precise location, and location of sweet spots of its unconventional gas resources.”; Florence Gény, Can Unconventional Gas be a Game Changer in European Gas Markets, December 2010
security, lowering the cost and price volatility of energy to consumers and reducing greenhouse gas emissions. 4.2 In addition, Cuadrilla recognises the potential for an emerging shale gas industry to create new jobs and inject investment into local economies, for example in the north-west of England, thereby helping governments pursue broader economic growth and industrial rebalancing objectives. By being a first mover in shale gas, the UK could be at the forefront of a potentially significant new European energy industry, bringing multiple economic benefits for the north-west of England and for UK Plc. The shale gas revolution in the US in recent years has probably already had a positive impact on the UK energy system. With the US now self-sufficient in natural gas, more liquefied natural gas (LNG) has become available on world markets. 5 This has offered consuming countries such as the UK more options to source natural gas, enhancing energy security, while at the same time reducing global natural gas prices from highs of around $12/mmbtu in 2008 to around $4 more recently. Since natural gas fired power plants tend to set electricity prices in the UK, this in turn has reduced wholesale electricity prices compared with previous levels. Further discoveries of shale gas outside the US would enhance these trends. Shale gas, like all natural gas, has a significantly lower carbon content per unit of energy generated compared with other fossil fuels such as coal. This is shown in the table below:
As with all hydrocarbon production there are some additional carbon dioxide emissions associated with processing at the surface. However these relatively low emissions can be minimised through production efficiencies. Pad drilling is very common in the development of a multi-well shale gas field. In some cases up to 16 shale gas wells can be drilled from a common well pad. Multipad drilling increases the efficiency of gas gathering and production facilities compared with drilling a large number of single-well pad gas fields individually, reducing carbon dioxide emissions. Multi-well pad drilling also significantly reduces the visual impact of shale gas production at the surface. Shale gas exploration and production sites typically
IHS CERA, Fueling North America’s Energy Future: The Unconventional Natural Gas Revolution and the Carbon Agenda, 2010.
occupy a small footprint and any visual impact can be minimised relatively easily.
WHAT ARE THE RISKS AND HAZARDS ASSOCIATED WITH DRILLING FOR SHALE GAS? As with all hydrocarbon exploration programmes, there are potential health, safety and environmental risks associated with shale gas exploration. However these potential risks, which are not unique to shale gas and are common to all hydrocarbon exploration, are mitigated through stringent regulatory requirements and strict operating processes, procedures and controls. We discuss three potential risks from hydrocarbon exploration, including shale gas exploration, below: 1) leakage of hydrocarbons or, where it is used, fracing fluid into shallow water aquifers, 2) well control failure, and 3) personal injury. Although these potential risks are relatively low, and no greater for shale gas than for other forms of hydrocarbon extraction 6 , we consider them to be significant enough to deserve discussion in this submission. These three potential risks, and their mitigations, are discussed in detail in paragraphs 5.6.1, 5.6.2 and 5.6.3 respectively below. Cuadrilla’s exploration activities in the Bowland Shale have received all necessary planning, environmental and health and safety permits from the competent local and national authorities. The UK possesses a strict regulatory framework governing onshore oil and gas exploration, including unconventional gas exploration. All UK hydrocarbon exploration projects require planning permission from the local planning authority, e.g. Lancashire County Council in the case of the Bowland Basin. Local planning permission comes with a number of project-specific requirements including ecology studies, and transportation, lighting and noise surveys. The planning permission process also requires approval from the UK Environment Agency affirming that the impact of the project on the local environment is minimal and that any environmental risks have been minimised. In addition to the local planning process, approval to drill for natural gas requires an exploration license from the UK Department of Energy and Climate Change and permission from the UK Health and Safety Executive. As well as strict regulatory requirements, effective day-to-day operating processes, procedures and controls are critical to ensuring a safe and incident-free shale gas exploration project. As detailed in paragraphs 5.6.1, 5.6.2 and 5.6.3 below, Cuadrilla uses robust risk mitigation approaches throughout its activities, implementing industry leading practices which the management team has acquired from more than 120 years of cumulative unconventional gas exploration experience around the world (200 years of total oil and gas exploration experience, including leadership roles in the
“[The main sets of issues] are risks also embedded in conventional onshore gas activities” ; Florence Gény, The Oxford Institute for Energy Studies, Can Unconventional Gas be a Game Changer in European Gas Markets, December 2010.
drilling and/or fracing of more than 3,000 wells). 5.6.1 Leakage of hydrocarbons or fracing fluid into shallow water aquifers. All hydrocarbon exploration, including shale gas exploration, carries the potential risk that hydrocarbons or, in cases where it is used, fracing fluid leak into shallow water aquifers. Although facts from extensive shale gas exploration experience in North America suggest that such leakage is highly improbable 7 , Cuadrilla is nonetheless implementing a number of precautionary steps to manage this potential risk. Fracing fluids are more than 99% composed of fresh water and sand (in Cuadrilla’s case 99.85% - further details set out in the Annex). This water and sand is supplemented with a mixture of everyday chemicals typically found in people’s homes, including: friction reducers (polyacrylamides) used as absorbent material in disposable nappies; surfactants (isopropanol) found in glass cleaner; clay stabilizer (potassium chloride) found in low sodium table salt; dilute acid found in cleaning products and in anti-bacterial agents such as bleach; and viscosity agent (guar gum extract) typically found in food products such as ice cream and salad dressing. There are two possible routes by which hydrocarbons or fracing fluid could potentially leak into shallow water aquifers as an unintended consequence of hydrocarbon exploration, including shale gas exploration: 1) through leaks in the walls of the drill shaft; or 2) through spilled fluid on the surface that seeps into groundwater. Mitigations to these potential risks are discussed in paragraphs 18.104.22.168 and 22.214.171.124, respectively, below. 126.96.36.199 We do not consider there to be a risk that hydrocarbons or fracing fluid leak into shallow water aquifers as a result of the fracing process. 8 We note there is no officially documented case of fracing causing leakage of hydrocarbons or fracing fluid into shallow water aquifers in the history of US shale gas extraction. 9 This is because shallow water aquifers – including shallow water aquifers at Cuadrilla’s exploration sites in Lancashire – tend to be located at depths no greater than 1,000 feet below the surface, whereas the shale geological formations where fracing takes place tend to be located at depths of at least 5,000 feet below the surface – as is also the case at Cuadrilla’s
“The consensus among geologists, petroleum engineers, and government reports is that such an event [the hydraulic fracturing process contaminating drinking water aquifers] is highly improbable.”; “At present there is no evidence that liquids used for hydraulic fracturing of deep shales can migrate upward to contaminate drinking water aquifers, and there are strong geological arguments to the contrary”; IHS CERA, Environmental Issues Associated with Shale Gas Development, September 2010. “Of the responses received, no state has reported verified instances of harm to groundwater as a result of hydraulic fracturing. Responses were crafted by the state oil and gas regulatory official in each state.”; Interstate Oil & Gas Compact Commission, IOGCC Hydraulic Fracturing Survey Facts 2002 and 2009, June 2009. A similar conclusion was included in an earlier report by the Environmental Protection Agency on the impact of coal bed methane exploration and production, which uses similar fracing techniques but normally at shallower depths; “In its review of incidents of drinking water well contamination believed to be associated with hydraulic fracturing, EPA found no confirmed cases that are linked to fracturing fluid injection into CBM wells or subsequent underground movement of fracturing fluids.”; EPA, Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs, June 2004.
Lancashire sites. Fractures caused by the fracing process never exceed 200300 feet upwards in the vertical plane. Thus there are thousands of feet of impenetrable rock between shallow water aquifers and the upper-most point of fractures created by the fracing process. 10 This is shown in the Bowland Shale Well Schematic (Diagram 1) on the following page:
Diagram 1 – Bowland Shale Well Schematic
Note: Not to scale
188.8.131.52 Leakage of hydrocarbons or fracing fluid into shallow water aquifers through the walls of the drill shaft is prevented by the installation of three steel casings, each of which is cemented in place, in the zone of the shaft adjacent to and surrounding the shallow water aquifer. The integrity of the bond between the rock formations and casings is ensured by pressure testing and other verification techniques prior to any fracing operations. 184.108.40.206 In the unlikely event of a spillage on the surface, seepage of hydrocarbons or fracing fluid into shallow water aquifers through the ground is prevented by the installation of an impermeable membrane on land at and surrounding the well site. Surface level drainage is designed such that any spillage will be collected in a sealed pond from which it can be safely removed. Water returned to the surface during the fracing process is stored in steel tanks or sealed ponds and never touches the ground. Some of this water is recycled. 5.6.2 During all hydrocarbon exploration, including shale gas exploration, potential high pressures associated with hydrocarbon extraction must be managed and controlled. In highly rare and extreme cases, improper management and poor well construction may result in loss of well control, with the risk that a potentially explosive and damaging release of fluids occurs. Again, Cuadrilla follows industry leading procedures to manage this potential risk. Before a drilling operation begins, Cuadrilla undertakes a comprehensive evaluation of geological and drilling records for the local area to determine if a high pressure environment may exist. If this possibility is present, the well is designed and constructed accordingly. During drilling operations, drilling fluid is used to provide a hydrostatic head on the rocks being penetrated and to constantly monitor temperature, pressure, volume, chemical constituents, geological rock properties, gas liberated during the drilling process and other well characteristics, alerting drilling engineers to any potential problems. A blowout preventer is installed at the top of the well. It is operated according to strict procedures which include a safety and performance check once every 7 days and a major inspection every 21 days. 5.6.3 Personal injury. Drilling for hydrocarbons and fracing involve high pressures and high liquid flow rates, which could potentially enhance the risk of equipment failure at the surface and resulting personal injury. These potential health and safety risks are mitigated by a number of preventative measures. Cuadrilla uses state-of-the-art equipment with automatic pressure and temperature shutdown systems to mitigate the potential risk of mechanical malfunction. Required personal protection safety gear is inspected daily. There is an overriding safety management plan covering all Cuadrilla’s operations. Under this plan, all site-based Cuadrilla personnel must undertake rigorous safety training. Detailed risk assessment and safety meetings are held daily for drill rig and well service personnel. Safety meetings are also held before and after every fracing operation. All visitors to the site must undergo a 30 minute training programme in safety.
All fracing operations are controlled and monitored remotely, at a safe distance from the wellhead. The number of personnel near the wellhead and adjacent to the equipment is restricted to the minimum necessary. Although the chance of encountering dangerous gas compounds during drilling for hydrocarbons is very remote, hydrogen sulphide detectors are located around the site as well as in the mudflow monitoring unit. 5.7 In summary, potential health, safety and environmental risks associated with hydrocarbon exploration, including shale gas exploration, are mitigated through stringent regulatory requirements and the implementation of established industry safety processes, procedures and controls. Cuadrilla is a highly experienced unconventional gas explorer and the company adopts a robust approach to mitigating potential health, safety and environmental risks based on this experience.
CONCLUSIONS & RECOMMENDATIONS The prospects for shale gas in Europe in general and the UK in particular are promising by analogy to similar geological formations found in North America that have proven to hold commercially productive quantities of gas. However it is still early days for the European shale gas industry, in which Cuadrilla considers itself to be a pioneer. Shale gas exploration techniques, including directional drilling and fracing, are conventional and have been used across the wider oil and gas industry (including previously in the UK) for many decades. Shale gas offers the potential to be a ‘triple win’ for the UK, helping to enhance energy security, tending to lower the cost and price volatility of energy to consumers and reducing greenhouse gas emissions, while also promising to be a significant source of new economic activity for the northwest of England and for UK Plc. The carbon footprint of shale gas is low relative to several other fossil fuels. Shale gas operations have a small geographical footprint and their visual impact can be minimised relatively easily. There are strict regulatory requirements in place for shale gas exploration in the UK, to which all Cuadrilla’s operations adhere. Cuadrilla is a highly experienced shale gas explorer. The company adopts a robust approach to mitigating potential health, safety and environmental risks based on this experience, implementing industry leading processes, procedures and controls. The potential risks associated with shale gas exploration are not unique and are common to all hydrocarbon exploration. Cuadrilla believes 1) science-backed education and 2) supportive fiscal and regulatory frameworks will be critical to the success of the UK shale gas
sector. We would welcome the opportunity to discuss both areas further with the Energy and Climate Change Committee. 6.9 We are grateful to the Energy and Climate Change Committee for considering Cuadrilla’s responses to the questions posed in its shale gas enquiry. We would be happy to provide further information if requested.
Note on the specific composition of Cuadrilla’s fracing fluid
Cuadrilla’s fracing fluid is a minimum of 99.75% water and sand. The remaining 0.20% - 0.25% is comprised of three additional ingredients: • Around 0.075% is a friction reducer called Polycrylamide. Polycrylamide is found in facial creams (available on the High Street and produced by major brand names), soil sealants and contact lenses.
Two other chemicals may be used: • Around 0.005% is a biocide used at this very low concentration. This will be used if and only if the domestic water from United Utilities is not pure enough. But if it is sufficiently pure the biocide will not be used. Around 0.125% is a weak hydrochloric acid to help open the perforations to initiate frac fluid injection and again will only be used if needed. This is the same acid that can be used in ‘drinking’ water wells to stimulate water production, and in some cases used in swimming pools. It is also the food additive E507 that is commonly used in UK food products.
Memorandum submitted by the Campaign to Protect Rural England (CPRE) (SG 09)
Introduction 1. We welcome the opportunity to submit evidence to the Energy and Climate Change Committee on the future of shale gas in the UK. As a leading environmental charity, the Campaign to Protect Rural England (CPRE) has worked to promote and protect the beauty, tranquillity and diversity of rural England by encouraging the sustainable use of land and other natural resources since our formation in 1926. We are concerned to ensure that any shale gas extraction in England does not cause unacceptable damage to the countryside. Our comments are therefore focused primarily on the environmental impact of domestic exploitation of shale gas. General points 2. The majority of oil and gas production in the UK has taken place offshore, which has meant that the immediate environmental impacts of the industry have had limited visibility. At present, most industry expertise is in onshore shale gas production, and much of the near term UK shale gas resource, if developed, is likely to be exploited in the East of England, Surrey, Hampshire and Lancashire. The landscape implications of onshore shale gas production are likely to be visually and ecologically intrusive. Experience from the United States suggests that drilling ‘pads’ – land which must be completely cleared and flattened, destroying topsoil and the immediate environment – vary from 2 to 6 acres, with pads being spaced between 1 every 4 and 1 every 16 hectares, depending on the shale in question and drilling method used. Each pad also requires roads and gas capture facilities. As such, large scale exploitation could lead to unacceptable, sprawling, low density industrial development in the countryside. This is likely to face significant opposition on the grounds of landscape and wildlife conservation and rural character and amenity. 3. CPRE is also concerned that ’hydrofracking’ – the technique used to fracture rock to release gas from shale – is extremely water intensive and may pose risks to groundwater supplies. Large shale gas resources potentially exist under the South West and South East of England, areas which already suffer from water stress. In some areas, surface water consumption is already above environmentally sustainable levels. At a time when Defra is considering whether or not a national policy statement enabling a large scale water network is required to serve existing domestic and commercial water consumption, and at least six large reservoirs are planned in the South East of England to cater for existing water demand, fostering a water intensive industry which is likely significantly to increase demand for a scarce resource is highly questionable. Moreover, experience from the United States suggests that in the absence of effective regulation and enforcement, fracking leads to groundwater contamination 1 . CPRE suggests that the UK government pay close attention to a new study by the US EPA on the issue of fracking and groundwater contamination. 4. In addition, there is some evidence, though it is contested, that methane leaks from shale gas production substantially increase the CO2e emissions from shale gas compared with
A useful, relatively conservative overview of the current evidence can be found in: Manuel J 2010. EPA Tackles Fracking. Environ Health Perspect 118:a199-a199. doi:10.1289/ehp.118-a199, available from http://ehp03.niehs.nih.gov/article/info%3Adoi%2F10.1289%2Fehp.118-a199
conventional UK Continental Shelf gas 2 . Evidence from Canada shows that the majority of existing wells in Quebec leak methane, despite industry claims of low leak rates. 3 Much of the appeal of shale gas rests on the idea that it will enable the UK to continue to reduce emissions in the short term by substituting gas for coal. If the overall emissions from shale gas are high, however, this removes the justification for investing in shale gas over and above other alternatives. This argument applies equally to foreign and domestic shale gas production. Conclusion 5. CPRE believes that gas has a role to play in balancing renewables and in supplanting unabated coal fired power plants in the short to medium term. However, significant domestic exploitation of onshore shale gas poses risks to the ecology and character of rural England. Overreliance on gas also risks locking the UK into high carbon infrastructure which may need to be shut down prematurely if the UK is to meet its carbon budgets. Shale gas should not be seen as an environmentally beneficial panacea for declining conventional gas production in the North Sea. January 2011
Howarth, Robert 2010. Preliminary Assessment of the Greenhouse Gas Emissions from Natural Gas obtained by Hydraulic Fracturing, available from http://www.eeb.cornell.edu/howarth/GHG%20emissions%20from%20Marcellus%20Shale%20-%20with%20figure%20--%203.17.2010%20draft.doc.pdf 3 See, for example, http://www.cbc.ca/money/story/2011/01/05/shale-quebec-bape.html
Memorandum submitted by Scottish & Southern Energy (SG 10)
0.1. SSE would like to thank the Energy and Climate Change Committee for this opportunity to respond to their inquiry into shale gas. Although SSE, formerly Scottish & Southern Energy, does not have any immediate shale gas prospects, it has been examining its potential development in the UK after the significant role it has played in the US. SSE has seen how shale gas developments have reduced the US’s potential dependence on LNG imports, a situation of relevance to the UK given its growing dependence on importing LNG and concerns about security of supply. 1. What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources?
1.1. There are certain factors which were pivotal to the increased production of shale gas in the US, which may not be applicable in the UK. Firstly, the geology of the UK in regard to shale gas resources is not as favourable as it is for the US, but the available resource is still potentially significant. Due to higher production costs, the economically viable prospects in the UK will be a fraction of the potential resource as most will not be economic to exploit in the current market with current technology. If the wholesale price of gas were to rise in the future, the relatively high production cost of shale gas would become more acceptable to developers. 1.2. A second factor for the rapid development of shale gas in the US was easy and low-cost access to the gas transport network, and this could prove to be an advantage in the development of shale gas in the UK with our existing gas distribution network, which is one of the most developed in the world. This could partially offset the higher production cost, as exploiting domestic sources of shale gas would lead to an inevitable reduction in transit costs, which are particularly high for energy intensive LNG imports. 1.3. Another major barrier to shale gas development in the UK would be land access. In the US there was an opportunity for rapid leasing of large areas of land for development at a low cost. This is unlikely to be replicated in densely populated regions of the UK where initial resources are located. This issue can be highlighted in the relative population densities, which in England has 383 people per km2, as opposed to the US, which has 27 2 people per km . This is particularly relevant when compared with conventional gas reserves, as shale gas resources are spread more thinly over much wider areas. 1.4. As for the risks of rapid depletion of resources, it is unlikely that the depletion rates of shale gas wells would be a problem. Whilst it has been noted that shale gas wells deplete rapidly compared to conventional wells, individual shale gas wells can maintain a level of production, albeit at a lower level than at first production, for a significant period of time. This should not discourage initial projects, as long as this depletion rate is factored into the economic rationale behind the investment. 2. What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
2.1. The implications of large discoveries of shale gas for US energy policy have been significant, as it has greatly reduced its potential dependence on LNG imports. The recent increase in US production of shale gas has also benefited the UK by freeing up LNG supply in the Atlantic basin, and thus reducing the price of uncontracted LNG supplies for the UK’s spot market. The initial implications of large discoveries in other regions around the world could benefit the UK in a similar fashion by further reducing wholesale prices by widening the gap between supply and demand, improving security of supply. 2.2. For the UK’s energy and climate policy, shale gas discoveries could be positive. For the electricity sector, lower costs would likely increase coal to gas switching in the short term, meaning gas-fired electricity would be able to displace coal in the electricity market, with a consequent reduction in the CO2 intensity of the electricity sector. There would also be a medium term benefit as there will be a need for continued significant amount of gas-fired generation capacity to balance issues of intermittency associated with increased renewable deployment. 2.3. In the domestic sector, which comprises a third of the UK’s gas demand , any significant discoveries of shale gas could reduce the costs for consumers reliant on gas who may be unable to switch to alternative sources of energy, for heating and cooking. This would have positive short and medium term implications for the Government’s fuel poverty objectives. 2.4. However, it should be noted that a low wholesale gas price caused by potential shale gas discoveries would encourage significant investment in gas infrastructure, which would lock carbon into the UK’s energy system.
Stevens, P (2010) The ‘Shale Gas Revolution’: Hype and reality, Chatham House, London DECC (2010) Digest of UK Energy Statistics, London
Scottish and Southern Energy plc 53 Registered Office: Inveralmond House 200 Dunkeld Road PH1 3AQ Registered in Scotland No. 117119
Furthermore, if the UK is consuming shale gas directly or imported conventional gas displaced by shale gas consumed elsewhere in the world, then there are negative implications for additionality of CO2 emissions globally. 3. What are the risks and hazards associated with drilling for shale gas?
3.1. The risks and hazards are connected with water consumption for hydraulic fracturing and/or methane leakage. The technique of hydraulic fracturing requires large amounts of water, with estimates of 4-5 million 3 gallons needed to fracture one well . This waste water has to be carefully managed and there have been concerns that chemicals used in the fracturing process can contaminate local water supplies. To mitigate these risks, closed loop water systems are being developed by industry to reduce water requirements. There is currently work being undertaken by the Environmental Protection Agency in the US, which is looking into the process of hydraulic fracturing and its potential adverse effects on water quality and public health, which should bring greater clarity on the risk and hazards associated with the process of hydraulic fracturing. 4. How does the carbon footprint of shale gas compare to other fossil fuels?
4.1. Currently there is not a definitive answer. The carbon footprint of shale gas extraction is uncertain but it is provisionally seen as slightly above onshore conventional gas drilling, but it must be noted there are reports suggesting that its lifecycle carbon emissions are significantly higher. More detailed analysis will be required for greater understanding the carbon lifecycle of shale gas production, as even with development of CCS for gasfired generation it will not be able to capture the carbon emitted during the production of shale gas. Even so, domestically produced shale gas would have the benefit of not needing to be processed and transported vast distances, as is the case for imports from LNG and pipeline supplies, partially offsetting any potential additional carbon emissions from production. 5. Conclusions
5.1. Increased shale gas production in the UK and worldwide is likely to result in a market of excess supply and subsequently low prices in the short and medium term. Combined with the relatively attractive low carbon emissions of natural gas and the low cost and speed of construction of gas-fired generation plant, this is likely to increase gas demand in the electricity sector. The increased electrification of heat and transport will exacerbate this trend. 5.2. However, natural gas remains a finite resource, regardless of source, and UK supplies of shale gas cannot totally replace reliance on importing supply. There is a concern that with limited capital for investment in the energy industry, significant development of policy incentives to encourage development of shale gas resources in the UK, alongside uncontrolled growth in gas-fired generation could decrease investor certainty on UK policy direction towards renewables, CCS and/ or nuclear. Although this would lead to a short term gain in carbon emission reductions, it would be to the detriment of the long term decarbonisation of the UK power sector. 5.3. SSE believes that shale gas could prove to be a viable and attractive resource for the UK to exploit in the future. This would however, be at a significantly reduced scale compared to that of the US, due to a number of factors, most notably potential issues with land access and secondly the issues over the necessary water use, which Government will need to consider. January 2011
IEA (2009) World Energy Outlook, Paris
Memorandum submitted by Scotia Gas Networks (SG 11) 1. Scotia Gas Networks (SGN) response to the Energy and Climate Change Committee’s inquiry into Shale Gas 1.1. SGN would like to thank the Energy and Climate Change Committee for the opportunity to respond to the inquiry into shale gas. Scotia Gas Networks is the UK’s 2nd largest gas distribution company providing a safe and secure supply of natural gas to 5.7 million customers through 74,000km of gas mains and services. SGN own and operate 2 gas distribution networks, one covers the whole of Scotland whilst the other network covers the South East stretching from Milton Keynes to Dover in the east and Lyme Regis in the west, including London Boroughs south of the River Thames. 1.2. As the UK’s second largest gas distribution company, SGN is extremely interested in the prospects for future gas reserves in the UK. As a distributed source of gas, shale wells are likely to need large numbers of smaller scale connections to gas distribution networks than typical conventional gas wells which require larger connections to the national gas transmission system; in our licensed area, it is likely that SGN will be the provider of many of these connections and all of these connections will need to join our network. 1.3. Last year, work commissioned by the Energy Networks Association and carried out by Redpoint showed that in 2050, gas could still be supplying a significant proportion of the UK’s total energy demand through both heating and electricity generation 1 whilst ensuring that carbon targets were met . Further still, this work showed that by utilising the existing asset base, i.e. the gas networks, the costs of meeting carbon targets and supplying clean energy were significantly reduced. If gas used in the UK’s energy mix is sourced domestically and is not imported, this also has clear benefits for energy security and the UK economy along with the carbon benefits associated with the reduced greenhouse gas emissions from reduced use of Liquefied Natural Gas (LNG).
What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? 2.1. As with the rest of Western Europe, it appears that the geology of the UK could provide significant volumes of shale gas. It is however access to these sources of gas that may reduce total availability. The UK has a much higher population density than the US where levels of shale gas production have been very high. In the US, a more favourable geology with higher concentrations of shale rocks combined with 2 free or easy access to much of the land allowed this rapid expansion . In the UK, the availability of shale gas is likely to be less due to this major human constraint. However, the large scale and wide coverage of the UK gas distribution network could, by providing easy and quick connections to the networks, increase the speed at which shale wells can connect to the system and increase the availability of the gas. 2.2. It is very likely that gas prices will affect the rate at which shale gas is developed in the UK and if wholesale prices increase as they are expected to do, the viability of domestically produced shale gas is also likely to increase. In this situation, it is therefore likely that the most readily accessible shale wells will be used first and then, if wholesale prices increase further, more expensive wells will be developed.
Redpoint 2010, Gas Future Scenarios Project, Available from: http://energynetworks.squarespace.com/storage/ena_publications/ena_gas_future_scenarios _report.pdf. 2 Stevens, P, (2010), The ‘Shale Gas Revolution’: Hype and Reality, Chatham House.
2.3. The rapid depletion of shale gas resources does not appear to be a problem. The reserves of shale gas worldwide are extremely large and it is likely that a long way into the future, shale gas will be available even if significant volume of gas has been used. In Western Europe for example, reserves of shale gas are predicted to be larger that known reserves of conventional gas2. Although the actual wells may deplete much more quickly than conventional gas reserves, the wells are likely to keep producing gas for a number of years. 3. What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy? 3.1. Gas is generally considered a ‘clean fuel’ as a result of having lower carbon emissions than other solid and liquid fuels when combusted. Its use, particularly in the domestic arena, is almost always associated with being more energy efficient and also more cost effective than equivalent electric or oil fired systems. It could therefore be suggested that if the availability of the gas resource increases through the production of shale gas, wholesale prices could be reduced and this will result in the increased use of gas and in many instances, this could result in lower greenhouse gas emissions. 3.2. The SGN ‘Assisted Connections’ programme focuses on helping the fuel poor connect to the gas network as installing gas heating can remove a significant 3 proportion of households from fuel poverty . Increasing the availability and therefore reducing the wholesale cost of gas could therefore not only reduce consumer’s bills, but would also ensure that gas is still a fuel that can assist with the issue of fuel poverty. 3.3. Even though shale gas is not likely to provide as high a percentage of total gas demand as it does in the US, if it can supply only a few percent of total demand, this will have significant implications for energy security as this source of gas will not be affected by any geopolitical or international energy issues. 4. What are the risks and hazards associated with drilling for shale gas? 4.1.
5. How does the carbon footprint of shale gas compare to other fossil fuels? 5.1. At the point of use, because of the composition of shale gas, the carbon footprint will be the same as conventional gas however, because of the way shale gas is extracted, it is likely that life-cycle emissions for shale gas will be slightly higher than for conventional gas. However, it must be considered that LNG, which requires compression into liquid, storage at very cold temperatures and high pressures and transportation by boat across very large distances will also have associated lifecycle emissions. We are not aware of the existence of exact numbers on the lifecycle emissions of shale gas however this is an area where perhaps further work is required.
DECC, (2010), Fuel Poverty 2008-Detailed Tables, Available from: http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx
Memorandum submitted by the Tyndall Centre (SG 12)
This report outlines both local pollution-related and global climate-related issues that collectively raise serious concerns about the use of shale gas in the UK. The former leaves little doubt that in the absence of a much improved understanding of the extraction process shale gas should not be exploited within the UK. The later suggests a more categorical conclusion that in an energy hungry world another fossil fuel will only lead to additional emissions and consequently must not be exploited if we are to meet existing climate change commitments. • Shale gas exploitation gives rise to a range of environmental risks and hazards that have led New York State to impose a moratorium on hydraulic fracturing whilst it awaits the findings of a US EPA investigation. The main issues being considered by the EPA, and which will be equally if not more, important in the UK, are: o High levels of water consumption necessary for hydraulic fracturing operations; o Groundwater pollution following catastrophic failure or loss of integrity of the wellbore, or if contaminants travel from the target fracture through subsurface pathways; o Surface pollution via leaks and spills of various contaminants held on a site; o Noise from drilling; o Traffic associated with construction; o Landscape impacts of individual sites and the combined impact of sites across the country. The exploitation of shale gas will, in an energy hungry world, lead to an increase in carbon emissions at a time when a rapid reduction is required. There is little evidence that shale gas has played or will play a role as a transition fuel in the move to a low carbon economy and its development seriously risks directing investment away from genuine low carbon technologies. While shale gas use in the UK may not increase overall UK emissions it must be viewed in relation to impacts on global energy use and emissions. In this regard, if the UK Government is serious about avoiding dangerous climate change, the only safe place for shale gas remains in the ground. The extraction of shale gas is likely to release higher levels of greenhouse gases per unit of gas produced than does the extraction of conventional gas. These additional emissions are relatively small compared to overall emissions associated with combustion, however additional fugitive emissions may arise but these cannot be quantified at this time.
1. With conventional natural gas reserves declining globally shale gas is increasingly portrayed as a potentially significant and beneficial new source of ‘unconventional gas’. In the United States production of shale gas has expanded from around 7.6billion cubic metres (bcm) in 1990 (or 1.4% of total US gas supply) to around 93bcm (14.3% of total US gas supply) in 2009 (EIA, 2010b). 2. This new availability of shale gas in the US (and potentially elsewhere) has led to huge interest in its potential. Arguments have been made about the impact on energy security and the potential for shale gas could, in principle, be used to substitute more carbon intensive fuels such as coal in electricity generation. 3. Whether shale gas is able to provide such benefits depends on a number of factors including: the greenhouse gas (GHG) intensity of the novel extraction process required in the production of shale gas: the potential impact of shale gas exploitation on carbon emissions; and the environmental risks and hazards associated with drilling and production. It is these three areas that are the focus of this submission,
What are the prospects for shale gas in the UK?
4. Prospects of shale gas in the UK will depend on the right combination of shale type, total organic content (TOC), maturity, permeability, porosity, gas saturation and formation fracturing and in addition, the right market conditions and economic incentives. Shale deposits on a global level are not a new source of gas and have been evaluated since the early 1980’s and produced with commercial viability in North America since the 1990’s (Verma et al, 2001). To assess the prospects for shale gas in the UK it will be necessary to understand what factors have a role in developing sustainable reservoirs internationally and indeed if the same resources and conditions are present in the UK. Prospects will require the right combination of “shale type, total organic content (TOC), maturity, permeability, porosity, gas saturation and formation fracturing” (Boyer et al, 2006). Equally important will be the right market conditions and economic incentives for commercial viability. Security of supply and the impact on the environment should be an integral part of any cost-benefit analysis and the latter will be the focus of this report. 5. The shale potential in the UK is not known and the only way to quantify the potential of a shale gas reservoir in terms of its producibility is to drill, core, fracture and then test the “play”. According to the British Geological Survey (BGS, 2011), the UK has abundant shales at depth but their distribution and gas potential is not well known. The methodologies employed in assessing deposits such as shale gas are very different to those currently used for conventional accumulations. Traditional petrophysical well evaluation can only provide a limited means of making an assessment of the
accumulations (Geny, 2010) and it is widely recognised that there is currently no way of quantifying the potential of a shale gas reservoir in terms of its producibility other than to drill, core, fracture and then test the “play”. 6. The success of the Bowland shale near Blackpool will not be openly available for another four years. The first well drilled specifically to assess shale gas in the UK by Cuadrilla Resources, in the Bowland shale near Blackpool, is only due to be tested in January 2011, the results of which will not be openly available for another four years due to licensing agreements. Further ongoing preliminary exploration of deposits with a view to further development and known activity in the UK are summarised in Appendix 1. 7. The onshore shale gas potential of 150bcm stated in the DECC report could over-predict reserves due to the Barnett shale in the US (which was used for the analogy) being an above-average producer due to its low clay content facilitating fracture stimulation important to the producibility of a shale reservoir. Equally, it may underestimate the true reserves and more shale gas accumulations may be discovered in time. Attempts have been made at producing theoretical estimates of the shale rock volume across the UK to provide an indicator of the potential resources. According to the December 2010 report by BGS on behalf of the UK Department of Energy and Climate Change (DECC, 2010a), “the UK shale gas industry is in its infancy, and ahead of drilling, fracture stimulation and testing there are no reliable indicators of potential productivity”. Applying some assumptions and applying analogies with similar producing shale gas plays in America, however, BGS estimates that UK shale gas reserve potential could be as large as 150 billion cubic meters (bcm). BGS acknowledge that the figure may be inaccurate due to the Barnett shale in the US (which was used for the analogy) being an above-average producer due to its low clay content facilitating fracture stimulation important to the producibility of a shale reservoir (Leonard et al, 2007). Equally, it may underestimate the true reserves and more shale gas accumulations may be discovered in time, as well as the techniques for making estimates developing through experience as has happened with oil & gas reserves in the UK since exploration began. 8. The UK onshore shale gas potential of 150bcm would increase proven reserve levels by just over 50%. However, at the current levels of UK consumption this represents only 2.5 years of current supply production as a standalone resource. Taking the DECC estimates of 150 bcm and putting them into the context of current UK gas supply (BP, 2010) provides a general picture of the limited impact on supply that shale gas might have. There has been a decline in conventional gas production in the last decade in the UK, with only 59.6 BCM being produced in 2009 in comparison to 102.9 bcm in 2003. Additionally, with only a marginal decrease in demand, this has resulted in an increase in imports over the same period. The UK has proven gas reserves of 290 bcm which has also declined from 910 bcm in 2003 (BP, 2010). On a national level the DECC estimate of 150 bcm of shale gas reserves would increase the proven reserves level by just over 50%, but at current levels of UK consumption this represents only 2.5 years of supply as a
standalone resource. As the 6th largest consumer of gas in the world, the UK has a clearly unsustainable demand without assistance from imported supplies, or supplies from alternative sources. Onshore shale gas would only provide a short-term supplementary supply using current estimates of resources. 9. In terms of UK offshore potential, the costs associated with drilling a high density of directional wells and subsequent well stimulations would make such projects economically unviable at current market prices. There is little coverage within the current literature or the DECC (2010a) report discussing the prospects for offshore shale gas in the UK, although its existence is recognised by the DECC stating “Much larger areas are prospective offshore for shale gas, and some of these might be accessible by extended reach drilling” in reference to the US. The costs associated with drilling a high density of directional wells offshore and subsequent well stimulations would make such projects economically unviable at current market prices. Additionally, there could be more potential environmental impacts associated with such exploration. However, in relation to the UK it should be noted that over the last 10 years 99.8% of all gas production has come from offshore wells and of the 3314 wells drilled, only 299 of these were on land1 (DECC, 2009). It is highly probable that large volumes of shale gas exist in these generally deeper accumulations.
What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
10. As efforts begin to exploit shale gas outside of the US it is important to better understand impacts this may have on CO2 emissions and efforts to minimise impacts of climate change. To do this we have developed two sets of scenarios, one for the UK and one for the World. 11. There is little to suggest that shale gas will play a key role as a transition fuel in the move to a low carbon economy. There is little evidence from data on the US that shale gas is currently, or expected to, substitute, at any significant level for coal. Projections suggest it will continue to be used in addition to coal in order to satisfy increasing energy demand. The importance of transitional fuels is often overstated, for example, in the International Energy Agency Blue Map scenario (50% reduction in global emissions by 2050), power generation efficiency and fuel switching accounts for only 5% of required emission reductions (IEA, 2010). If carbon emissions are to reduce in line with the Copenhagen Accord’s commitment to 2°C, urgent decarbonisation of electricity supply is required. Given shale gas is yet to be exploited commercially outside the US, it is unlikely to have a major role to play even with respect to national emission reductions. If reserves were exploited in time, shale gas would still only be a low-carbon fuel source if allied with, as yet unproven, carbon capture and storage technologies. If a
1 3314 wells were drilled in total offshore, of those 402 were in the southern North Sea, the largest contributing region of gas in the UK. (DEC, 2009).
meaningful global carbon cap was established then the impact of a price of carbon could facilitate some substitution of coal for shale gas in industrialising (non-Annex 1) countries. 12. Without a meaningful cap on emissions of global GHGs, the exploitation of shale gas is likely to increase net carbon emissions. In an energyhungry world, where GDP growth continues to dominate political agendas and no effective and stringent constraint on total global carbon emissions is in place, the exploitation of an additional fossil fuel resource will likely increase energy use and associated emissions. Possible implications were examined through three global scenarios for shale gas exploitation. The starting point was an estimate for the global reserves of shale gas provided by the US National Petroleum Council (NPC, 2007). Three scenarios were developed assuming differing proportions of the total resource are exploited (10, 20 and 40%). Making a further assumption that 50% of this available resource was exploited by 2050, these scenarios give additional cumulative emissions associated with the shale gas of 46-183GTCO2, resulting in an additional atmospheric concentration of CO2 of 3-11ppmv by 2050. Given current growth in energy use it is very possible that exploitation could be more rapid and that these figures would increase accordingly. This will further reduce any slim possibility of maintaining global temperature changes at or below 2°C and thereby increase the risk of entering a period of ‘dangerous climate change’. 13. Carbon budgets should ensure that shale gas use in the UK should not add to UK emissions, however, it may put pressure on efforts to stick to these budgets and could have implications for global emissions. To better understand the potential implications of shale gas production in the UK, four scenarios were developed. Two assumed the amount of shale gas produced correlates with the figure provided in DECC (2010a) – 150bcm; and two assumed an amount double this. For both the 150 and 300 bcm scenarios two different rates of extraction were used; one based on a Hubbert type curve (a bell curve) that is often used as an approximation for resource extraction; the other based on the (highly uncertain) growth rates that are predicted for the US by the EIA (e.g. EIA, 2010). All four scenarios see the majority of shale gas being exploited before 2050 and the cumulative emissions associated with the use of this shale gas ranged from 284-609 MTCO2. To give this some context this amounts to between ~2-4.3% of the total emissions for the UK under the UK Domestic Action budget outlined in CCC (2010). Assuming that the carbon budget is adhered to then this should not result in additional emissions in the UK. For example, it is possible that UK produced shale gas could substitute for some imported gas. However, it is also possible that extracting additional fossil fuel resources could put pressure in efforts to adhere to our carbon budget by reducing gas process and directing investment away from renewable energy. It is also important to note that in a market led global energy system where energy demand worldwide is growing rapidly, even if shale gas were to substitute for imported gas in the UK, leading to no rise in emissions, it is likely that this gas would just be used elsewhere, resulting in a global increase in emissions.
14. Rapid carbon reductions require major investment in zero-carbon technologies and this could be delayed by exploitation of shale gas. The investment required to exploit shale gas will be substantial. In relation to reducing carbon emissions this investment would be much more effective if targeted at genuinely zero- (or very low) carbon technologies. If money is invested in shale gas then there is a real risk that this could delay the development and deployment of such technologies.
What are the risks and hazards associated with drilling for shale gas?
15. The processes and operations involved in the extraction of shale gas from wells are not without their human health and environmental implications and these have risen in prominence in the US and are now the subject of USEPA investigations. 16. When considering densely populated countries such as the UK, potential risks and hazards of drilling shale gas cover a wide range of environmental impacts including groundwater pollution, surface pollution, water consumption, noise pollution, traffic and landscape impacts. The ‘novel’ risks associated with hydraulic fracturing of wells are not the only potential drawback of shale exploration, particularly when considering relatively highly populated countries such as the UK. More ‘run of the mill’ impacts such as vehicle movements, landscape, noise and water consumption may also be of significant concern locally and more generally, especially, when one considers the scale of development required to deliver significant supplies to the UK. 17. To sustain production levels equivalent to 10% of UK gas consumption in 2008 would require around 2,500-3,000 horizontal wells spread over some 140-400km2 and some 27 to 113million tonnes of water. To set the cumulative nature of impacts in context, Table 1 provides estimates of the resources required to deliver shale gas production at a rate of 9bcm/year (equivalent to 10% of UK gas consumption in 2008).
Table 1: Resource requirements to deliver 9bcm (10% of UK gas consumption in 2008)
Assuming fracturing No ReAssuming a Single Refracturing on 50% of Wells (delivering an assumed 25% increase in productivity for those wells) 123 346 648 2,592 432 357,264 86,130,000 1,722,600 67,953,600 1,359,270 742,500 3,262,050 34,992,000 699,840 5,132,160 102,384 302,400 2,732,400 112,752,000 2,255,040 88,957,440 1,779,408 859,680 4,132,080 864
Area -km2 Well pad area – ha Wells Well pads Cuttings volume - m Water volume - m
3 3 3
141 743 2,970 495 409,365 26,730,000 534,600 3,920,400 78,210 247,500 2,135,925
Fracturing chemicals volume (@2%) - m Flowback water volume - m
Flowback water chemical waste content (@2%) 3 m Total duration of surface activities pre production – days Total truck visits – Number
18. Risks and impacts of shale gas and shale gas processes and development have been assessed as part of a study by the Tyndall Centre for the Cooperative Group. Key risks and impacts identified in that study are summarised below. 19. Groundwater pollution: The potential for contamination of groundwater is a key risk associated with shale gas extraction. A screening of the identity of 260 substances listed in a database of fracturing fluid additives suggests that 58 of the 260 substances have one or more properties that may give rise to concern owing to toxic, carcinogenic, mutagenic and/or reproductive effects. 20. Groundwater pollution can occur if there is a catastrophic failure or loss of integrity of the wellbore, or if contaminants can travel from the target fracture through subsurface pathways. There are a number of documented incidents in the US with principal causes being improper construction and/or operator error. Amoung these incidents are consequences including high levels of pollutants (such as benzene, iron and manganese) in groundwater, and a number of explosions resulting from accumulation of gas in groundwater. 21. Surface pollution: There are a number of potential sources of pollution including: well cuttings and drilling mud; chemical additives for the fracturing liquid; and flowback fluid – the liquid containing toxic chemicals that returns to the surface after fracturing. There numerous routes by which these potential sources can cause pollution incidents including failure of equipment and operator error. Unsurprisingly, a number of incidents have been reported in the US. 22. Water consumption: Shale gas extraction requires very significant amounts of water. To carry out all fracturing operations on a six well pad takes between
54-174million litres of water, which is equivalent to about 22-69 Olympic size swimming pools. 23. Noise pollution: Given the high population density and the likelihood that any shale gas extraction may be located relatively close to population centres, noise pollution may be an important consideration. Activities such as drilling mean that each well pad requires around 500-1500days (and nights) of noisy surface activity. 24. Traffic: It is estimated that the construction of each well head would require between 4300-6500 truck visits. This could have a local impact on roads and traffic in the locality of shale gas well heads. Damage to roads not suited to the levels of truck traffic associated with gas drilling has been an issue in the US.
25. Landscape impacts: The construction of well pads is an industrial activity
and requires access roads, storage pits, tanks, drilling equipment, trucks etc. Well pads take up around 1.5-2ha and the well pads will be spaced between 1.25-3/km2. To produce 9bcm of gas annually in the UK over 20 years would require 430-500 well pads and would need to cover an area of 140-400km2. For comparison 400km2 is about equivalent to the Isle of Wight.
How does the carbon footprint of shale gas compare to other fossil fuels?
26. The key difference between the footprint for shale gas and conventional natural gas is the extraction process2. These additional sources include: horizontal drilling; hydraulic fracturing; the transportation of fracturing fluids; and waste treatment of the fracturing fluids after use. 27. There is limited data available with which to estimate the carbon impact of shale gas extraction in the UK. Using limited data from non-peer reviewed US reports CO2 emissions associated with shale gas extraction could account for an additional 0.14-1.63tonnes CO2/TJ of gas energy extracted. The combination of emissions from these processes based on data from US Shale sites and UK transportation and waste disposal provides an estimate per well for a fracturing process of 348-438tonnes CO2.(using data sourced from: ALL, 2008; New York State 2009; Water UK 2006; DECC, 2010b); DECC’s recent report suggests that refracturing could happen every 4-5 years for successful wells. Using examples of expected total production
2 We assume the emissions from the combustion of gas from shale sources are the same as from conventional sources. In considering the UK, the distribution of shale gas would be the same as conventional gas and therefore subject to the same losses. The limited verifiable data available makes assessment of the additional extraction emissions problematic. However, the figures above use data on expected emissions from the Marcellus Shale in the US to determine the likely emissions associated with the different processes. The processes included in the assessment were: horizontal drilling; hydraulic fracturing; the transportation of fracturing fluids; and waste treatment of the used fracturing fluids.
for shale basins in the US we estimate that, on average, the additional CO2 emissions associated with the additional extraction processes associated with fracturing account for between 0.14-1.63tonnes CO2/TJ of gas energy extracted assuming two fracturing processes during the lifetime of the well (using assumptions on production rate per well from Wagman (2006). However, it should be noted that the estimates presented here are not based on fully peer reviewed emissions data. 28. The larger the amount of natural gas that can be extracted from a shale well, the lower the contribution the fracturing process makes to the emissions/TJ of extracted energy. DECC’s reserve potential for the UK of 150 bcm is based on analogy with shale gas plays of similar geology in the US. The rate of return per well is not available for UK basins, the rate will determine the relative carbon intensity per unit of energy extracted per well associated with the additional emissions from fracturing etc. 29. Further emissions may arise from differences in shale gas composition and leaking of fugitive methane emissions during extraction. These will not be quantifiable until sites have been drilled and levels could vary between sites. Additional differences may occur due to the difference in the composition of gas extracted from shale sources which may potentially require further processing and clean up before the source is suitable for entry to the gas distribution network. This is well dependent and it should be noted that conventionally sourced gas will also vary in its processing requirements. Further emissions may arise from methane leakage during extraction; we have found no evidence to indicate whether shale and conventional sites differ in this aspect. 30. These relatively low levels of additional emissions suggest that there would be benefits in terms of reduced carbon emissions if shale gas were to substitute for coal. However, rapid carbon reductions require major investment in zero-carbon technologies and this could be delayed by exploitation of shale gas. Combustion of coal produces around 93tonnes CO2/TJ compared to 57tonnes CO2/TJ for gas. Clearly even with additional emissions associated with the extraction of shale gas, the emissions from gas would be considerably lower. The benefits increase when the higher efficiencies of gas fired power stations compared to coal fired power stations are considered.
ALL Consulting, 2008. Evaluating the Environmental Implications of Hydraulic Fracturing in Shale Gas Reservoirs Authors: J. Daniel Arthur; Brian Bohm; Bobbi Jo Coughlin, Mark Layne, ALL Consulting. USA. Baihly, J. Altman, R. Malpani, R. Luo, F. (2010) Shale Gas Production Decline Trend Comparison Over Time and Basins Shanthamurthy, S. (2010). SPE Annual Technical Conference and Exhibition, 19-22 September, Florence, Italy. SPE 135555
Boyer, C., Kieschnick, J., Suarez-rivera, R., Lewis, R., and Walter, G. (2006). Producing Gas from Its Source. Schlumberger. Oilfield Review. Autumn 2006. BP (2010). Statistical Review of World Energy. http://www.bp.com/statisticalreview Accessed, Jan 2011 British Geological Survey (2011) http://www.bgs.ac.uk/research/energy/energy_exploitation.html Accessed, Jan 2011 Committee on Climate Change (2010) The Fourth Carbon Budget: reducing emissions through the 2020s. Composite Energy (2010) http://www.composite-energy.co.uk/our-history.html Accessed, Jan 2011 DECC (2009). Drilling Activity Statistics. https://www.og.decc.gov.uk/information/bb_updates/appendices/Appendix4.htm Accessed, Jan 2011 DECC (2010a). The unconventional hydrocarbon resources of Britain’s onshore basins - shale gas. Department for Energy and Climate Change, London. DECC (2010b), Digest of UK Energy Statistics, Annex A. Department for Energy and Climate Change, London. Energy Information Administration (2010) Annual Energy Outlook 2011: early release overview. Published December 16 2010 Geny, F. (2010). Can conventional gas be a game changer in European gas markets? Oxford Institute for Energy Studies, NG 46, December 2010 IEA (2010) Energy Technology Perspectives 2010: Key graphs, International Energy Agency Leonard, R., R. Woodroof, K. Bullard.(2007) Barnett Shale Completions: A Method for Assessing New Completion Strategies. SPE Annual Technical Conference and Exhibition, 11-14 November, Anaheim, California, U.S.A SPE 110809 National Petroleum Council (2007) Topic Paper #29: Unconventional Gas, working document of the NPC Global Oil and Gas study, made available July 18 2007 New York State (2009) Supplemental generic environmental impact statement on the oil, gas and solution mining regulatory program’ by the New York State Department of Environmental Conservation Division of Mineral Resources. Verma, S. Shanthamurthy, S. (2001). Shale gas-expanding India’s gas frontier? DEW Energy Journal. Vol. 20 November 2001 p.43-46.
Wagman, D. 2006. Shale plays show growth prospects. In Shale Gas (A supplement to Oil and Gas Investor), Hart Energy Publishing LP, Houston, Texas, January 2006, pp.14-16. Available at http://www.oilandgasinvestor.com/pdf/ShaleGas.pdf Copyright Schlumberge Water UK (2006) - Towards Sustainability 2005-2006. London, Water UK.
Cuadrilla Resources In November 2009 planning permission for an exploratory drill site at Preese Hall Farm, Weeton, Preston Lancashire was granted by Fylde Borough Council (with no requirement for environmental assessment or application for a decision as to whether one was required). According to the planning application and other documentation, the purpose of the exploratory drill is to identify whether the formation can produce gas at economic levels and, if the results prove positive, any further development will be subject to a further planning application. Drilling at Preese Hall was completed on 8 December 2010 and the rig is to be located a second drilling site at Grange Hill (some 15km from Preese Hall) where drilling will commence in January 2011. A full hydraulic fracturing of Preese Hall is expected to commence in January 2011. Preparations for a third exploratory well at Anna’s Road are underway and a planning permit was approved on 17 November 2010. On 15 February 2010 Island Gas Limited (IGL) announced that it had identified a significant shale resource within its acreage. The reserves identified (using existing borehole logs in the locality) potentially extend over 1,195km2 with an expected average thickness of 250m. These shales are understood to be hydrocarbon bearing as they have been locally demonstrated to be the source rock for hydrocarbons in the Liverpool Bay area. Composite Energy was initially focused solely on Coalbed Methane (CBM) but also has shale resources and conventional oil and gas within its current license portfolio and expects to add to that potential in 2010-11. Composite reports that it has identified shale potential within its licenses and is working to establish approaches to shale operations in a UK and European context (Composite Energy, 2010).
Island Gas Limited
Wagman, D. 2006. Shale plays show growth prospects. In Shale Gas (A supplement to Oil and Gas Investor), Hart Energy Publishing LP, Houston, Texas, January 2006, pp.14-16. Available at http://www.oilandgasinvestor.com/pdf/ShaleGas.pdf Copyright Schlumberge Water UK (2006) - Towards Sustainability 2005-2006. London, Water UK.
Drilling at Preese Hall was completed on 8 December 2010 and the rig is to be located a second drilling site at Grange Hill (some 15km from Preese Hall) where drilling will commence in January 2011. A full hydraulic fracturing of Preese Hall is expected to commence in January 2011. Preparations for a third exploratory well at Anna’s Road are underway and a planning permit was approved on 17 November 2010. On 15 February 2010 Island Gas Limited (IGL) announced that it had identified a significant shale resource within its acreage. The reserves identified (using existing borehole logs in the locality) potentially extend over 1,195km2 with an expected average thickness of 250m. These shales are understood to be hydrocarbon bearing as they have been locally demonstrated to be the source rock for hydrocarbons in the Liverpool Bay area. Composite Energy was initially focused solely on Coalbed Methane (CBM) but also has shale resources and conventional oil and gas within its current license portfolio and expects to add to that potential in 2010-11. Composite reports that it has identified shale potential within its licenses and is working to establish approaches to shale operations in a UK and European context (Composite Energy, 2010).
Island Gas Limited
Memorandum submitted by the Office of Gas and Electricity Markets (Ofgem) (SG 13)
Summary • There is consensus that unconventional gas production from within Europe is unlikely to make a significant contribution to gas supply until 2020 at the earliest. Estimates put European unconventional gas resources at around 35tcm (trillion cubic meters, annual demand in GB is around 90billion cubic meters), which gives an unconventional supply figure of around 1.75tcm based on an extraction rate of 5% (this is equivalent to 19 years of current GB annual gas demand). Levels of unconventional gas production from outside Europe (excluding Australia and North America) are also highly uncertain although significant resources exist in Asia. Resources in North America and the Asia Pacific area are estimated at 233tcm and 274tcm respectively. Production of shale gas in Europe is likely to be significantly more challenging than in North America. Key challenges include planning (including access to land), water availability, stricter environmental regulations and availability of support services for drilling operations. Large scale unconventional gas production in the UK could displace some imports whilst large scale foreign production could free up conventional gas supply for alternative destinations, potentially improving UK/European security of supply.
About Ofgem Ofgem is the Office of the Gas and Electricity Markets. Protecting consumers is our first priority. We do this by promoting competition, wherever appropriate, and regulating the monopoly companies which run the gas and electricity networks. The interests of gas and electricity consumers are their interests taken as a whole, including their interests in the reduction of greenhouse gas emissions and in the security of the supply of gas and electricity to them. As part of meeting our duties and functions Ofgem actively monitors the energy market and this includes looking at range of issues such as the impact of new energy sources on the market 1. Background Ofgem is monitoring closely the development of unconventional gas due to the impact of production from these sources on global and UK energy markets. The rapid development of unconventional gas has already had a profound impact on gas production in the US. The resulting reduction in demand for both imports of pipeline gas (from Canada and Mexico) and LNG (liquefied natural gas) has released incremental LNG supply to other markets and means that the US is unlikely to present a significant source of additional demand for LNG in the medium term (although the US still imports a large volume of LNG – 12bcm in 2010). In our work on project Discovery (published in October 09) we assumed a further expansion of unconventional gas in the US under all but one of the four scenarios modelled. In this note we have attempted to provide material we hope the committee will find useful. The material has largely been drawn from publically available sources. The note firstly sets out forecasts for unconventional gas resources and outlines a range of technical factors relating to the extraction of unconventional gas. The note also considers the economics of shale gas production, presents estimates of potential unconventional gas production in Europe and outlines a number of barriers to large scale
production in Europe/UK. Section 7 responds to specific questions raised by the committee where these are not addressed in other sections. In this note we have focused on unconventional gas more generally. Shale gas is considered to be a type of unconventional gas which also includes coal bed methane (CBM) and tight gas 1 . 2. Unconventional resources The chart shows that the total volume of global unconventional gas in the ground is estimated to be around 921tcm. In comparison conventional resources at the end of 2008 were estimated at 184tcm. However, the majority of this is difficult to extract. If we assume that 5% is recoverable (based on US experience), this gives a supply of around 46tcm compared to total global consumption of gas in 2009 of 2.9tcm.
In Western Europe the key areas that are thought to contain unconventional gas deposits are Poland, Germany, Hungary, Turkey and parts of the UK. The chart on the next page shows the most promising areas for shale gas exploration in the UK.
Unconventional gas is largely made up of methane, i.e. the same as conventional gas. However, it is harder and/or less economic to extract than conventional gas. Gas that is currently considered unconventional could become conventional as technology develops and costs fall. CBM is found in coal seams and is methane gas that has either been absorbed onto the coal or is dispersed into pore spaces around the coal seam. Tight gas is gas trapped in usually impermeable and non-porous rock.
Source: British Geological Survey
3. Technology This section outlines a range of technological factors important in producing unconventional gas. Shale gas is extracted using a process known as hydraulic fracturing or ‘fracking’ where water/chemicals are injected at high pressure into a well to fracture rocks to release trapped gas. Typically around 15-16 wells have to be drilled before finding the ‘sweet spot’ (an area within a shale gas region that contains a high concentration of gas). Average extractions rates are between 4-6% as shale gas is not evenly distributed across a given area (based on US experience). This means that a greater number of wells are required compared to conventional gas production. Extraction rates and cost of production depend on a range of factors such as the quality of the play (an area containing shale gas resource), the technology employed and the quality of the well operator. For instance: Production is significantly higher in dry gas areas than oil/wet gas areas (wet gas contains some liquids such as oil). Production is higher where horizontal drilling extends further out. Operator performance varies significantly, with the best operators producing significantly more than less efficient operators holding all other relevant factors constant. Deeper shale gas is harder to access but provides better flow rates due to higher pressure.
• • •
It is possible to apply horizontal drilling techniques used in unconventional gas extraction in improving flow rates from poorly performing conventional gas wells. For example, using this technology in Saudi Arabia has increased volumes from a conventional gas
well from 0.5mcf/d to 30mcf/d. This could improve the economics of existing conventional gas wells that are either currently uneconomic and/or are coming to the end of their useful lives. It is also possible to improve/maintain extraction rates from existing unconventional gas production wells by further re-fracturing wells. 4. Economics of shale gas Global gas prices play an important role in determining the economics and hence overall levels of unconventional gas production. The chart below shows estimated costs of European shale gas production versus other new sources of supply in 2020.
Source: Oxford Institute for Energy Studies. The current $/£ exchange rate is 1.55 and the cf to cm conversion factor is 0.028. This gives a p/therm for Poland Shale (base case) of 56p/therm.
The chart shows that European shale gas is likely to have a higher cost of production compared to other gas supply sources. The long run cost for current shale gas projects in the US have been estimated to range from 12.5p/therm to 40p/therm. Current Henry Hub (a pricing point for gas trading in the US based in Louisiana) prices are around 25p/therm whilst GB prices are around 65p/therm. In North America, government has provided assistance to unconventional producers. This has included tax breaks (e.g. the crude oil windfall profit tax act) and R&D support. The US is also offering to help other countries realise their unconventional gas resources through their Global Shale Gas Initiative launched in April 2010. 5. Forecasts of European and UK unconventional gas production The charts on the next page show that European gas demand is unlikely to recover to 2008 levels until 2013. The second chart shows that unconventional gas is unlikely to make a significant contribution in meeting gas demand in UK by 2020 (in both base and high case scenarios) although other European countries have the potential to produce around 5-10bcm by 2020 (in the high case scenario).
Cuadrilla Resources, the first company to drill for shale gas in the UK, have recently obtained promising results from the UK’s first shale gas well in Lancashire. Based on this data they estimate that shale gas could ultimately meet 5-10% of UK gas demand although they do not give a time frame for this view. They are hoping to start the extraction process in early 2011. In terms of coal bed methane, according to Reach CSG, the UK has potentially large deposits that could be exploited. They estimate that CBM has the potential to provide up to 20% of UK gas production in 2020. 6. Factors that may restrict the development of unconventional gas in Europe A number of factors may restrict the extent to which unconventional gas resources can be exploited in UK/Europe compared to volumes observed in North America. These include: Availability of sites. Some sites containing potential unconventional resource are protected by national or European law. Geology of sites. Many European sites are smaller, with shale gas deposits deeper and further away from each other. Service sector. A lack of a flexible, readily available service sector in Europe to support unconventional gas operators. However, current operators in North America are commercial firms and as such are likely to offer their services in other markets where demand exists. Local opposition. Concerns about the impact of drilling on the local community, in particular concerns over drinking water contamination. Water utilisation/scarcity. Concern whether there is adequate infrastructure to transport water to the drilling sites, disposing of waste water and competition with other uses, e.g. drinking. Some positive developments in this area including using saline water for fracking (rather than drinking water) and recycling a high proportion of the water used. Environmental restrictions. These are often more stringent in Europe than in the US (particularly when compared to the large shale gas producing states). Less uninhabited/available land. Population density in Europe is 100 to 200hab/km2 compared to just 30hab/km2 in the US. The US model of ‘factory drilling’, where hundreds of wells are drilled across a specific play to indentify a
‘sweet spot’, is therefore unlikely to be appropriate for most European markets. Instead a target approach is more suitable, where detailed R&D takes places to identify sweet spots more accurately. This method is consistent with the traditional exploration and production method that the large European energy firms are familiar with. In the US drilling is often in sparsely populated areas but even where it is in more heavily populated areas, the public is accustom to drilling activity due to a history of onshore oil drilling. Getting gas to market. Grid density varies considerably, with a gas grid (km)/area (1000km2) of 62 and 45 in the US and UK respectively but only 1 in Sweden. One solution could be to convert extracted unconventional gas into electricity and transmit the power where electricity transmission is more readily available than gas. Compensation to land owners. In the US legislation provides owners of above ground land rights over underground resources. In almost all European countries underground resources is owned by the state. However, European drilling companies have said that they have not found it difficult to obtain access by negotiating directly with land owners. However, this may change as the level of drilling increases. Lower prices in 2009/10, due in part to high levels of production of unconventional gas in the US, reducing the NPV of European projects, although gas prices are currently rising in Europe.
Whilst European players are less experienced than their North American counterparts there is a greater preference for partnerships and joint ventures in Europe, with energy majors with unconventional gas extraction experience partnering up with smaller outfits. This is due in part to higher costs of developing European plays (~£200m from development to production). 7. Questions posed by the committee What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? As the analysis above shows, there is considerable uncertainty over the likely levels of unconventional gas production (including shale gas) in the UK and across Europe more generally. There are a number of barriers that need to be overcome before significant production levels can be achieved. Based on current forecasts, significant volumes of UK unconventional gas production are unlikely before 2020. The level of recoverable gas from an unconventional gas play sets the overall production limit. As noted above various factors including geological and technical determine the level of recoverable gas. In terms of the rate of depletion of shale gas wells, experience from the US indicates that although unconventional gas wells deplete faster than conventional wells production levels can be improved by re-fracturing of wells. What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy? Large scale discoveries of shale gas resources do not necessarily mean large scale production will follow due to technical and economic factors, particularly in Europe. However, if we assume large scale production occurs this will increase overall gas supply, which is equivalent to large discoveries of conventional gas. Thus, an increase in shale gas production is likely to have the same impact on energy policy as an increase in gas production from conventional sources. Large scale unconventional gas production in the US has already had a significant impact on global, European and UK energy prices. The significant rise in US indigenous production has reduced its LNG import requirement freeing up cargoes for alternative
destinations. It is difficult to isolate the impact of increasing shale production on global gas prices from other factors such as demand reduction due to the recession and the increase in LNG liquefaction capacity. However, it is likely to have played a role in reducing gas prices. Large unconventional gas production (as with any increase in gas supply) is likely to have an impact on the UK energy policy. For instance, everything else equal, it is likely to improve the security of supply outlook, both if large scale UK indigenous unconventional production is realised which then displaces imported gas or if large scale unconventional gas production in other countries occurs freeing up gas for international markets. Our view is that impact on security of supply for the UK is likely to be neutral to positive. However, a number of factors complicate the picture, for instance how quickly global demand will recover, in particular the speed of energy demand growth in China and India. Finally, it may be new regulations, particularly environmental, may be need to manage the environmental impact of unconventional gas drilling, in particularly relating to usage and disposal of water. How does the carbon footprint of shale gas compare to other fossil fuels? Work on understanding the environmental impact of unconventional gas production is still at an early stage. However, environmental impacts are likely to include impact on water resources, concerns on contamination of the water table and the possible leakage of methane. The Environmental Protection Agency in the US has launched a study into the impact of hydraulic fracturing, used in shale gas production, on the environment including drinking water. The study will publish its results in 2012 (please see the following link http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/index.cfm). A paper published by Robert Howarth at the University of Cornell calculated that if methane leakages from hydraulic fracturing are including, along with emissions from forest clearing and water transport the carbon footprint of shale gas is slightly worse than coal. However, the paper notes that the assessment is highly uncertain and the numbers should be treated with caution (www.damascuscitizens.org/GHGemissions_Cornell.pdf). I hope that you consider this information useful. January 2011
Memorandum submitted by Shell (SG 14)
Executive Summary and Introduction i. Following the success seen in Unconventional Gas (UCG) production in North America, Shell also sees potential for UCG development across the globe, and particularly in Europe, China, Australia and Southern Africa, although it is not expected that the growth will be uniform. The estimated recoverable global resource base in unconventional gas is equivalent to 123 years of current global production. In Europe, Shell believes the biggest untapped potential is found in France, Germany, UK, Hungary, Poland, Romania and Sweden. However, more extensive exploration programmes over the next 2-4 years are needed to better assess the resource. At the moment it is difficult to see shale and tight gas having the same, game-changing impact in Europe as in North America and certainly not before 2020. It could still however help lift production levels and further diversify Europe’s supplies. The development of UCG resources outside of North America will depend on domestic gas price developments in different countries and regions, local gas infrastructure, government and community support, and the extent to which environmental issues can be effectively addressed. The Shell experience in producing UCG in North America, where the implementation of new technologies has significantly reduced the environmental footprint of UCG activities, demonstrates that if sufficient amounts of gas are found, it is possible to extract UCG in an economically, environmentally and socially acceptable way. Locally and globally, a greater abundance of gas could encourage a move from coal-fired electricity generation to gas-fired generation. Coal-fired power is currently responsible for the fastest sector growth in CO2 emissions worldwide. Modern gas-fired plants emit between 50% and 70% less CO2 than coal plants per kilowatt hour of electricity generated. Hence replacing coal with natural gas is the surest, fastest and cheapest way to reduce CO2 emissions over the next ten vital years. For example, Shell analysis shows that for the UK, replacing existing coal with gas power plants would lead to a 20% cumulative reduction in UK CO2 emissions by 2050. Unconventional gas production in countries such as China could encourage an increase in the use of gas for electricity generation in these regions, with potentially significant positive impacts in reducing global CO2 emissions. Where and how great are unconventional gas resources? 1. The Shell view of global unconventional gas resources is in line with that put forward by the International Energy Agency in its extensive look at gas markets in 2009. The IEA estimate recoverable resources of UCG globally (tight gas, shale gas and coalbed methane) to be more than 380 tcm (13,700 tcf), out of a total estimate resource base of 920 tcm (33,100 tcf). This is equivalent to 123 years of current global production, which when added to recoverable conventional gas resources, is estimated to be equivalent to over 250 years of current global production. Unconventional gas resources are more widely dispersed compared with conventional. The regions with the largest share of these UCG resources are North America
(25%), Asia-Pacific (30%) and the FSU (17%). The IEA estimate Europe as having 35 tcm (= 1,260 tcf) of gas resources in place. Both the US and China have similar unconventional gas resources and the estimates of technically recoverable gas in both countries is greater than 1000 tcf. However, the type of gas resources differs between the two countries with resources in the US split roughly between 60% shale gas, 33% tight gas and 7% coal bed methane (CBM). Resources in China on the other hand are split roughly between 47% shale, 34% tight gas and 19% CBM. 2. As well as the success seen in UCG production in North America, Shell also sees potential for UCG development across the globe, and particularly in Europe, China, Australia and Southern Africa, although it is not expected that the growth will be uniform. This growth will heavily depend on domestic gas price developments in different countries and regions, local gas infrastructure, government and community support, and the extent to which environmental issues can be effectively addressed. If sufficient amounts of gas are found, Shell’s view is that it is possible to extract UCG in an economically, environmentally and socially acceptable way. Unconventional Gas in Europe 3. There is currently no commercial UCG production in Europe. European geological history is complex, and unlike North America, suffers from a paucity of critical data to assess accurately whether UCG can ultimately be developed commercially. 4. The key geological components appear to be present in many sedimentary basins, but simple extrapolation from North American analogues is difficult. At this time, it is not evident which areas of Europe will ultimately host commercial UCG production. Better assessment of UCG potential will first require early (1-4 yrs) investment in seismic operations, exploration drilling and geological studies across many potential areas, followed by significant investment in appraisal drilling and production testing (2-5 yrs). It is estimated that 20-40 wells (exploration, appraisal, pilot) are required to prove commerciality in many basins. Exploration and production companies with diversified portfolios and revenues are better able to absorb this exposure, but to succeed they will also need positive government support (eg the right fiscal framework and permitting and other regulatory conditions). 5.
Chart 1: Distribution of UCG in Europe
Source: WoodMackenzie 6. One of the promising signs in Europe is the increase in the number of companies participating in UCG exploration across Europe. As Chart 2 below shows, less than five years ago there were only a few companies active in UCG in Europe. For Europe, from the beginning of 2008, almost all onshore basins with speculative UCG potential are now leased or under application, from a broad competitor base – Majors, Independents, Small Players and NOCs. 7. The key indicators that unconventional gas in Europe could be material would be: • • • • • • • Successful exploration wells proving the presence of unconventional gas resources.
Examples of developments scaling up to material commercial projects. Government and local authority/community support – regulatory and environmental. Supply chain/contractor development with competition driving down costs. Sustained interest and investment by oil & gas majors. Development of a Mergers and Acquisitions market in unconventional projects.
Chart 2: Overview of known companies with UCG positions in Europe.
Ev o lu tio n o f Eu ro p ea n Un co n v en tio n a l Ga s p la y ers
5 Years ago
3 Years ago
Current overview of known companies with European unconventional gas positions (changing rapidly !) Strategic groups IOC’s: Companies
Shale Gas Tight Gas CBM
Shell, XOM, CVX, COP , T ENI otal,
Large E&P MRO, BG, T alisman Co’s: State Oil Co’s:
European Utilities Niche players PGNiG, PKN Orlen, OMV, MOL Centrica, GDF Suez 3Legs, BNK, Realm, Eurenergy, Schuepbach, T orreador….
Germany Poland France Austria Hungary Romania Croatia Bulgaria Turkey Spain Ukraine
Bridge Oil Lundin Queensland Nautical Cevennes Celtic Languedoc, Mouvoil Eagle energy Egdon Shesa
Source: Woodmac, PFC, Corp. websites, Shell internal analysis
Unconventional Gas in the UK 8. Current activity on UCG in the UK is exploration focused and there is no commercial production at this time. There is potential for CBM production across the legacy UK coal basins. There is potential for shale gas in Bowland near Blackpool (where a small start-up called Cuadrilla is currently drilling) and in the Weald Basin of SE England. 9. Many UK areas of interest are relatively small (especially by comparison with North America) and there are no reliable estimates of reserves potential at this time. The non-technical risks in the UK are similar to those in the rest of Europe and are highlighted below. As UCG activity requires many more wells to be drilled (even if drilled from a single well pad) and more activity than conventional exploration and production, regulators will need to review whether they have the appropriate framework and resources available to deal with the increased level of well permitting, environmental permitting and legislation, production license permitting etc that will be required.
10. In terms of the implications for the UK of global UCG development, unconventional gas resources are more geographically diverse therefore their development could enhance the diversity of gas supplies to Europe and the UK, with the consequent benefits for gas security of supply. What do the economics of developing unconventional gas look like? 11. The IEA have estimated that the recoverable unconventional gas reserves cost between $2.70/MBtu and $9/MBtu to produce (Chart 3 below). In North America, production costs have declined significantly over time and are now towards the lower end of the IEA’s range, and hence are competitive with conventional supplies. In Europe, WoodMackenzie have estimated that the costs of developing unconventional gas would have to fall by a minimum of 20% for European gas shale to be economical with current European gas pricing. In Shell’s operations in North America, better wells are being drilled much more cheaply than and twice as fast as in the early days, and have continuously improved over time. For example, since acquiring the Pinedale tight gas field in Wyoming in 2002, Shell has used multiple new technologies including microseismic mapping and underbalanced drilling to treble production, while reducing well costs and delivery times by over 25%, despite the surge in industry costs. This expected moderate cost of supply compared to current global gas prices - in combination with a sustained improvement in costs as technology continues to improve - creates positive prospects for further development of this resource globally. 12.
Chart 3: Long-term gas supply cost-curve
Source: IEA World Energy Outlook 2009
What are the challenges to the development of unconventional gas? 13. The development of UCG comes with many challenges, particularly environmental, and addressing these challenges is key to gaining public acceptance for UCG exploration. Shell is tackling these concerns and is focussed on integrating transparent constructive community engagement, advancing efficient resource development and developing technical and engineering solutions to help reduce the environmental and community impact. For example, improving well performance and surface engineering can aid the development of UCG in a sustainable manner. At Pinedale, Shell is limiting the environmental impact of the facility by using directional drilling with fit-for-purpose rigs to reduce operational footprint; and improving and monitoring drill rig engines to decrease NOx emissions and expedite reclamation of drilling sites. 14. One of the key public concerns around UCG development is that some of the techniques used to produce UCG, such as hydraulic fracturing, could affect local water resources. Hydraulic fracturing is a common practice to stimulate tight or low permeability natural gas (and sometimes oil) wells to increase the production rate. It is a safe, environmentally sound engineering practice that involves pumping fluid and a proppant into oil and natural gas wells to fracture resource-rich rock beds increasing production. Hydraulic fracturing fluid is typically composed of 99.5% water and sand. The other half percent contains small amounts of chemical components, most of which are also used in household products. Fracturing typically takes place thousands of feet below the water table, well bores are encased in concrete and well design incorporates several barriers to help ensure nothing contaminates water supplies. 15. Fracturing can require the use of large volumes of water, with the actual volumes varying substantially between wells (though in relative terms, more water is used in other parts of the energy sector such as in nuclear generation or for other purposes such as agriculture). To mitigate these impacts, Shell is pursuing solutions for water usage and disposal. At the Pinedale site Shell has committed to install a Liquids Gathering System (LGS) that will: • Cut the water usage and need for disposal; • Increase the ability to re-use water; and • Reduce truck trips and dust associated with water removal/hauling. 16. In addition, a water recycling/reuse program in place for completions is lowering the water usage and reducing disposal issues. Shell has reduced its use of fresh water by about 50% by reusing treated fracturing water. Europe 17. Commercial development in Continental Europe will ultimately depend largely on: • Gas prices; • Geology; • Continued technological advances to supplement those that are already in place; • Environmental and social considerations; • Fiscal and regulatory regimes; • Wider governmental energy policies; • Transmission infrastructure; • Industry competition.
18. Importantly for Europe, key technologies will be those that help deliver solutions to environmental challenges and community concerns, for example; drilling of multiple (e.g. > 20 wells) long horizontal wells (>1.5 km) from a single well pad that significantly reduce overall well density and allow for efficient modularisation of other development facilities (e.g. water ponds to support formation hydraulic fracturing (or “fraccing”); facilities to 100% recycle fluids used in formation fraccing; and more efficient fraccing techniques that employ less equipment and fluids. 19. Many European countries have strong gas demand, and successful development is likely to first meet local market demand, thus potentially freeing up supply to other parts of Europe. Once UCG systems are proven to be commercially viable, it is possible that UCG production growth could be accelerated with concomitant significant increases in supply chain capability, requiring delivery of new drilling rigs, fraccing equipment, drilling tools, development facilities and training of personnel. Rapid growth of UCG production is also likely to require new investment in European gas transport infrastructure and transparent commercial structures to facilitate panEurope gas sales. 20. One of the challenges in developing unconventional gas in Europe is that some of the reserves are located within proximity of densely populated areas. The industry is developing methods to limit the environmental footprint by minimising the area required for drilling. Shell development planning for Europe at this time incorporates drilling of multiple horizontal wells from a single well pad as the base case scenario. Wells of this type are at the forefront of drilling technology. By providing more efficient access to small or multiple isolated pockets of oil and gas they bring down the cost of development and, most significantly, avoid the impact of constructing multiple production sites or surface tie-backs, with obvious benefits for resource demand and environmental impact. In addition, the advances made in drilling horizontal wells over distances of 1,500 metres and more mean that horizontal wells can replace many vertical wells, reducing the surface area disturbed. 21. One of the key successes of UCG in North America has been the rapid development of the supply chain to support the increase in UCG development. Although an onshore drilling industry of comparable magnitude does not exist in many regions outside North America, should profitable projects appear in other regions, the oil and gas industry is capable of responding to take advantage of developments in new geographical locations – though this may take time. Similarly, a lack of transmission infrastructure in areas where there has not traditionally been any gas production could also challenge the development of UCG in these areas. Putting a regulatory regime in place to support the development of UCG could facilitate a more rapid development of both the supply chain and distribution capacity. China 22. China, key factors for the development of UCG will include favourable gas prices, technologies that work, and the know-how to apply the right technology mix to make the production of unconventional gas economically viable. China has put in place a number of policies to facilitate the development of unconventional gas such as encouragement for foreign cooperation, supportive fiscal terms and measures to build up local capability.
What are Shell’s unconventional gas activities? North America 23. Shell has developed a strong position in unconventional gas in North America. The recent addition of further acreage will enhance the growth potential, bringing Shell’s total North American unconventional gas position to some 3.6 million acres, and resource potential of over 40 tcfe (>7.1 Bboe). Shell is active in 6 key Tight Gas plays in North America: • Groundbirch and Deep Basin in Western Canada. • Pinedale in Wyoming. • The Haynesville Shale play of northwest Louisiana. • The Rio Grand Valley (Wilcox and Vicksburg plays). • New positions: about 250,000 acres in the Eagle Ford shale play, which complements S t Resources in Pennsylvania.
Asia-Pacific 24. Building on its experience in North America, Shell is building tight gas positions globally including the Sichuan and Ordos Basins in China, and is in the early stage of shale gas exploration in Sweden, the Lower Saxony Basin of Germany (operated by XOM), Ukraine, South Africa and the Sichuan Basin in China. Shell has recently acquired together with PetroChina the Arrow CBM assets in Eastern Australia where there is both exploration and production. Shell is also exploring for CBM in the North Shiloh permit, as well as in the Ordos Basin in China. Unconventional gas is going to be one of the largest opportunities for growth in Shell’sUpstream business in China and holds the potential of making China one of Shell’s key Upstream countries. 25. Shell’s broad global exposure to many UCG systems has demonstrated that there are substantial differences among UCG plays. Each UCG play offers different technical and non-technical challenges for which solutions must be developed to achieve commercial success. Meeting these challenges requires expertise, innovation and investment, and those companies that can rapidly learn from diversified exposure are best placed to deliver success when exploring new areas.
Memorandum submitted by the Geological Society of London (SG 15)
The Geological Society is the national learned and professional body for Earth sciences, with 10,000 Fellows (members) worldwide. The Fellowship encompasses those working in industry, academia and government, with a wide range of perspectives and views on policy-relevant science, and the Society is a leading communicator of this science to government bodies and other non-technical audiences. The Geological Society is notable for its track record of seamless association between theory and practice, and routinely brings together the best from across academia, industry and government (particularly the British Geological Survey (BGS)), to exchange views and research findings through its scientific meetings and publications. This is especially true in the area of hydrocarbons, where there is a well developed community of Earth scientists spanning these sectors – they routinely collaborate on research, and there is considerable mobility of individuals between the sectors. This group has strong links with the engineering community, also active in the Society, including (but not limited to) petroleum engineers. Fellows from industry, academia and government have contributed to this submission. Notably, there is no evident divergence between the collective views of these groups. Rather, shale gas (and unconventional hydrocarbons more generally) is an area of active research and debate, with a variety of views being expressed across the community.
What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? 3. While there are large sedimentary basins in the UK which contain significant shale sections, and there are known to be some shale gas resources present, there is currently no clear consensus within the Earth science community regarding the quantity of these resources in the ground (either in the UK or more widely in Europe), and the prospects for extracting these economically. Exploration of these resources is at an early stage, but considerable effort is now being devoted to clarifying the extent and nature of the physical resources, across government (BGS), industry and academia. This work includes identification and characterisation of potential resources, and research to improve our understanding of the geology, which in turn promises better characterisation, and hence improved resource estimates and productivity (for instance by helping identify ‘sweet spots’ in gas plays). While some industry players are actively involved in this work, suggesting a degree of optimism about prospects for economic exploration and production of UK shale gas, others have no such plans and consider it unlikely that this resource will play any significant part in meeting UK gas needs. Notwithstanding this diversity of views, it seems likely that there are reasonably significant onshore physical resources present in the UK. However, there are geological, economic and regulatory constraints (see below) which will determine the extent to which these can be exploited, so in practice the contribution of domestic shale gas resources to the UK energy mix is likely to be modest. The suggestion that 10% of current UK gas needs could be met from domestic shale gas seems entirely speculative,
and it appears unlikely that this will be achieved at least in the short to medium term, given the constraints (in particular, differences from the US, where shale gas has been extensively developed), and the fact that there is no UK production at present. 5. We note that BGS has also made a submission to the present inquiry, which includes a description of current UK shale gas prospects. Industry focus is currently on the onshore Carboniferous and especially the Pennine Basin Lower Carboniferous Bowland Shales, which are thought to be most likely to yield significant resources capable of exploitation. BGS has also produced more substantial reports for DECC on UK and worldwide shale gas prospectivity, and further work is reported in Smith et al, 2010. Offshore, there are likely to be substantial North Sea resources. But while some of the constraints which apply to onshore shale gas exploration and production will not apply offshore, this is not close to being economic given current costs and gas prices. It is rarely discussed in the hydrocarbons industry, as it is viewed as such a distant prospect. Furthermore, although the existing North Sea infrastructure for conventional hydrocarbons would confer some advantage, the UK would have to pioneer offshore shale gas exploration and production, particularly as the US has no need to look to offshore resources. Besides the physical resources present in the UK, key constraints on discovery and exploitation are: a. Geological: Shale gas plays vary enormously. In particular, the favourable geology characterising the major US plays – such as thick, high TOC (total organic content) oil prone source rocks with low clay contents, deposited in large, relatively unstructured basins – are not generally found elsewhere. European plays are smaller and more complex. There is often also a high level of heterogeneity within plays – on a scale of metres to hundreds of metres horizontally, and down to centimetres vertically. These challenges are not intractable, and drive research and data gathering, but act as a limiting factor. b. Economic: The costs of extraction (which depend inter alia on the nature of the deposit and the state of technology), the price of gas, carbon costs (shaped by the regulatory environment) and potential synergies with other elements of the energy system, will determine whether the resource can be exploited economically. c. Regulatory/legal: Environmental standards, policy with regard to carbon pricing and the tax regime will directly influence whether companies decide to invest in new hydrocarbon developments, including shale gas – so government has considerable capacity to shape such developments. Given the political will, it might in time even make offshore shale gas production a more realistic prospect – an indication on the part of government of the will to make this happen would stimulate creative thinking in the industry. Conversely, uncertainty about regulatory plans and future carbon prices is a strong disincentive to investment in new business lines. A fundamental difference between the UK and the US is the ownership of mineral rights. In the UK, these are held by government,
whereas in the US they are owned by the landowner, who can therefore expect a share of revenues – a financial incentive which is absent in the UK. The size of individual land holdings in the UK (and other European countries) is smaller too. The complexity of the planning process, the possible need to seek compulsory purchase from many landowners, etc, has historically been a major obstacle to onshore hydrocarbon development in the UK. 7. Shale gas should be seen in its context as one of a range of types of unconventional gas (and other hydrocarbons), including tight gas and coal bed methane (CBM) (there are some prospects for the latter in the UK). Internationally, shale gas plays tend to have high breakeven prices relative to tight gas and CBM. There is no agreed meaning of ‘unconventional’, though it now usually refers to resources which unlike classical reservoirs are not confined by geological boundaries. Greater effort is usually required to extract them compared to ‘conventionals’. (At one time, reservoirs under deep water were referred to as unconventional, but deep water drilling has become conventional.) Although many hydrocarbons companies still have separate teams for unconventionals, there is a healthy trend away from regarding these as a distinct well-defined category, and towards considering a range of hydrocarbon resources, with many varying characteristics (some of which will affect ease of extraction and economic viability), affected by common factors (regulatory frameworks, technologies, carbon price, energy prices) in the context of holistic global and local energy systems. A single field may have the potential to deliver some combination of conventional and unconventional hydrocarbons, hot water, and sequestration of CO2 (possibly with enhanced oil recovery). The economics of such a holistic view may be very different to considering each resource alone. In Saudi Arabia, for instance, it is thought unlikely that shale gas could be generated at a profit, but it might be used to generate sufficient energy to drive secondary oil recovery on the same site. There are synergies too with regard to research and data collection. For instance, past exploration of conventional reservoirs may provide a source of useful baseline data about shale gas lying above or below – though this is unlikely to be a substitute for purposeful shale gas exploration given the different information needs and geological factors involved. Compared to conventional gas, shale gas is produced at higher levels initially, which decline rapidly, with a very long ‘tail’ of low production rates. So physical depletion of any given shale gas play is not likely to happen quickly. However, as noted above, physical depletion of the total resource in the ground is not the primary constraint on production. It is important to draw a distinction between resources (the total amount in the ground) and reserves (the amount of a resource which can economically be extracted with current technology). As with other mineral resources, reserve levels will increase with rising prices and with technological improvements (and conversely, will reduce if prices fall).
What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy? 9. The primary motivations for examining UK prospects in shale gas are economic benefit and security of supply. In both instances, the focus should not just be on domestic
resources. There are major opportunities for the development and application of UK research and technology, and for UK-based industry, irrespective of the location of resources. A number of UK research institutions are internationally respected in conventional hydrocarbons, and some (including UCL and the Durham Energy Centre) are establishing themselves as world leaders in alternative energies. These opportunities can only be taken with government support. Furthermore, improved security of supply may be achieved by means other than moving towards self-sufficiency based on domestic resources. Developments elsewhere may decrease the market power of particular countries which are currently dominant, reducing international dependence on their supplies. Moreover, security of UK supply would be helped in particular by the realisation of prospects in the EU. 10. Shale gas production in the US has grown dramatically in only a few years, from 1% of US gas supply in 2000 to 20% in 2009 (projected to rise to 50% by 2035) according to one estimate from CERA, and this has stimulated widespread attention to shale gas elsewhere. (See the Chatham House report on shale gas (Stevens, 2010) for further detail). A key driver of this ‘revolution’ has been technological development, especially of hydraulic fracturing and horizontal drilling. But it has also depended on advantageous geology of North American shale gas plays which is not replicated elsewhere, and a distinctive regulatory environment, including with regard to planning and land/mineral rights ownership as outlined above. (The Chatham House report is right to point out that the US experience will therefore not directly translate to other national settings, but it is unduly pessimistic regarding the scope for international learning. Research and the development of new technologies and business models have been hugely stimulated. Notably, many European, Indian and Chinese companies have acquired small percentages of US shale gas plays, to build their knowledge, technology base and human capital.) The impact of US shale gas on global markets is often overstated. In feeding the domestic market, it has indeed reduced US dependence on liquefied natural gas (LNG) imports – but this has been largely offset by rapidly increasing demand in the Middle East, Latin America and South and East Asia, which have all emerged as material LNG importers. US shale gas is not expected to impact directly on UK energy policy unless it starts to be liquefied and exported, which is considered unlikely. Large shale gas discoveries in mainland Europe could contribute to European (including UK) energy security. However, opinion differs regarding the prospects for discovering and exploiting such resources. There are technical, commercial and regulatory hurdles. BP’s view, for instance, is that usable shale gas resource in Europe is limited, and that any impact is likely to be local rather than pan-European. Shell, meanwhile, sees the possibility of a positive impact on security of gas supply, but not before 2020. (In addition to the long lead time for exploration and development, they note that regulation and permitting are not yet in place, and that economic assessment will also take time.) European prospects will not be comparable to those in North America. Nonetheless, active exploration is underway in many European countries. Among collaborative projects tackling associated research challenges and addressing the need for a systematic database of prospects, the most significant is the ‘Gas Shales in Europe’ (GASH) project, sponsored by industry and run by a multinational expert task force
drawn from universities, other research institutions, geological surveys and consultants. (See, for example, Schulz et al, 2010.) 12. Outside Europe, only North Africa and Russia are likely to have shale gas resources which might impact UK energy policy if they were exploited. Algeria and Tunisia, with possible large unconventional resources, constructive established commercial relationships and existing export infrastructure to Europe, are well positioned to continue to be important suppliers of gas. (Libya may have similar physical resources, but lacks the other advantages.) However, there is little economic incentive at present to address issues which would need to be tackled to allow development at scale. In Russia, significant untapped conventional resources remain, so shale gas is unlikely to be an attractive prospect in the near future. (Notably, though, Russia appears to be scaling back conventional gas exploration in the Arctic, which was expected to supply Europe in future decades, at least partly in reaction to possible shale gas development in Europe.) There is also considerable shale gas exploration in China and India, both by multinationals and local companies, and government enthusiasm in the context of dependence on domestic coal and imported oil and gas, and the need to manage CO2 emissions.
What are the risks and hazards associated with drilling for shale gas? 13. All those who have contributed to this response are cognisant of potential environmental and social risks, and recognise the responsibility on industry to act responsibly and sensitively. Indeed, the move towards thinking of integrated energy systems outlined above brings environmental impacts centre stage, particularly as the regulatory system increasingly ensures that environmental costs (including those of carbon emissions) are captured. Some of the environmental risks which have been posited include: a. Water sourcing and subsequent disposal: Hydraulic fracturing requires a great deal of water to be injected (perhaps 100,000 barrels of fresh water per multistage fracture per well), much of which is then forced to the surface (now salinated) and has to be managed. There is the potential for competition, for example with agriculture, over water resources. This is certainly a legitimate constraint on shale gas development in some areas, for instance in parts of India, whose government is generally keen to see such development, but will rightly not allow it in areas where agriculture already contends with water shortages, despite the presence of promising shales. It has also been suggested that water supplies near to hydraulic fracturing operations may become contaminated, typically by added chemicals with which the hydrocarbons industry is very familiar from conventional drilling, or by the presence of hydrocarbons, heavy metals and organic compounds. There is no recorded evidence of this, and good reason to think it untrue, since the process takes place at depths of many hundreds of metres below the aquifer. Although the public debate about this in the US is not well informed, sensitive and responsible behaviour by industry is key to avoiding over-bureaucratic regulation.
b. Air quality: As with conventional drilling, this can and must be appropriately managed. c. Release of radioactive material: Recent research has raised the risk of mobilisation of natural uranium from source rocks. Again, US public debate about this is not well informed, and there is no evidence of harm. d. Induced seismicity: This is not thought to be a significant risk in the UK, but may be more of a concern where there is already earthquake risk (e.g. parts of India). The same risk applies to other processes which involve the injection of large volumes of fluid into rock (CCS, geothermal energy, etc), and this is an area of active research. 14. Both the number of wells required to extract shale gas and the size of each well site (to accommodate fracturing), and therefore the physical footprint associated with onshore exploitation, are very large compared to conventional hydrocarbons. A typical full field development using 850 wells might occupy 110 square miles, over a period of 40 years. Noise, access and visual impact are associated factors. In countries such as the UK, which is much more densely populated than the US, and where landowners does not own the associated mineral rights, this is likely to be a major obstacle to development. Technological approaches to reduce land use requirement, developed in the US, include ‘superpads’ – rather than drill evenly spaced vertical wells, a group of wellheads is clustered together, and the well shafts ‘splay out’ into the gas field below. This is more expensive, but the additional cost may be offset by the reduced economic and social costs associated with land use.
How does the carbon footprint of shale gas compare to other fossil fuels? 15. The carbon footprint associated with shale gas production is essentially the same as for other types of natural gas production. CO2 emissions are dominated by end use, the energy used in producing and transporting the gas generally being small in comparison, despite the considerable work done in horizontal drilling and fracturing. This is illustrated in the chart below, showing Net Energy Ratio (NER) and technological maturity for various hydrocarbons including unconventional types. (The exception is when natural gas is converted to LNG, where typically 10–15% of the produced gas can be consumed in liquefaction and transportation of the product.) In comparison to other fossil fuels, natural gas results in up to 50% less CO2 emissions than coal when used to generate electricity. Emissions of other pollutants (sulphur dioxide, nitrogen oxides, mercury and particulate emissions) are also substantially less or negligible. In the US there is an emerging public debate, which is not well founded, about greenhouse gas emissions directly to the atmosphere as a result of ‘methane leakage’ associated with shale gas development. This is very unlikely to be due to hydraulic fracturing, since this occurs at depths of several thousand metres beneath the surface.
Concluding remarks 16. We would be pleased to discuss further any of the points raised in this submission, to provide more detailed information, or to suggest oral witnesses and other specialist contacts.
January 2011 Bibliography Schulz, H.-M. et al (2010), ‘Shale gas in Europe: a regional overview and current research activities’ in Vining, B.A. and Pickering, S.C. (eds.) Petroleum Geology: From Mature Basins to New Frontiers – Proceedings of the 7th Petroleum Geology Conference, London: Geological Society Smith, N. et al (2010), ‘UK data and analysis for shale gas prospectivity’ in Vining, B.A. and Pickering, S.C. (eds.) Petroleum Geology: From Mature Basins to New Frontiers – Proceedings of the 7th Petroleum Geology Conference, London: Geological Society Stevens, P. (2010), The ‘Shale Gas Revolution’: Hype and Reality, London: Chatham House
Memorandum submitted by Professor Paul Stevens, Chatham House (SG 16)
THE SHALE GAS REVOLUTION –THE KEY QUESTIONS 1. The “Shale Gas Revolution” in the USA is part of significant recent developments in unconventional gas. In addition to shale gas this also includes tight gas, coal bed methane and also hydrates and biogenic gas. Unconventional gas refers to the fact that simply drilling is not sufficient to produce the gas as is the case for conventional gas. Further “activity” is required and thus unconventional gas more resembles a manufacturing process. The
developments in shale gas have been achieved by the application of horizontal drilling and hydraulic fracturing. Neither are particularly new technologies to oil and gas but they have been combined to good effect in recent years in the USA. The results have been spectacular. In 2000, less than 1 percent of domestic gas production in the USA came from shale; the latest figures suggest it is now getting close to 20 percent. However, even more important has been the impact on expectations. Up to 2005, the general view in the USA was that domestic gas production in the Lower 48 States would be in terminal decline. Given the continued strength in gas demand, this implied growing imports of gas both by pipeline but above all by the use of liquefied natural gas (LNG). To that end a great deal of money was invested in the USA in regasification capacity in the form of either taking regas capacity out of mothballs or new build. Since 2000, such capacity has increased ten-fold.
2. The “Shale Gas Revolution” has had a huge impact in the USA. Gas prices have collapsed although this has also been driven by lower gas demand as a result of the economic recession. Thus based on data from the US Energy Information Agency the average wellhead gas price in 2005 was $7.33 per thousand cubic feet (mcf) while the average for 2010 to October was $4.25 per mcf. Furthermore, LNG imports to the USA have collapsed and in 2009 capacity utilization on regasification plants was less than 10 percent. To put it crudely, a great many investors in LNG in the USA have lost their proverbial shirts.
3. There can be no doubt that shale gas has the potential to transform the global energy scene and is clearly a possible “game changer”. However, to determine whether this potential can be realized requires the answer to two key questions: - Can the “Shale Gas Revolution” continue in the US? Can it be replicated elsewhere in the world?
Can the “Shale Gas Revolution” continue in the US? 4. For the US there are several concerns. The current low prices of domestic gas are threatening the economics of many existing shale gas projects and future investment may well be compromised. There are also the possible negative environmental consequences of hydraulic fracturing. This involves injecting water and chemicals at very high pressure into the gas plays. The 2005 Energy Act explicitly excluded hydraulic fracturing from the
Environmental Protection Agency’s Clean Water Regulations – the so-called “Halliburton Loophole”. As concerns grow, drilling moratoria have been called on some shale plays while environmental impact studies are completed. Interestingly when in 2009 ExxonMobil bought XTO, the third largest gas producer in the USA (mainly unconventional) for $41 billion, the deal had a special clause that would invalidate the purchase if the government (State or Federal) introduced legislation that was unfavourable to hydraulic fracturing.
5. On balance it seems unlikely that the “Shale Gas Revolution” can be halted in the USA. In particular, in the last couple of years, the major international oil companies have become increasingly involved. Such companies have much deeper pockets and much greater influence with government than the smaller companies who originally pioneered the “Shale Gas Revolution” before 2008.
6. The answer to the second question about replication elsewhere attracts much greater concerns, especially in the context of Western Europe.
Can the “Shale Gas Revolution” be replicated elsewhere? 7. Potentially global unconventional gas resources (coal bed methane, tight gas, and shale gas) are significant. A National Petroleum Council Report in 2007 estimated unconventional gas resources at five times conventional gas reserves. However, the “Shale Gas Revolution” in the USA was triggered by a number of favourable factors. It is useful to list these and then consider in each case how likely replication might be generally in a European context and specifically in the UK.
1. Geology 8.The shale plays in the US are larger, shallower and more material than those in Europe. Furthermore there are very large core samples available from earlier conventional drilling in the USA. This creates much greater knowledge of the immediate geology. There has been relatively little such drilling onshore in Europe and hence the data are not available. A related problem is that traditionally, exploration acreage being licensed in Europe has tended to involve relatively small areas with fairly rigid associated work programmes. Shale plays need larger areas and greater flexibility to tease out the best prospects.
2. Tax breaks 9. In 1980, the Crude Oil Windfall Profit Tax Act in the USA introduced an alternative (nonconventional) fuel production tax credit of $3 per BTU oil barrel. This was equivalent to 53 cents per thousand cubic feet (tcf). It remained in force until 2002 and was a significant incentive to attempt to develop unconventional gas given that after 1980, the wellhead price rarely exceeded $2 tcf. In Europe, only Hungary has any form of tax advantage for unconventional gas.
3. Widely dispersed populations 10. Even ignoring environmental considerations, shale gas operations are potentially very disruptive to local communities. For example, on the Barnett Play in North Texas the average wellhead density is 12 per sq km. In the USA, population density is very much lower than is the case in Europe – 27 per sq km in the USA compared to 383 in England. Furthermore, the population in the USA has long experience (and acceptance of) oil and gas operations in their “back yard”. In large part this is because property rights in the USA mean that shale gas operations (and indeed any oil and gas operations) directly benefit the local landowners. In New York State for example, some residents are offered up to $5,500 per acre with 20% royalties on any gas produced. In Europe, where subsoil hydrocarbons are the property of the state, this is not the case. There is no reason for the local population to accept the disruptions. This is reinforced because given the capital intensive and specialist nature of shale gas operations, there are few local employment benefits.
4. Easy access to the gas grid 11. In the USA, access to the gas grid is based upon “common carriage”. This means any gas supplier can gain access to the grid even if it is already operating at full capacity. Other users must reduce their throughput on a pro-rata basis. In Europe, access is based upon “third part access” which means if the system is operating a full capacity there is no access unless dedicated new pipelines are built.
5. Limited environmental control 12. In the USA, environmental controls in the context of hydraulic fracturing were (very surprisingly) lax. In Europe this is not the case and satisfying environmental impact assessment criteria is likely to prove difficult and controversial. Already local groups within the UK opposed to shale gas operations are beginning to form as my Email inbox can attest. There is another regulatory problem in Europe. European petroleum legislation has no
mention of unconventional gas which means it is not at all clear how the industry will be regulated and on what basis. My understanding is that, for example in Germany,
unconventional gas comes under coal mining legislation. A further difference concerns access to water. This is key to being able to mount hydraulic fracturing operations. In the USA access is generally very good in the shale play areas. However, in parts of Europe (notably in Central Europe where much of the European shale gas resources are located) water access is constrained.
6. Service industry capability 13. Small entrepreneurial companies with the help of an already vibrant and competitive service industry drove developments in shale gas in the USA. For example, at the peak of the recent boom in the Barnett Shale Play in 2008, 199 rigs were in action. However, as of
July 2010, there appeared to be only around 34 land rigs in the whole of Western Europe, compared with some 2,515 active land rigs in the United States in 2008, of which 379 were in oil and 1,491 in gas. Putting it simply, the infrastructure in Europe does not currently exist to mount enough unconventional gas projects to make a difference. Of course this can change if the projects appear profitable, but it will take time. However, a further problem is that the service industry in Europe is an oligopoly dominated by a few (largely American) companies. This is not conducive to the rapid development of a service industry capability.
14. For all of these reasons, the replication of the “Shale Gas Revolution” in Europe and indeed the UK faces a great many barriers. Of course, these are by no means
insurmountable but it will take time to manage them. Outside of Europe, the story may be different. In particular, there are parts of the world such as China were local opposition, which forms the major source of barriers to shale gas development in Western Europe, is likely to be “managed” quite easily.
15. There are many uncertainties associated with the answers to the two key questions – can the “Shale Gas Revolution” in the USA continue and can it be replicated elsewhere. This is extremely important for the future not just of gas markets but also the global energy scene. Uncertainties over the answers to the questions will inhibit future investment in gas supplies. There are already signs of the cancelation or postponement of gas export projects such as the giant Shtokman field in the Barents Sea north of the Kola Peninsula – a joint venture between Gazprom, Statoil and Total. There are also serious questions over the prospects of other gas projects such as Nabucco.
16. If the “revolution” does continue and extend to the rest of the world, consumers can anticipate a future floating on large clouds of very cheap gas. However, if it falters, in the medium term, the world will face serious gas shortages given these current investment uncertainties. As the world recovers from global recession and as earlier constraints on gas use erode, gas demand will grow. The UK provides an excellent example of what happens to energy markets when previous constraints on gas use are removed. In 1990 when the
constraints began to weaken, natural gas accounted for 20 percent of the UK’s primary energy mix. Only ten years later in 2000, gas accounted for 40 percent of primary energy in the UK.
17. However, given the investor uncertainty described above, future gas supplies will be lower than required had the “Shale Gas Revolution” and its current hype not happened. If unconventional gas fails to deliver on current expectations – and we will not be sure of this for some time into the future –in ten years or so, gas supplies will face serious constraints. Markets will eventually solve the problem as higher prices encourage a revival of investment.
However, given the long lead times on gas projects, consumers could face high prices for some considerable time.
18. A related problem concerns investments in renewables. There is general agreement that the world must move to a low carbon economy if climate change is to be managed. Among other things, this requires much greater investment in renewables. In a world where there is the serious possibility of cheap, relatively low carbon gas which could be seen as a “transition fuel”, who will commit large sums of money to expensive renewables to lower carbon emissions? Again, if shale gas fails to deliver, it condemns us to a higher carbon future than would otherwise have been the case 1 .
The role of the UK government in the story
The nature of the learning curve 20. A major problem with shale gas is that the plays and indeed the wells on the same play are all very different in terms of geology, well behaviour and reservoir characteristics. Thus unlike many other activities, there is a very limited aggregate learning curve. Thus research and development (R & D) are essential ingredients to develop shale operations, as is the sharing of information between operators. In the USA this process has been going on over the last ten years and has helped to reduce shale gas production costs by moving down the
For further information on all of the preceding discussion see my report: The “Shale Gas
Revolution” Hype and Reality. http://www.chathamhouse.org.uk/research/eedp/papers/view//id/947/
learning curve. However, because of the heterogeneity of shale operations this experience cannot necessarily be applied in Europe without adjustments. Traditionally, government
should intervene to encourage and promote R & D and the exchange of operating experiencing within the limits of what is feasible given competitive advantage and commercial confidentiality.
Contestable markets 21. In the theory of contestable markets, market power such as monopoly can be controlled if there is threat of entry. Actual entry of competing suppliers is not necessary; simply the threat that the market might be contestable and new suppliers might enter is sufficient to enforce behaviour associated with competitive markets. Western Europe at the moment
looks as though it will become increasingly dependent upon gas imports. If there are real prospects of significant gas supplies from domestic shale sources, this could have a very powerful influence on the behaviour of Europe’s current external gas suppliers forcing them away from seeking higher prices. Thus even if the UK government and the EU only spout rhetoric about encouraging shale gas, this might be sufficient to create a contestable market to contain suppliers’ behaviour over prices and contracts.
There are a number of actions that could be taken by the UK government to encourage the development of shale gas both here and in Western Europe more generally: -
22 First would be to persuade/pressure the EU to take a more positive proactive role in encouraging shale gas developments. Western Europe is a regional gas market of which the UK is an integral part. Therefore anything that increases supply and
reduces price will benefit the UK. The current EU position on shale gas of “leave it to the market” is a serious mistake that ignores the externality dimensions involved. At the very least this pressure could involve looking at the myriad of European regulations which might inhibit shale gas developments.
23 The government could do much to encourage R & D into shale gas. This could range from the funding of research and a research centre to ensuring operating experiences are shared between companies to try and create an aggregate learning curve.
24 Something must be done to sort out the regulatory uncertainty with respect to shale gas. There needs to be explicit regulation to bring shale gas operations into the general petroleum legislation. In particular, to allow for much more flexible terms for licensing acreage such that the work programme associated with shale plays can be better managed.
25 Given the positive externalities associated with shale gas in the context of security of supply – mainly the contestable market argument developed above- there may be a case for subsidy or at least some form of tax break/credit on shale gas operations.
26 Clarify the environmental position on hydraulic fracturing by ensuring the results of the current studies underway in the USA are disseminated. At the same time it will be necessary to carry out environmental impact assessments of shale gas developments in the UK to consider the relevance of the operating conditions to the experience in the USA.
27 Introduce financial mechanisms such that local communities can be compensated for disruption by some sort of fund drawn from the operators. This could be some form of compulsory corporate social responsibility fund. Something is required to provide incentives for landowners to allow access and communities to accept disruption.
28 Tax breaks for drillers building new rigs could also encourage the development of a European service industry that would make a shale gas revolution in Europe a more likely possibility. At the very least, there should be efforts to ensure that importing shale gas technology from the USA –software and hardware – is not constrained although the encouragement of a home grown service industry is preferred.
Memorandum submitted by CNG Services Ltd (SG 17) What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy? 1. The UK economy was converted to natural gas in the 1970’s on the back of North Sea reserves. The use of oil in British industry was dramatically reduced in the period 1970 – 1990 as industry converted to gas and as a result oil is now predominately used for transport. 2. Around 85% of domestic consumers have gas for heating with appliance efficiencies of around 90%. 3. British Gas were generally reluctant to promote the use of natural gas as a fuel for power generation because a combined cycle gas turbine (CCGT) generation plant will only operate at around 50% efficient. 4. However, in the period 1993 – 2010 there has been dramatic growth in CCGTs and now around 50% of UK electricity is generated by gas, with a large build programme now underway as a number of coal plants are being closed down. Reference 1 gives details of CCGT generation in the National Grid 2010 Ten Year Statement 5. British Gas were world leaders in the development of natural gas vehicles in the early 1990’s. However, the NGV programme in the UK failed for a number of reasons. First, the compressed natural gas (CNG) filling stations were located on gas-holder sites were British gas had lots of vans. This was a major mistake in that the gas was generally ‘wet’ which damaged engines. 6. In addition, the vehicles were conversions of petrol vehicles. They were not reliable, had no standby fuel and the CNG storage tanks took up significant space and reduced payload. They were also poor to drive, with low acceleration. Reference 2 gives an indication of British Gas NGV activity in the 1990’s. 7. The privatized British Gas has spawned 3 world class companies, Centrica, BG Group and National Grid. In the UK it has helped to develop a highly advanced gas grid (connecting around 95% of population centres) which has broader coverage then any other major economy. 8.
9. In the US, National Grid are also involved in the growing NGV market there. This is partly driven by the political drive to reduce reliance on oil but the key driver is the low price of natural gas caused by shale gas production. Reference 3 shows National Grid NGV activity in the US. 10. The German Government fixed CNG fuel duty in 2001 at the CEU minimum level (6 p/kg) for 20 years on the basis that the gas industry would build CNG filling stations and the car industry will develop CNG cars (note - in the same period duty in the UK has risen from 9 p/kg to 28 p/kg today). Reference 4 shows EU and Worldwide NGV Statistics.
11. This strategy has been successful in that in Germany there are now 900 CNG filling stations and around 100,000 cars and vans running on CNG from the grid. 12. The new cars and vans have been designed to run on CNG and have none of the drawbacks that the British Gas developed vehicles had 20 years ago. The VW Passat Ecofuel has a 1.4 litre engine with twin supercharger and turbocharger. It can go 0 – 60 mph in 9.5 seconds but has CO2/km of less than 120 g/km. It can also run on petrol and has a combined range on CNG and then petrol of around 700 miles. The Mercedes Benz Sprinter NGT is similarly excellent in terms of range (1,100 km) and performance as is the VW Caddy. Reference 5 shows that the Passat Ecofuel has been voted the Greenest Car in the world. 13. By designing from first principles cars and vans to run on CNG there is excellent performance and utility and low CO2 14. But what of the UK? In 2002 there were around 20 CNG filling stations operational in the UK but now there are no grid connected public access stations that are capable of ‘fast filling’ a vehicle. 15. In terms of vehicles there are estimated to be around 50 vehicles running on CNG and 200 running on natural gas stored on board as LNG, with fuel mostly provided at a small number of depot-based filling stations. 16. There is no case for large scale investment in installing CNG at petrol stations. Diesel and petrol hybrid cars are very good in terms of CO2/km and whilst CNG emissions are lower than a normal petrol they are comparable to many diesel and hybrids. There is not believed to be any investors looking at the UK car market for natural gas and, with the development of electric vehicles, this situation is unlikely to change. We can reasonably assume that CNG will not be made available at petrol stations in the UK. Home refueling with CNG is possible and attractive but will be a niche market. 17. The sector of interest for natural gas is the commercial vehicle sector. There are around 700,000 vans, rigid trucks and tractors operating in the UK and a large proportion of these operate from depots. As such, they are well suited to running on natural gas as the gas grid is invariably close by. The most significant technological development is in relation to the engine and fuel combination. Reference 6 shows that 18% of transport emissions come from trucks. 18. If air quality is the driver (nitrous oxides and particulates) then having an engine that runs on 100% natural gas gives exceptional performance. This is why most Los Angeles buses run on CNG (9,000) and all 670 refuse trucks in Madrid run on CNG. There are now no longer any diesel buses operating in LA City nor any diesel refuse trucks in Madrid. CNG is the fuel of choice where air quality is a major issue. Whilst air quality is an issue in the UK, the driver for change is now reduction in CO2. Reference 7 shows LA buses and Reference 8 shows the benefits of the CNG refuse trucks in Madrid. Diesel is a mix of hydrocarbons, typically in the C9H20 to C12H26 range. Compared to a molecule of CH4 (methane, which is >90% of natural gas), burning diesel gives rise to greater CO2. However, the buses in Los Angeles and refuse trucks in Madrid and 99.9% of the 13 million NGVs on the road today use a ‘spark ignition’ engine. This is similar to a petrol engine and not as efficient as a diesel engine. It can be said that the price for improved air quality and longer life
is achieved by a reduction in efficiency of conversion of hydrocarbons to vehicle movement. 20. The development of dual-fuel diesel-natural gas engines in transformational. The vehicle starts on 100% diesel, but after 30 seconds it becomes 80% natural gas, 20% diesel. This gives the advantage of lower CO2 from burning methane instead of C12, but maintains the advantage of the diesel cycle. The engine thinks it is still a diesel engine and if the gas runs out it is still a diesel engine. No range anxiety there then. Reference 9 shows Volvo dual fuel trucks. 21. There are also reductions in emissions of Nox and particulates by the displacement of 80% of the diesel. 22. Volvo and Mercedes Benz are both selling diesel-natural gas trucks and they say that the reduction in CO2 is around 20% compared to 100% diesel. This is highly significant when it is compared with the reduction possible from biofuels. Even if 10% of diesel is replaced with biodiesel this will not give a 10% reduction in CO2 because of the energy cost of making biodiesel, then there are the food versus fuel issues. 23. There is a further good news element. There are 3 companies in the world that lead in relation to dual fuel truck technology. One is Canadian (Westport), the others are based in Leyland (Clean Air Power, CAP) and Nottingham (Hardstaff). 24. My grandfather worked at Leyland Motors in the inter-war years and it is encouraging for UK manufacturing industry that CAP are now providing their dual fuel technology to the likes of Volvo Trucks (as an aside, the name Leyland lives on in the truck industry but not in the UK - Ashok Leyland make trucks and buses in India including CNG versions). Reference 10 shows CAP technology. 25. Hardstaff are also very successful with their technology which is being sold in Mercedes Benz trucks. Hardstaff also hold the patents for a system that allows CNG storage to be on the trailer with an umbilical connection to the tractor unit – this means that as much CNG storage as required can be on the vehicle. A leading UK logistics company Tenens Environment are using this system. Reference 11 shows Hardstaff Dual Fuel technology, Reference 12 shows Hardstaff Umbilical technology and Reference 13 shows Tenens Environment and CNG. 26. What other vehicle technology is there with 2/3rds of the world’s best technology in the UK? 27. So, we have the vehicles, we have the technology, we have the truck manufacturers, we have the CO2 saving, what about the fuel? 28. When there have been ‘Well to Wheel’ studies that have looked at natural gas they have used data from the 1990’s gas industry. The assumption has been that the gas is taken out of the low pressure grid (same as around gasholders). 29. First, it requires 30% more electricity to drive a compressor using gas at 0.5 bar than if the gas was at 4 bar. Going forward, CNG should be taken out of the grid at pressures from 4 – 50 bar, giving up to a 75% reduction in electricity consumption.
30. Second, a substantial part of the gas pipeline grid was developed in the period 1890 – 1930 when towns gas (made from coal) was the fuel. These pipelines were made from cast iron and have leaking joints, around 0.5% of the gas leaks out of the low pressure tiers. Even though around £1 billion a year is invested replacing these pipelines it will take until 2030 until the grid is substantially leakage free. Hence, if gas it taken for CNG at these low pressures, it was assumed that around 0.5% of it would have leaked out. With the global warming effect of methane around 20 times worse than CO2, this 0.5% translates to around 10% CO2. By taking gas out of high pressure grids (4 bar and above) there is negligible leakage and hence there is a further 10% benefit. 31. There is also a new advantage of CNG that is aligned with wind generation. It makes sense to run compressors at times when renewable electricity is in surplus. In this way, the CNG will further reduce its carbon footprint. The alternatives of compressing air or pumping water up-hill to use ‘surplus’ electricity are both highly wasteful of energy, because something is being done that no-one wants to be done Compressing gas however, is a required activity, why not do it at night? Overseas it is already seen as a complement to wind generation. 32. There are also positive developments in relation to the energy footprint of bringing natural gas to the UK. At the Isle of Grain, National Grid uses waste heat from an EON CCGT to warm the LNG and make it into natural gas for injection into the gas grid. This is estimated to give around a 5% CO2 benefit which is also significant. Reference 14 shows the benefits from the efficient scheme at Isle of Grain. 33. Paragraphs 28 – 32 have considered CNG made from gas within the grid. There is also liquefied natural gas, LNG. The Hardstaff and CAP technology uses gas in gaseous form at low pressure. Whether the gas is stored on the truck in compressed form (CNG) or liquid form (LNG) is neither here nor there. So, let us look at the LNG supply chain. 34. There is a major prize possible in relation to ‘Well to Wheel’ CO2. The UK now has major LNG importation facilities at Isle of Grain and Milford Haven. It is low cost and technically straightforward to load 20 tonne road tankers with LNG at these facilities by installing an LNG road tanker loading bay (cost around £3 Million). Fluxys has done this in Zeebrugge and already LNG is imported by ferry and road to UK from Zeebrugge to serve the new dual fuel trucks that are coming to market. 35. We do not know if the owners of the LNG importation terminals at Isle of Grain and Milford Haven are considering LNG road tanker loading but we hope they are. Importing LNG in containers by ferry and road is not a great idea when we have Isle of Grain and Milford Haven and there should be jobs in UK not in Belgium for this activity. Reference 15 shows the Fluxys LNG Road Tanker Loading system. 36. If LNG is made in Qatar (for example), transported by ship to UK, loaded into an LNG road tanker, transported to a depot LNG storage tank, then decanted into the LNG storage on board a truck, there are very low CO2 emissions in that supply chain. The LNG stored on board uses waste engine heat to become gas again. We estimate that there is around 10% saving in CO2 from this. 37. So, LNG in dual fuel may be able to deliver a 30% reduction in CO2, with CNG a similar saving.
38. In terms of climate change, the reduction from dual fuel trucks is material within that sector and material overall and is worthy of independent analysis. It would be very helpful if The Committee on Climate Change reviewed the data and gave an opinion. 39. Separately, the reason British Industry switched from oil to gas was because gas cost around half price in energy terms. It is around half price again today and so the logic of switching haulage from diesel to (part) gas is a sound one, We estimate that UK balance of payments would take a hit of around £40 billion a year compared to 2010 as a result of importing oil. If we can reduce oil imports by 15% as a result of dual fuel then we would save £6 billion of oil at a cost of £3 billion gas. 40.
41. For a 44 tonne truck to run on electricity, it has been estimated that around 50 tonnes of batteries would be required. So there is clearly not going to be a material electricity option for trucks. 42. If the shale gas reserves are as big as the promoters say, and if they can be developed economically, then the logical response for UK plc is to start to switch haulage to natural gas-diesel dual fuel. 43. The final point, if the shale gas is real, what can the Government do. It could ask the owners of Milford Haven and Isle of Grain to install LNG road tanker loading buys. It could ask the Technology Strategy Board to support Hardstaff and CAP in developing their dual fuel natural gas – diesel technologies. The Government can also support cities like Sheffield that are taking significant steps to move along the LA and Madrid paths by introducing natural gas for refuse trucks and other commercial vehicles as the best way to improve air quality. Reference 16 shows Sheffield/Veolia and CNG. 44. Crucially, however, the Government can also support investment in infrastructure and vehicle development by giving a longer period of confidence on natural gas fuel duty (at present only fixed relative to diesel for 3 years). The regimes to promote investment in offshore wind or ground source heat pumps or anaerobic digesters rely on a long term guarantee of income support. An equivalent level of confidence in duty level is required if we are to capture the CO2 reduction prize offered by dual fuel. This will also offer a duty reduction to hauliers who are prepared to invest in the natural gas refueling infrastructure and vehicles. 45. Once the depot based filling stations are built and depreciated, the Government can look forward to increasing duty on natural gas without it killing the market, but this is 15 years away. 46. The Energy Networks Association commissioned a report by Redpoint published in November 2010 (“Gas Future Scenarios Project – Final”) which makes the case that natural gas for commercial vehicles is an attractive option. See Reference 17. 47. One final point, the Government is preparing to announce the level of the Renewable Heat Incentive which includes the renewable premium paid to biomethane (renewable natural gas made from organic material). If set at an
appropriate level this will encourage waste to be converted into biomethane, injected into the gas grid and taken out at existing truck depots. In this way, the duel fuel CNG-diesel development is aligned with the move towards a fossil free economy. National Grid forecast in January 2009, that biomethane could supply around 50% of the gas used by domestic gas consumers. The same resource would supply much more than the 80% of gas required to move haulage to dual fuel. Reference 18. January 2011
References 1. CCGT Generation
2. British Gas NGV Paper from the 1990’s http://220.127.116.11/tech_papers/17th_congress/2_3_24.asp 3. National Grid NGV
4. NGV Statistics – NGVA Europe http://www.ngvaeurope.eu/statistical-information-on-the-european-and-worldwidengv-status 5. Passat Ecofuel http://green.autoblog.com/2010/01/06/volkswagen-passat-ecofuel-squeaks-pastprius-as-greenest-car-in/ 6. Transport Emissions from Trucks http://www.dft.gov.uk/pgr/statistics/datatablespublications/tsgb/latest/tsgb2010energy. pdf 7. Los Angeles buses – no more diesel http://www.latimes.com/news/local/la-me-buses-20110112,0,6536088.story? 8. Madrid refuse trucks on CNG http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V1T-4TRR90K1&_user=10&_coverDate=05/31/2009&_rdoc=1&_fmt=high&_orig=search&_origin=s earch&_sort=d&_docanchor=&view=c&_searchStrId=1608663932&_rerunOrigin=goo gle&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=c05d7ea61a 74d7992e0faa83bdb6da8c&searchtype=a 9. Volvo Dual Fuel Trucks http://www.volvotrucks.com/SiteCollectionDocuments/VTC/Corporate/About%20us/E nvironment/Volvo%20gas%20truck.pdf 10. Clean Air Power Dual Fuel Trucks http://www.cleanairpower.com/dualfuel.php 11. Hardstaff Dual Fuel Trucks http://www.hardstaffgroup.co.uk/site/hardstaff-dual-fuel-technologies/availablevehicles 12. Hardstaff Umbilical Trailer Connection http://www.hardstaffgroup.co.uk/site/hardstaff-dual-fuel-t echnologies/umbilical-trailer 13. Tenens Evironment and CNG
http://www.tenens.com/environment/transport.html 14. National Grid Isle of Grain (see page 2) http://www.nationalgrid.com/NR/rdonlyres/E60C7955-5495-4A8A-8E80BB4002F602F/44779/TenYearStatement2010.pdf 15. Fluxys LNG Road Tanker Loading http://www.fluxys.com/en/NewsAndPress/2010/101119_TruckLoading.aspx 16. Para 43 Veolia CNG Refuse Trucks in Sheffield http://www.veoliaenvironmentalservices.co.uk/Sheffield/Waste-andRecycling/Cleaner-greener-vehicles/
17. Redpoint Report on Gas Future Scenarios http://www.redpointenergy.co.uk/images/uploads/ENA_gas_future_scenarios_report_ v1.1_FINAL.PDF 18. National Grid Biomethane Report http://www.nationalgrid.com/corporate/About+Us/climate/press/020209.htm
MEMORANDUM SUBMITTED BY THE CO-OPERATIVE GROUP (SG 18) SHALE GAS INQUIRY INTRODUCTION
1 The Co-operative is a unique family of businesses, jointly owned and democratically controlled by over 6 million members. We are the fifth largest food retailer, the third largest retail pharmacy chain and the number one provider of funeral services in the UK. We also have strong market positions in banking and insurance. The Co-operative employs 120,000 people, and has around 4,800 retail outlets and branches. Taking a responsible approach to business has been a guiding principle of The Co-operative since its inception. We are proud to have led UK business in our approach to combating climate change. The Co-operative’s approach to addressing the issue of climate change is fivefold, embracing: energy efficiency, support for renewable energy, carbon offsetting, the provision of finance, and influencing public policy. This begins with ensuring sustainable business operations: • Between 2006 and 2009 (the latest year for which data is available), The Cooperative achieved an absolute reduction of 21% in its operational greenhouse gas emissions. • By 2012, we will generate 15% of our energy requirements from sustainable sources, including from our wind farm at Coldham in Cambridgeshire and other schemes under development. • During 2009, over 98% of our electricity was sourced from good quality renewable sources. • We’ve made combating climate change a community investment priority. For example, we’ve invested £2m in our Green Energy for Schools programme and we’re supporting the development and financing of community owned renewables across the length and breadth of the UK. Strong business credentials in the UK have allowed The Co-operative to lead on public policy initiatives to combat climate change. This includes involvement in campaigns, such as the Big Ask in 2007, which resulted in the Climate Change Act 2008 becoming law. We are also currently campaigning against tar sands development in Alberta, Canada. In order to inform its position on shale gas, The Co-operative commissioned The Tyndall Centre to investigate issues including its carbon footprint relative to conventional gas, scenarios for shale gas exploitation (and resulting greenhouse gas emissions) for global and UK development, and other environmental impacts potentially associated with the extraction process. The report, entitled “Shale gas: a provisional assessment of climate change and environmental impacts”, can be downloaded from www.tyndall.ac.uk/shalegasreport. The contents of this submission are based on the findings of this report. While, currently, information on the shale gas extraction process and its associated potential environmental impacts is patchy, a number of issues of concern were raised within the report:
At a global level, shale gas represents a potentially very significant new fossil fuel source, that in the absence of a global emissions cap is likely to lead to increased greenhouse gas (GHG) emissions. Within the UK, the expansion of the shale gas industry is, at best, not in the spirit of UK climate change policy and, at worst, may act as a disincentive to investment in zero carbon energy sources such as renewables. At the local level, research from the United States (US) has revealed a number of chemicals involved in, and mobilised by, the hydraulic fracturing extraction process that have potential human health impacts via the contamination of groundwater (e.g. toxicity or carcinogenicity).
It is for the reasons stated here, and further expanded below, that The Cooperative recommends a complete and immediate moratorium on UK shale gas extraction until the risks have been properly evaluated and can be shown to be fully addressed.
Question 1: What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? 8 In order to examine the potential impact of shale gas in the UK, four scenarios were developed in the research: two assuming the amount of shale gas produced correlates with the figure provided by DECC (2010) – 150 billion cubic metres (bcm); and two that assumed double this (300bcm). The two 300bcm scenarios reflect the experience in the US where shale gas estimates have been revised upwards year on year (for example in 2008, the US Energy Information Administration (EIA) estimated the US technically recoverable shale gas resource at 3,539bcm and then revised this upwards in each of the successive years, with the latest 2010 assessment at 23,427bcm (EIA 2010b)). For both the 150 and 300 bcm scenarios, two different rates of extraction were used: one based on a Hubbert type curve (a bell curve) that is often used as an approximation for resource extraction, which sees a rapid increase in production followed by a rapid drop in production; the other based on the kind of growth rates that are predicted for the US by the EIA (EIA, 2010b). The four scenarios are plotted below in Figure 1.
Figure 1: Shale gas production in the UK under four scenarios
10 All four scenarios see the majority of shale gas being exploited before 2050 and the cumulative emissions associated with the use of this shale gas ranged from 284-609 MTCO2 over the period 2010 to 2050. To give this some context this amounts to between 2.0 to 4.3% of the total emissions for the UK under the intended budget proposed by the UK Committee on Climate Change. Assuming that the carbon budget is adhered to, this should not result in additional emissions in the UK. For example, it is possible that UK produced shale gas
could substitute for imported gas, although it would not negate the need for imports. 11 It is also possible that extracting additional fossil fuel resources could put pressure on efforts to adhere to our carbon budget by reducing gas prices and directing investment away from renewables and other low or zero carbon energy sources. It is also important to note that in a market led global energy system where energy demand worldwide is growing rapidly, even if shale gas were to substitute for imported gas in the UK, leading to no rise in domestic emissions, it is likely that this gas would just be used elsewhere, resulting in a global increase in emissions. 12 Within the UK, shale gas could theoretically substitute for coal and thereby reduce emissions. However, with a carbon budget in place, coal (without Carbon Capture and Storage (CCS)), is likely to be phased out anyway – shale gas is not required to make this happen. Given the radical reduction in emissions required and the need for a decarbonised electricity supply by the mid-2030’s 1 . Developing shale gas would risk being a major distraction from transitioning to a genuine zero-carbon grid. Given the investment in infrastructure required to exploit these resources there is the danger of locking the UK into a number of years of additional gas use, leaving unproven CCS, as the only option for lower carbon electricity. Consequently, this investment would be better made in real zero-carbon technologies that would provide more effective long-term options for decarbonising electricity supply.
The Committee on Climate Change has suggested that electricity will need to be effectively decarbonised by 2035 (Committee on Climate Change, 2010).
Question 2: What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy? 13 In order to examine the potential impact of shale gas on global GHG emissions, three scenarios were developed in the research. The starting point for the global scenarios is an estimate for the global reserves of shale gas taken from a report by the US National Petroleum Council (NPC, 2007). Three scenarios were then developed assuming that differing proportions of the total resource are actually exploited (10%, 20% and 40%). Assuming that 50% of this resource is exploited by 2050, these scenarios give additional cumulative emissions associated with the shale gas of 46-183 GTCO2, resulting in an additional atmospheric CO2 concentration of 3-11ppmv. 14 The argument that shale gas should be exploited as a transitional fuel in the move to a low carbon economy seems tenuous at best. If we look at the US, there is little evidence that shale gas is currently, or expected, to substitute for coal (see for example projections within ‘change in US primary energy sources 2008 to 2035’ within EIA (2010a)). It is possible that some level of substitution may occur in other countries but, globally energy use is growing and, without a meaningful constraint on carbon emissions, there is little price incentive to substitute for lower carbon fuels. It is difficult to envisage any situation other than shale gas largely being used in addition to other fossil fuel reserves and adding a further carbon burden. This could lead to an additional 11ppmv of CO2 over and above expected levels without shale gas – a figure that could rise if more than 50% of the total shale gas resource were to be exploited. 15 The idea that we need transitional fossil fuels is itself open to question. For example, in the International Energy Agency scenario that outlines a path to 50% reduction in carbon emissions by 2050, fuel switching coupled with power generation efficiency only accounts for 5% of the required reductions (IEA, 2010). If globally we are to achieve the considerable reductions in carbon emissions that are required then it is energy efficiency, CCS, and renewable energy that will make the difference. 16 At the global level, against a backdrop of energy growth matching, if not outstripping, that of global GDP and where there is currently no carbon constraint, the exploitation of shale gas will most likely lead to increased energy use and increased emissions resulting in an even greater chance of dangerous climate change. While for individual countries that have a carbon cap, for example in the UK, there may be an incentive to substitute shale gas for coal, the likely result would be a fall in the price of globally-traded fossil fuels leading to an increase in demand. Consequently, there is no guarantee that the use of shale gas in a nation with a carbon cap would result in an absolute reduction in emissions and may even lead to an overall increase.
Question 3: What are the risks and hazards associated with drilling for shale gas? Groundwater pollution 17 A key risk associated with shale gas extraction is the potential for contamination of groundwater. From the limited evidence available from the US, it appears that the fluid used in hydraulic fracturing contains numerous chemical additives, many of which are toxic to humans and/or fauna. Concerns that the fracturing process could impact on water quality and threaten human health and the environment have prompted the US Environmental Protection Agency (EPA) to instigate a comprehensive research study into the issue, within initial findings expected by the end of 2012. While awaiting the results of this study, New York State has introduced a moratorium on any new wells. 18 Groundwater pollution could occur if there is a catastrophic failure or loss of integrity of the wellbore, or if contaminants travel from the target fracture through subsurface pathways. The risks of such pollution were seen as minimal in a study by ICF International (INGAA, 2008); however, this assessment was based on an analysis of risk from properly constructed wells. History tells us that it is rarely the case in complex projects that mistakes are never made and the risk of groundwater pollution from improperly constructed wells also needs to be considered. 19 The dismissal of any risk as insignificant is hard to justify given the documented examples that have occurred in the US, seemingly due to poor construction and/or operator error. These examples have seen high levels of pollutants, such as benzene, iron and manganese, in groundwater, and a number of explosions resulting from accumulation of gas in groundwater.
Surface pollution 20 While it may not always be possible to pinpoint the exact cause of groundwater contamination, identifying the source for land and surface water pollution is more straightforward. There are a number of potential sources of pollution including: well cuttings and drilling mud; chemical additives for the fracturing liquid; and flowback fluid – the liquid containing toxic chemicals that returns to the surface after fracturing. There are numerous routes by which these potential sources can cause pollution incidents including failure of equipment and operator error. Unsurprisingly, a number of incidents have been reported in the US.
Water consumption 21 Shale gas extraction requires significant amounts of water. Analysis provided by the Tyndall Centre suggests that to carry out all fracturing operations on a six well
pad takes between 54-174million litres of water over its lifetime, which is equivalent to about 22-69 Olympic size swimming pools of water. If the UK were to produce 9bcm of shale gas each year for 20 years (approximately 10% of annual consumption) this would equate to an average annual water demand of 1,300-5,600million litres. This compares with current levels of abstraction by industry (excluding electricity generation) of 905,000million litres. Shale gas exploitation at this level would therefore increase abstraction by up to 0.6%. While this appears to be a small additional level of abstraction, a number of points need to be made: • This assumes the water demand is spread evenly over the whole country. Clearly actual water requirements will be focused in the areas where shale gas is being extracted and this could add a significant additional burden in those areas; Water resources in many parts of the UK are already under a great deal of pressure, making additional abstraction difficult; and The impacts of climate change may put even greater pressure on water resources in the UK.
22 Given that the water is mainly used over a short period of time during initial fracturing, the most likely means of getting this water to the site in the UK would probably be by truck or abstraction.
Other issues 23 For the UK, high population density and the likely proximity of wells to population centres could result in exacerbation of impacts such as noise pollution, traffic, and landscape degradation. Further information on assessment of these potential impacts is contained within the Tyndall Centre report on pages 69 and 70.
Question 4: How does the carbon footprint of shale gas compare to other fossil fuels? 24 It is assumed that the direct GHG emissions associated with the combustion of shale gas will be the same as gas from conventional sources. In considering the UK, the distribution of shale gas would be the same as conventional gas and therefore subject to the same losses. This means that the main difference between shale and conventional gas is likely to be from emissions that arise from the differing extraction processes. The limited verifiable data available makes assessment of these extraction emissions problematic. However, it was possible, using data on expected emissions from the Marcellus Shale in the US, to estimate the likely emissions associated with the different processes that occur in extracting shale gas compared to natural gas. 25 Estimated emissions are associated with a number of processes: • • • Horizontal drilling; Hydraulic fracturing and flowback; Production of chemicals used in hydraulic fracturing (these emissions are unknown and have not been included); Fugitive methane emissions during fracturing (these emissions are unknown and have not been included); Transportation of water; Transportation of brine; and Waste water treatment.
• • •
26 The combination of emissions from these processes gave an estimate per well of 348-438tonnes CO2e. This figure will increase if the well is refractured, something which could happen up to 5 times, the DECC (2010) report suggests that refracturing could happen every 4-5 years for successful wells. 27 The significance of these emissions is dependent on the rate of return for the well – something which is site specific. Looking at examples of expected total production for shale basins in the US it has been estimated that, on average, the additional CO2e emissions associated with the processes above account for between 0.14-1.63tonnes CO2e/TJ of gas energy extracted. The value depends on the total amount of gas that is extracted per well and the number of times it is refractured. Examining the UK in particular, although the rate of return per well is not quoted for UK basins, it is thought that additional CO2e emissions per well would be at the higher end of estimates compared to the US, as economies of scale are against UK wells. 28 Given that during combustion, 1TJ gas would produce around 57tonnes CO2, the additional emissions from the shale gas extraction processes identified represent only 0.2-2.9% of combustion emissions. However, similar to conventional gas there will be some further emissions associated with processing, cleanup and distribution. 29 These relatively low levels of additional emissions suggest that there would be benefits in terms of reduced carbon emissions if shale gas were to substitute for coal. Combustion of coal produces around 93tonnes CO2/TJ. Clearly even with additional emissions associated with shale gas, the emissions from gas would be
considerably lower. The benefits increase when the higher efficiencies of gas fired power stations compared to coal fired power stations are considered. 30 However, as noted above in our responses to questions one and two, there are concerns that at a UK level, shale gas could displace investment in renewables, and at a global level could simply lead to increased greenhouse gas emissions. Therefore, the straightforward comparison of the carbon footprint of shale gas relative to coal is not the appropriate way to analyse the issue.
Committee on Climate Change (2010) The Fourth Carbon Budget: reducing emissions through the 2020s
DECC (2010) The Unconventional Hydrocarbon Resources of Britain’s Onshore Basins – Shale Gas.
Energy Information Administration (2010a) Supporting materials for the 2010 Annual Energy Outlook, Report #: DOE/EIA-0554(2010), Release date: April 9, 2010. Energy Information Administration (2010b) Annual Energy Outlook 2011: early release overview. Published December 16 2010 INGAA (2008) Availability, economics and production potential of North American Unconventional Natural Gas Supplies Prepared for The INGAA Foundation, Inc. by: ICF International 9300 Lee Highway Fairfax, VA 22031 USA Authors: Harry Vidas and Bob Hugman Copyright ® 2008 by The INGAA Foundation, Inc. National Petroleum Council (2007) Topic Paper #29: Unconventional Gas, working document of the NPC Global Oil and Gas study, made available July 18 2007
Memorandum submitted by Philip Mitchell (SG 19) Introduction This submission is an individual comment, although much of the work has been done as part of a campaign by the Blackpool and Fylde Green party, it is not an Official submission of The Green Party of England and Wales. This account offers a case that a fully commercial consideration of the exploitation of Shale gas reserves would be unacceptable to the UK, using as an example, an area of Lancashire that may be a commercial shale gas area, and has already seen the beginning of a proposed roll‐out of the industry in Europe . It offers an opportunity for the committee to consider alternatives that will prevent the human and environmental costs, before this industry becomes entrenched in the UK. Limitations of the Committee I urge members to carefully consider the limitations that the timeframe of the committee has placed them under. There is currently a Moratorium of Shale Gas in US states producing Shale Gas from the Marcellus Shale Field, these States include New York State and Pennsylvania. Written Submissions would not be possible in time to fully consider the findings from these State Investigations, but I urge members to study carefully the related documents on the website www.delawareriverwatcher.org This organisation conducts high quality research into the implications of the industry in these areas and particularly the Delaware River Basin. The quality of New York has been compromised as a result of the Shale Gas Industry. I would also like to remind the members that the Oil and Gas industry has very poor reputation for taking into account the public interest, and that business plans of current operators in the UK, for example Cuidrilla Resources Limited In the North West, depend completely on their ability to exploit UK and European Shale Gas Deposits [Attachments – ! and 2 Press release from major shareholder AJ Lucas – operations are only in Uk and Europe]. I also feel very restricted as, although I have given submissions to the DECC on shale gas, I was not contacted regarding the Inquiry until one week before close. I have made the point to the DECC that the SEA to the 14thOnshore Licensing round seriously downplays the risks and hazards and I would like to add that the extent of the areas covered by potential shale gas is misleading in their map provided as Shalegas productivity test programs are already well advanced in weeton (Preese Hall) and Singleton (Grange Road) which is South of the area suggested in their maps [Attachment5]. I suggest the committee seeks full information on the location of previous drilling which has shown gas samples in Shale as this would been likely to have been more extensive than the current production test sites. Risks and Hazards A good summary can be viewed at the Delaware River Keeper website location: http://www.delawareriverkeeper.org/resources/Factsheets/Drilling_and_Production.pdf
‐please submit this complete location. This states that 2 to 9 million gallons of water are needed for each well and that many harmful chemicals including arsenic and benzene are added to this water. The fluids used for drilling are also very harmful, and in great quantities due to multiple horizontal as well as vertical drilling each of up to one mile. [Attachment3‐ extract from above location] The extent of the public response to the Shale Gas Industry in the Eastern United States has been enormous and the Delaware River keeper organisation had at time of the press release concerned collected 8000 Letters including submissions from 1700 businesses affected, and has support from the New York Mayor. In Lancashire it has been reported that the Shale Gas field potentially reached from Blackpool to Pendle Hill, and in the DECC map includes the Forest of Bowland and extends to the West side of the Yorkshire Dales. This itself suggests a field of approximately 400 square miles, and on a purely commercial consideration would mean 100 gas wells extracting gas from a well 2 miles apart ( the approximate distance of the first three test wells in the Fylde). THIS IS A TINY PROPORTION OF THE POTENTIAL FIELD across the UK, . The main risk and source of public outcry in the US has been the contamination of drinking water. In Lancashire the aquifers used in drinking cover this likely area of drilling and in the AJ Lucas press release [Attachments – 1 and 2 Press release from major shareholder AJ Lucas – Preese Hall, Grange Hill, Singleton], appears to be in the location of the Aquifer [Attachment4 – Location of Groundwater Abstractions, including aquifers ] and Carbonate Rock. Purely commercial Interest would also mean many of the wells would be in the area of the aquifers. The committee should also consider the risk of extracting g 1 billion gallons of water from the surface water of the potential gas field in Lancashire. The routes to pollution are multiple, and include leakage from the well, spillage from the site and handling of thousands of gallons of liquid which flows back from the well after fracking. The control mechanisms cannot be relied upon alone. I would also urge the committee to seriously consider the long term risks of deterioration of control mechanisms of the vertical well linings meant to protect the well from leakage. When the liquid used for fracking leaks it has natural gas dissolved in it, this entering the water table has caused wells to explode and domestic water drawn from the aquifer to be inflammable and explosive. In 1990 there were still wells in Lancashire which may be still the main source of water a affected in this way. There is a need to dispose of the millions of gallons of highly toxic liquid flow‐back following fracking and the committee needs to consider the risks of inadequate numbers of treatment centres to process this waste, for example in Lancashire on the basis of using up to 1 billion gallons of water for fracking. Contamination of water supplies and Rivers would be considered disastrous. This is already a huge problem in New York State and Pennsylvania. The risk to locally produced food is serious. Contamination with the chemicals involved through any of the many routes of pollution will pose a threat to the farming and local food retail industry as well as the consumers.
The risk to wildlife and animals is huge. See attachment 6 – Non‐protected wildlife sites in Lancashire (1996). There is also a risk of a well blowout which in a reported case spewed out explosive gas and polluting liquid 75 feet into the air and onto the ground for 16 hours. The area around for one square mile had to be evacuated and flight routes diverted. Experiences in the Fylde Experiences in the Fylde of the first three production test sites (Weeton – Preese Hall, Singleton and Lytham Moss Anna’s Road) Cuadrilla Resources. Cuadrilla Resources Limited gives its postal address in Lichfield, Leicestershire, UK. AJLucas describe their activities as only in the UK and Europe and that this has been the first time they have carried out “true” shale gas extraction methods (attachments 1 and 2). At Weeton , Preese Hall, the drilling is through “Clitheroe Limestone”[Attachment1]whereas the Delaware River Keeper network wishes to ban drilling through” Karst Geology and Carbonate Rock”‐ I urge the committee to question Geologists on the significance of drilling through the rock quoted in the AJLucas press release e.g. to contamination of aquifers. The site is close to residences and also close (approximately 1 mile) to a busy railway line which would be at risk in the event of a “blowout”, previously referred to. [Attachment 13 – map of Preese Hall with respect to Weeton residences and railway line] At Singleton, the current site is flush and adjacent to a field of brassica crops, of the type used for human consumption, animal feed or retaining minerals into the soil. The field is downward sloping, so any of the dangerous chemicals used would flow down, in the event of a moderate spillage. Arsenic salts in released fracking fluids or a direct chemical spill, for example would be taken up and retained in these crops and either consumed or retained in the soil. Many of the chemicals used in fracking and drilling are very harmful. The planning permission for Singleton drilling does not include specific details of the chemicals used or any risk assessment, and no suggestion that they could be harmful. Fluids and storm water runoff from storage sites can run into the road. [See attachment 14 for written component of Cuadrilla account of operations] The Singleton planning permission states that the borehole passes through an important aquifer, the Sherwood Sandstone. The Cuadrilla site at Anna’s Road is on Lytham Moss, near the town of Lytham St Anne’s, and is an important ecological site bordering the Marton Mere wetlands. Swans rou tinely winter at the site, Great Crested Newts have been recorded only 220m from this site and a water body which “comprises potential great crested newt breeding habitat” is located approximately 220m to the south. Water voles have been recorded in the wider area. A chemical spill or other polluting event would easily contaminate the area of where these protected animals live and threaten the protected wetlands of Marton Mere, which hosts a Wildfowl and Wetlands Trust Centre. There are also many domestic animals, such as horses nearby and a popular animal sanctuary.
Extracting groundwater for the fracking would also threaten these wetland ecologies, and residents of Lytham St Anne’s have questioned the effect of reduced water table on the stability of their properties. Diversion of water courses is already taking place. Economic considerations In the 40 square miles of Lancashire I’ve considered, the farming and tourist industry are predominant. Millions of visitors enjoy the countryside and appreciate the wildlife that exists there. The Local food industry is important to the many restaurants and country hotels as well as the Northwest generally. The farming industry is struggling and a transition to shale gas a economy will lead to much higher rates of long term unemployment amongst its workers. The cost of the processes involved in fracking, disposal of waste and of infrastructure, including new roads and treatment centres, will add to energy prices and government expenditure, placing a burden on the economy. The reduction in land and house prices, in villages such as Singleton and Elswick in which properties are sought after and which dot the landscape of the area I’ve considered will fall, and I’ve attached a petition from Singleton Village residents which shows the very strong feeling against their local developments in the village. This petition was carried out over four days, at the start of which very few residents understood what the development was and was facilitated by networking through cascading through the village. Please understand that this was inadequate time to conduct a full petition, and that a proportion of villagers had an interest in the “Singleton Trust” land which would have been paid for, for the facilities built . Petitions (mostly residents and singleton school parents (where labelled)) are attachments 7 to 12 inclusively. Only a small part of the parish of Singleton (population 877, 2001 census) is included in the village itself. Alternatives The need for Shale gas as an energy resource is overstated by an industry that relies on this case. These resources are not renewable and will eventually be depleted leaving behind a highly questionable legacy. Gas resources are likely to be linked across Europe, and large‐scale gas storage in, for example, Morecambe Bay Gas fields would ensure a constant supply. The renewable energy industry can be expanded instead and investing in switching to this, rather than unconventional hydrocarbon extraction, can provide a large part of our future energy needs. Scientists made a presentation at the House of Commons in June 2009 arguing that an electricity “supergrid” across Europe and North Africa could solve the problem of the intermittency of wind turbines and solar power . [Ref: “Green “supergrid could plug Europe into renewable power by 2030, say scientists].
Memorandum submitted by No Hot Air (SG 20)
• My name is Nick Grealy. I have had almost twenty years experience in the UK Gas Industry dealing with all levels of Industrial and Commercial Gas Customer. • My employers have been London Total Gas, a JV between London Electricity and Total Gas Marketing, EnergyQuote a commercial consultancy and as Gas Buyer for the NHS Purchasing and Supply Agency, an agency of the Department of Health, responsible for purchasing gas for approximately 5,000 sites of the National Health Service in England • Since 2008 I have published a web site No Hot Air, originally aimed at advising I+C End Users on how to reduce energy costs. • In that capacity, at a time when Oil and Gas prices were at their peak, I first became aware in mid2008 of the sudden emergence of the shale gas phenomenon in North America. I immediately saw the potential impact of shale gas in creating a paradigm shift for energy globally. • I would define myself as an eco-pragmatist. I do not deny climate change science but feel that any hoax lies in how much we ask end-users to pay for it. • I come from an initial view that since energy use is unavoidable, it has an economic impact akin to taxes. At the same time, the cost of not acting on carbon reduction has potential for longer term costs that need also to be considered. • Although there are minimal differences between supplier rates, I strongly believe that the idea that competition between energy suppliers is pointless in a commodity based market. I advocate transparent solutions based directly on wholesale market indices that nudge end-users to act in their own best interests. • As such I believe that end-users should not have to struggle to get the best rate as in the current market structure which is based on confusing customers far more than helping them. • A key part of consumer confusion arises from the popular mis-conception that gas, and by extension power, is insecure as defined by volumes of actual supply and potential price volatility. • The sudden emergence, and what I and many other commentators call the future permanence of abundant natural gas via the shale revolution will be beneficial for almost everyone, while causing massive disruption to current UK energy policy. This disruption is likely to be overwhelmingly positive. • I have always approached the shale phenomenon from the viewpoint that it can be environmentally acceptable and affordable. There are no perfect magic bullet solutions to energy security and that includes natural gas. Gas is not a perfect low carbon solution. But shale promises to provided energy security as defined by both physical supply and affordability.
• UK energy policy, built as it is on the Energy White Paper of 2007, has an a priori assumption that natural gas is an insecure fuel as measured by the risk of finite supply and the connected implications for price volatility. • I strongly believe that emergence of shale gas means that fear of gas supplies not reaching the UK is groundless. • There are three basic reasons for this view : 1. shale gas causing a new reality in LNG supply 2. the potential for shale gas development in our near-neighbours 3. potential for development of substantial shale gas supplies on-shore UK.
• LNG: • The development of a global LNG market ran in parallel to the emergence of shale gas. But the long lead times involved in engineering and capex of LNG led to a distortion when initial USA shales were able to ramp up production in short periods and rapidly declining costs of exploiting it. • The LNG market was built on the expectation that the United States would join existing markets in Japan, Korea and Taiwan and an expansion in European, especially UK import capacity. • But the sudden wave of US and Canadian shale gas has meant that apart from arbitrage plays into the US North Eastern states during the winter peak, there is no longer any fundamental need for US imports. • Despite a recovery in Korean demand, and new supplies to Chinese, Indian and Brazilian markets, Asia is already very well supplied from existing suppliers in Indonesia, Australia, Malaysia and Brunei. • Qatar based it’s strategy of a massive run up to over 70 million tons of LNG capacity on filling the US and UK markets. The evaporation of US demand means that those supplies will have little option but to go to Europe. • Existing or proposed suppliers of LNG to the US also include Trinidad and Tobago, Nigeria, Equatorial Guinea and Egypt. • Those nations, along with Qatari cargoes, are now effectively cut out of the US market. The UK has imported very large volumes of LNG both for domestic use and for re-export to Europe. During winter 2009, Centrica shut in production at it’s Morecambe Bay field as it found spot imports were more competitively priced, even during the severe winter period of January 2010. • Spot LNG trade has led to a fraying of the oil/gas pricing link that many observers see as permanent and unavoidable going forward. The severe winter at both ends of 2010 saw this trend
moderate slightly, as European buyers were still buying spot gas at rates closer to oil indexed prices from Russia and Algeria. There are also short term issues surrounding LNG shipping capacity which are unlikely be permanent going forward. • The essential point is that even without any physical UK or European gas production, the UK’s energy security is positively affected by the revolution in LNG, which in turn is strongly influenced in the short term by shale resources • Observers who note that LNG makes the UK open to gyrations in global markets are technically correct, but not in practice. There is literally nowhere else for LNG to flow to except Europe. • Asian demand is mostly met by existing suppliers, and there is developing, but as yet insignificant Asian spot demand. • Asian demand is dominated by the mature markets of Japan, Korea and Taiwan. All three markets have limited potential to expand import needs so that new import sources from Australia, Qatar, Peru, Sakhalin (Russia) are already sufficient to satisfy import needs • The common view in commodities that Chinese and Indian demand is pushing up prices does not appear to be happening in LNG. Import capacity in both countries, while growing is still far less than the export capacity of Qatar and planned Australian LNG projects. • China will be the first market in Asia to have multiple sources of gas supply from domestic conventional and coal bed methane supply, LNG imports and pipeline imports from Turkmenistan today, Myanmar from 2012 and proposed Russian (Siberian) fields. LNG imports will therefore be just one part of the Chinese natural gas mix. It is unrealistic to assume that Chinese and Indian demand will have anything except short duration impacts on European imports and prices. • What is especially significant is how both China and India threaten to leapfrog Europe on shale gas production. Both countries are said to have massive shale resources and the political will to access them. The US State Department has been engaging countries worldwide with it’s Global Shale Gas Initiative. • The initiative is open to all countries and it would be useful if the Committee could ask the FCO how they have responded to the US initiative. • Shale gas development in China and India is already at least as advanced, if not further, than in Europe. The implications are that shale will at a minimum lessen their need for LNG imports, placing further pressure on prices and displacing LNG to other markets. • Schlumberger announced in January 2011 that their estimate of Indian shale resources stood at 300/2100 TCF, compared to the largest existing Indian gas resource of 8 TCF in an off shore field.
• Despite projected increases in LNG imports to Brazil and Argentina in 2010, the total volumes involved are still relatively small compared. Additionally, Argentina recently announced shale gas deposits officially put at 257 TCF or over 8 Trillion Cubic Meters. For comparison a find of that size is 100 years of present UK consumption. I am told off the record that the actual discovery is at least three times higher and it is instructive that Exxon Mobil announced exploration in an area next to the initial discovery. • Significantly, it now appears that North American shale production will be exported from 2014 onwards, providing perhaps a stronger link in the Atlantic Basin between Henry Hub and NBP prices. There have already been two cargoes re-exported from Louisiana to Texas during winter 2010/2011. • Naturally, to ensure European and UK energy security we must study the prospects for shale gas reserves in the European continent and the UK. • Such estimates are problematic at present. But it is reasonable to consider much of North America’s experience as at least analogous to Europe. Similarly, geologist estimates have been consistently cautious in the United States. The Marcellus Shale was estimated at being 15 TCF as recently as 2006, but present estimates point to over 500 TCF. • The best approach therefore for UK energy policy going forward would be one of wait and see. The speed at which shale is developing should mean that even a delay of little as one to two years is a far more prudent option that provides little risk. • The larger risk is of the UK locking itself into structures based on out-dated realities. • The sudden emergence of super giant gas fields in several North American locations has led to a true paradigm shift in that the key issue in North America is not supply but the creation of new demand to soak up the increased production. • North America uses coal as the dominant form of generation, but gas is now the cheaper option in many markets. Many NA observers also point to the potential for creating demand by replacing diesel with natural gas in the transportation sector. The freight sector is responsible for up to 40% of transportation related CO2. It is not unreasonable to expect that natural gas either in LNG or Compressed Natural Gas form can remove 10% of total transportation CO2. The associated costs will be far lower than those for the development of electric vehicles and the time frame would be far shorter. NGV use will also lead to lower transportation costs and significant improvements in air quality as LNG emissions contain no particulates or SO2 as contained in oil. • The immense size of the US gas resource is leading many observers to feel that even if with increased generation and transportation demand, there will still be very large quantities remaining for export. The case of Canada is instructive as almost 60% of natural gas production is exported to the USA. The emergence of US shale plays means that the US no longer needs Canadian
imports to meet demand. Canada is already advanced in planning exports from Horn River and Montney Shales of Alberta and British Columbia to Asian markets via a terminal at Kitimat BC originally intended to import LNG. • The key issue going forward for natural gas is not managing supply, but creating demand. • Using clean-burning natural gas as partial, but immediate, solution to contemporary energy problems, is a forward step, not a retrograde move. The substantial difference in fossil fuels between natural gas, coal and oil needs to be better communicated. • Natural gas can provide currently viable, scalable, affordable and significant but partial decarbonization of the electric generation sector. • We must be realistic: Other technologies aim for a full decarbonization at some point several decades away. Is it wise to bet on technology today for 2050? • The greater environmental risks are likely to be those associated with not developing shale resources. • Similarly, the greater economic risks of shale increasingly appear those associated with not developing shale resources. • Shale gas has the potential to reduce energy costs during a time when global stimulus is again becoming necessary. • Lower energy costs reach consumers and industry far quicker than tax or regulatory changes can. • Lower energy costs serve the same purpose in stimulating economic growth or consumer demand as direct government expenditure or quantitative easing. They do so at no cost to taxpayers while reducing government expenditure through lower energy costs in government energy estate. • Europe in general and the UK in particular risk being marginalised as China and India embrace shale gas potential as other nations deny it. • Regulation is to be welcomed and will not add any significant costs to shale extraction. It ultimately helps the shale process by encouraging innovation and removes both risk and bad actors from the industry. • Full decarbonization technologies are either unproven or expensive. They all have significant externalities. Do they work? Are they affordable? Do they provide a permanent fix for the problem? Do they simply grandfather waste and storage issues onto future generations? We risk making an expensive bet today on technology that might well be the electric typewriter, fax machine or videocassette of the future. • It will be an expensive assumption that the oil/price link will continue simply because of history. Shale gas changes history. • Should future hopes ignore currently available and cheaper options that, while they do not offer permanent solutions, will deliver partial solutions in much shorter time frames? Delaying partial de-carbonization also makes the cumulative impact of carbon more problematic still in 2050. • Environmental challenges should not be confused with obstacles. We think that the natural gas industry can meet the environmental challenges introduced by shale gas. It has considerable incentive to do so. • Community engagement will be key, as it is in any business. Fears have to be allayed for as large a part of the populace as possible, but community engagement means starting at the top and influencing government policy at the highest levels.
• Shale is a lot bigger than a narrow energy issue, it is a macro economic issue with significant government revenue and job creation potential. • Gas is now a global market. Local issues in the UK or any other market are mostly irrelevant or short lived structural matters that cannot distract from the overall influence of global drivers. • In the longer term, the influence of world markets may even fade as both natural gas and renewable energy become localised. • The new method of natural gas extraction, can, with sufficient oversight, be replicated globally. • In a global market, it is of declining relevance where natural gas comes from. • A new paradigm is being simultaneously created: Local energy is by definition sustainable energy. • Diversity of supply is security of supply. A diverse supply gives no one supplier a dominant position that can be abused. • Much initial exploration is, and has been, going on under the radar. That shouldn’t be confused with inaction. • Security of supply issues have evaporated in North America, and the potential exists for similar affects globally in as little as five to fifteen years. • Today, I think we see a moderate risk of price spikes for the period 2014 onwards, but feel optimistic that even a year from now some of the issues will have been resolved positively. Absolutely no one yet knows with any certainty what will happen in 2014/2020. One thing we feel fairly sure about is that long term investment based on negative sentiment over rising power or gas prices is to be avoided. Paybacks should be calculated on a combination of rising network costs but lower commodity costs framed within a matrix of efficiently managed demand. • The post 2020 era promises to be one of the most transformative energy events since the initial major oil discoveries in Texas and the Middle East a hundred years ago. Natural gas can provide valuable breathing space as a bridge fuel to a low/no carbon future • I would summarise my views as we must have an energy policy based on the facts, and as Keynes noted, when the facts change, we must change our minds. • Finally, natural gas cannot provide a perfect solution. But we cannot currently afford to make the perfect solution of no carbon at all the enemy of the good solution of secure, significant ,affordable and scalable carbon reductions through increased use of natural gas.
Memorandum submitted by Friends of the Earth (SG 21)
Friends of the Earth primarily approaches the question of whether shale gas is a good or bad energy supply option to exploit from a climate change perspective, although we recognise that there are other important considerations, such as groundwater pollution from the chemicals associated with hydraulic fracturing. In December we published research i into global carbon budgets that identified that 1100 GtCO2e is the size of a global carbon budgets for a 70 per cent chance of avoiding a global average temperature increase of 2 degrees or more. If this budget is to be shared equally between nations based on average population between now and 2050 then the UK would need to reduce emissions by 80 per cent by 2030 from 1990 levels, the EU by 83 per cent and the USA by 95 per cent. China would need to peak its emissions by 2013 and then decline by 5 per cent per annum. These reductions rates assume no ‘negative emissions’ or other geoengineering techniques are deployed, which is clearly an issue for debate. The implication of our research is that we need a very fast transition away from a fossil fuel based economy towards a low carbon economy. It is within this context that we judge the utility or otherwise of shale gas. We are aware from research by Chatham House that there are in theory very substantial reserves of shale gas, far greater than conventional gas ii . Although the majority of this is in North America, Middle‐East and China the quantities in Western Europe are not insignificant and may be greater than proven reserves of conventional gas. As the Chatham House report makes clear, shale gas has the potential to be a ‘game changer’ by opening up huge new sources of gas but whether and how much of the potential can be realised is not yet clear. Friends of the Earth has concerns about the exploitation of these resources. • Large amounts of shale gas could undermine investment in renewable energy in the UK and elsewhere. The UK has a 2020 target for renewable energy but no targets after 2020. Investors could be very nervous of investing significant money in offshore wind or other renewable power projects if it is not clear that there will be a guaranteed market for the energy after 2020. The Government’s draft National Policy Statements say there is only need for 18 GW of new non‐renewable capacity. But there is however at least 14 GW of new gas either with consent, being built or in the pre‐Infrastructure Planning Control (IPC) regime. On top of that there is already 20 GW of gas and nuclear applications in the current IPC system. This is 34 GW ‐ way over the “needed” 18 GW, and a potential massive over‐supply, which is likely
to come at the expense of renewables. Gas is already threatening renewables investment, even before shale gas is considered. If the Government intends renewable energy to play a significant role in meeting its Climate Change Act obligations, and if it wants to build a world leading marine renewables industry, then it needs to set out clear expectations for offshore wind and other renewables over the next 30 years, and clear policies to ensure it is not swamped by investment in other types of capacity. It also needs to put in place the appropriate long‐term support framework to enable investor confidence. A well‐funded Green Investment Bank is a clear priority. Friends of the Earth recognises that available data suggests that the carbon footprint of shale gas is smaller than that of coal used in electricity production, although it is higher than that of conventional gas iii . Therefore if shale gas was to displace existing coal electricity generation then there would be a net carbon reduction. However, as some coal is being displaced anyway via the LCPD, new shale gas would more than likely be displacing other types of electricity generation such as renewables. The emissions reduction rates required to meet the Climate Change Act are very significant. The Committee on Climate Change has suggested that the carbon intensity of electricity generation should be reduced to 50gC02/KWh. The Government has said that any emissions performance standard would apply to coal‐fired power stations and not to gas. Without a clear policy requirement to achieve the 50gCO2/KWh target there is a risk that shale gas exploitation could lead to the development of many more gas‐fired power plants and jeopardise the meeting of the target recommended by the Committee on Climate Change.
Friends of the Earth therefore recommends that the Government put in place the following policies before any shale gas projects are considered: Within its National Policy Statements: • • • • Accept the Committee on Climate Change recommendation that electricity generation by 2030 must have a carbon intensity of no greater than 50gCO2/KWh Set a limit for GW of consented new fossil fuel‐fired generation compatible with this target Provide a clear expectations for renewable energy generation in 2025, 2030 and 2040, Rule out all new coal‐fired power stations regardless of whether they have CCS, and set a date for the closure of existing plant.
Within its Market Reform work: • • Put the 2030 decarbonisation target centre‐stage Put in place the appropriate long‐term support framework to build investor confidence in renewables
Put in place a stronger Emissions Performance Standard to cover gas‐fired power plants at a date necessary to achieve the 50gCO2/KWh target.
Once these policy measures are clear then the role of gas in future energy needs will be clearer. Shale gas should only be part of the supply if need is clearly proven and if extraction can meet high environmental standards, such as no contamination of groundwater and low local environmental impacts. Until then there should be a presumption against shale gas exploitation.
Friends of the Earth (2010), Reckless Gamblers: how politicians’ inaction is ramping up the risk of dangerous climate change ii Stevens (2010), The shale gas revolution: hype or reality, Chatham House iii Tyndall Centre, University of Manchester (2011), Shale gas, a provisional assessment of climate change and environmental impacts.
Memorandum submitted by WWF-UK (SG 22) Executive Summary WWF-UK welcomes the opportunity to respond to the Energy and Climate Change Committee’s enquiry into shale gas. There is evidence that there are a number of serious environmental and health risks associated with shale gas production the most serious of which is the potential for contamination of groundwater sources, currently the subject of a US Environmental Protection Agency enquiry. Other notable environmental concerns include air pollution, spillage of hazardous substances, treatment and disposal of waste water, water consumption, well blowouts, noise and traffic. For these reasons WWF-UK is opposed to the production of shale gas in the UK. At the very least, given the current lack of understanding of the environmental risks and hazards associated with shale gas, WWF considers that no shale gas related activity should be undertaken until there is a robust scientific consensus demonstrating exactly what the risks are and what, if any, practices may be adopted to minimise hazards associated with shale gas, drilling and hydraulic fracturing. Climate change targets To stand a chance of reducing global greenhouse gas emissions to a level which is likely to limit global climate change to 2ºC or below, and retain some possibility of limiting temperature increases to 1.5 ºC, global emissions must be reduced by 80% compared to 1990 levels by 2050. To have any chance of achieving this goal, the majority of the world’s fossil fuel reserves need to stay in the ground. From a climate change perspective, whilst it makes sense to burn lower carbon fuels such as gas, rather than coal, this argument is only valid where there is evidence that gas is being used as a direct substitution, not in addition, to coal. At the UK level, we have a climate change act which commits us to at least an 80% reduction of greenhouse gas emissions by 2050. The Committee on Climate Change recently recommended that the UK’s power generation should be largely decarbonised by 2030 1 . Any new ‘dash for gas’ driven by the shale gas boom could seriously undermine the UK’s ability to meet these targets and risks undermining investment in renewable energy both for power generation and heat. Gas and affordability Several analysts have demonstrated that the reason that gas prices are currently low is that the increase in shale gas production has surprised investors and led to an oversupply of gas. There is strong evidence that although gas prices are currently low they are unlikely to remain at their present levels and that far from representing ‘a new era of cheap gas’ the impact of shale gas on global markets is one of uncertainty. With this in mind future gas prices may damage, as opposed to enhance, affordability for UK energy consumers. Prospects for shale gas in the UK and Europe A recent paper by Florence Gény of the Oxford Institute for Energy Studies analyses the market conditions in the US and Europe and concludes that there are limited prospects
for significant production of shale gas in the UK or Europe, given the very different conditions to those prevailing in the United States. These differences include geological differences between US and European shales, water supply constraints and protection, spatial constraints linked to population density and site protection 2 . Environmental concerns are also having serious impacts on shale gas in the US with a moratorium on gas drilling currently in force in New York State. Risks of uncertainty in gas markets driven by the shale boom, coupled with Gény’s assessment that there are limited prospects for shale gas in the UK or Europe, particularly in the short term, call into question arguments that shale gas can enhance UK security of supply. Additional greenhouse gas emissions Finally, although the recent Tyndall Centre report 3 is a significant contribution to the debate on greenhouse gas emissions resulting from shale gas, more research, including the issue of methane leakage from wells is required. Question 1: What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources? A recently published in depth analysis by Florence Gény 4 of the Oxford Institute for Energy Studies, which was published in December 2010, looks specifically at the potential for unconventional sources of gas, particularly shale gas, in the US and Europe. The report suggests that the numerous conditions that have allowed shale gas production in the US to prosper are not present in Europe or the UK. Even in the event of significant legislative changes in favour of shale gas, a move which WWF would oppose, Gény does not believe that any ‘game changing’ quantity of shale gas will be produced in Europe before 2020. Gény states that: ‘Each of the conditions behind the success of unconventional gas in the US, encounters different conditions in Europe...geological differences between US and European shales, water supply constraints and protection, spatial constraints linked to population density and site protection 5 ’ Furthermore, Gény estimates that finding and development costs in Europe are in the region of 2-3 times higher than the US 6 . The UK has a population density which is eight times that of the US 7 and limited land availability which combined with the differences described above indicate that domestic shale gas is unlikely to be able to compete with imports in the foreseeable future. There has been very limited geological investigation of the UK’s shale gas resources. Where shale exists there is significant uncertainty relating to its suitability for the hydraulic fracturing process due to wide variations in the geological properties of the rock. We examine some of these constraints in more detail below.
http://www.theccc.org.uk/reports/fourth-carbon-budget Tyndall Centre. Wood, R. Gilbert, P. Sharmina, M. Anderson, K. Footitt, Glynn, S. Nicholls, F. A. Shale Gas: A provisional assessment of climate change and environmental impacts. Commissioned by the Co-operative Group. http://www.tyndall.ac.uk/shalegasreport 4 Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, 5 Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, page 100 6 Ibid, 7 US average population density according to Wikipedia (see link below) is 32 persons per km2 whilst UK average population density is 255 persons per km2. http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_population_density
Environmental impacts, regulation and costs The environmental impact of shale gas exploitation is subject to increasing scrutiny from the public, regulators and academics in the US and Canada (a development which WWF welcomes) where the industry has up until now been subject to very limited environmental regulation. Gény’s report estimates that the cost of environmental compliance in the US, even without stricter environmental regulations, is set to increase production costs by 5-7% 8 . Any shale gas production in Europe will be subject to Europe’s environmental and health and safety regulations which are more advanced than those in the US and compliance will therefore mean that production costs are higher than those in the US. The shale gas production process is also very water intensive. According to Gény, the cost of water in Europe is ten times higher than in the US and on a per capita basis, the US has 3 times more fresh water resources than in Europe. We discuss environmental concerns in more depth in our response to the question about environmental risks and hazards. Land use and population density Shale gas requires relatively large amounts of land with spacing of approximately 3.1 wells per km² 9 . Concentrations of shale gas are far lower at around 0.2-3.2 billion cubic metres per km² compared to conventional gas with a concentration of 2-5 bcm per km² requiring more wells to be drilled 10 . A recently published report by the Tyndall Centre estimates that 2580-3000 wells would be required to produce 9bcm (billion cubic metres) per year of gas from shale 11 . Shale wells peak early and then deplete more rapidly than conventional gas wells 12 ’. Therefore maintaining a significant volume of production would require regular drilling of new wells spaced over large areas of land. For each well drilled it would be necessary to build appropriate transport infrastructure and storage pits (discussed in our response to question 3). Whilst the US has vast amounts of sparsely populated land, the UK by contrast is small, densely populated and has many areas of protected land. Given the many potential negative environmental effects of shale gas, which are of concern to WWF, it would be reasonable to anticipate significant resistance from local communities. Supply chain According to Gény there is ‘currently close to no fracking expertise nor manufacturing capacity in Europe...relying on international service providers will likely be the solution of choice’ 13 . Therefore, it seems likely that any shale gas production in the UK will rely on importing both labour and equipment from overseas, probably the US, given its position as market leader. This is in stark contrast with the potential economic and job creation benefits, which low-carbon technologies such as marine renewables could bring to the UK as highlighted by the Committee on Climate Change (CCC) in its
Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, page 44 9 Ibid p66 10 IEA, 2009, World Energy Outlook (Paris:International Energy Agency) 11 http://www.tyndall.ac.uk/shalegasreport p70 430-500 well pads would be required to deliver 9bcm per year of shale gas. We have assumed 6 wells per pad – the figure used in the report. 12 Stevens, P. 2010. The ‘Shale Gas Revolution’ Hype and Reality. Chatham House. 13 Geny see 6 p96
Building a Low Carbon Economy report 14 . We discuss this point further in our response to question 1 of the ECC enquiry on the Electricity market reform. To conclude, as the CEO of Cuadrilla Resources admitted in a recent ENDs report 15 article ‘there is no chance of a shale gas rush in Europe over the next few years’. Gény adds in the conclusion to her report that ‘Europe cannot replicate much of the American model’ 16 . This casts strong doubt on any speculation that shale gas may increase UK energy security or may play a ‘bridging’ role as the in the decarbonisation of the UK and EU power sectors. Question 2: What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
Overview For there to be a reasonable chance of global temperature increases not exceeding 2 degrees Celsius and some possibility that they may remain below 1.5 degrees, global greenhouse gas (GHG) emissions need to fall by 80% relative to 1990 levels by 2050. From a climate change perspective whilst it makes sense to burn lower carbon fuels such as gas, rather than coal, this argument is only valid where there is evidence that gas is being used as a direct substitution, not in addition, to coal and also as part of a clear plan to substantially reduce the power sector’s overall dependence on fossil fuels. There is a risk that the lower emissions argument is used to mask the fact that increased supplies of gas from shale result in a net increase in global emissions and serve to undermine the much needed transition to renewables. The majority of the world’s fossil fuel reserves need to stay in the ground if we are to avoid catastrophic climate change. In the UK context, the 2008 Climate Change Act commits the UK to at least an 80% reduction in domestic GHG emissions by 2050. The CCC, tasked with setting out recommendations on carbon budgets, recommends in its 4th budget report that the UK power sector should be close to decarbonised by 2030 with an average carbon intensity of 50gCO2/kWh compared to approximately 500gCO2/kwh today. 17 The same report also advises that to be on track to meet the 2050 target, GHG emissions should be 60% below 1990 levels by 2030. To achieve its targets, the UK needs to reduce its dependence on both gas and coal and move towards rapid decarbonisation of the power sector. Shale gas, prices and global markets A key focus for UK energy policy should be to deliver a near-decarbonised power sector over the next 20 years, whilst ensuring continued security of supply in a way that minimises increases to consumer bills. There is strong evidence, which we outline below, that uncertainty over the future contribution of shale to global gas supplies may threaten UK security of supply and lead to significantly higher and fluctuating gas prices. There has recently been speculation that the world may be entering a new era of cheap gas due to the US ‘shale’ revolution. We have seen a delinking of oil and gas prices for
http://hmccc.s3.amazonaws.com/CCC_Low-Carbon_web_August%202010.pdf page 15 http://www.endsreport.com/26207 16 Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? 17 http://www.theccc.org.uk/reports/fourth-carbon-budget different figures exist for the current carbon intensity of UK electricity generation. This is a mid point of the various estimates.
the first time in decades. Gas prices are therefore currently relatively low due to a combination of unforeseen rapid expansion in US shale gas production and overinvestment in Liquid Natural Gas (LNG) and other conventional gas capacity. There is however, strong evidence that current low gas prices may be temporary and therefore any second ‘dash for gas’ could harm not only the UK’s prospects for meeting climate change targets but also affordability and potentially security of supply. For example, in a 2010 Chatham House report, Paul Stevens notes that ‘given investor uncertainty, investment in future gas supplies will be lower than would have been required had the shale gas revolution not happened…if it fails to deliver on current expectations…in ten years or so gas supplies will face serious constraints’ 18 . Stevens then expresses doubt over whether the shale gas ‘revolution’ can spread beyond the US, or even be maintained within it. Furthermore, even if shale gas production does expand it is highly unlikely that gas prices will remain low. Frank Harris of Wood Mackenzie is recently quoted in The Economist 19 saying that some of the downward pressure on price will ease. ‘Despite sedate growth, the LNG glut should dissipate, probably by 2014, says Mr Harris; and low prices will kill more projects, clearing the inventory’. This is echoed in Gény’s report where she says that ‘we believe it is only a question of time before costs drive up prices or drilling slows down significantly and production falls’ 20 . Gas prices therefore appear to be low, because the increase in shale gas production has surprised investors and led to an oversupply of gas. Therefore as the market corrects itself prices are likely to rise, possibly leading to a shortage of gas. Policy implications and recommendations Given the impacts of shale on gas markets described above, and the doubts raised in our response to the previous question regarding limited prospects for shale gas in the UK, it is clear that any expectation that shale gas will necessarily enhance UK security of gas supply or guarantee lower prices for consumers is seriously flawed. As highlighted throughout this paper any change to UK energy policy due to either temporary low gas prices or future shale gas production in the UK would be extremely risky and probably delay investment in low carbon technologies. This could risk damaging the UK’s ability to meet its climate change and energy security targets. The UK government has recognised that the current structure of the UK’s energy market is not fit for purpose if the UK is to substantially decarbonise its power sector, which has led to the current Electricity Market Reform (EMR) consultation. WWF-UK is strongly of the view that the principal purpose of the EMR should be to deliver a near-decarbonised power sector by 2030. The EMR should aim to deliver this objective in the most environmentally sustainable way possible, by relying as much as possible on sources of energy that have the fewest environmental side effects, such as renewables. Whilst the CO2 emissions from burning natural gas from shale are almost certainly 21 lower than those from coal, the average emissions from a new gas CCGT power station are around eight times higher than the CCC’s recommended target of 50gCO2/kWh by 2030 22 . Any new gas power stations built today will continue to run for around 25-30
http://www.chathamhouse.org.uk/files/17317_r_0910stevens.pdf http://www.economist.com/node/15661889 20 Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, 21 we have addressed this point more thoroughly below 22 http://www.theccc.org.uk/reports/fourth-carbon-budget
years. Whilst WWF accepts that some gas generation will be required as flexible back up to the UK’s power system in the future and that some gas with CCS may be part of the supply mix, we are concerned that future large discoveries of shale gas could have the impact of delaying investment in areas where it is really needed, in particular marine renewables, co-ordinated grid, energy efficiency and interconnection infrastructure. Question 3: What are the risks and hazards associated with drilling for shale gas? There are many negative environmental impacts and serious health and safety concerns associated with shale gas production. Due to the rapid expansion of the shale gas industry in the US and Canada, against a backdrop of weak environmental regulation, many implications are currently poorly understood, carry huge risk and require significant further investigation. Contamination There is strong evidence that shale gas production can cause contamination of water sources such as aquifers. Aquifers provide 30% of the UK’s water and significantly more than this in the south east 23 . This contamination is mainly from methane but there are also serious concerns about the other substances and chemicals (including known carcinogens such as benzene 24 ) used in the fracking process. Some in industry claim that contamination is not possible because shale gas drilling takes place beneath the deepest fresh water zones and special casing in the drill hole is used to isolate fresh water zones from contamination 25 . However, there is a substantial and growing body of evidence to indicate that contamination is occurring and that it is caused by the drilling and fracking processes. According to Abrahm Lustgarten of ProPublica ‘more than 1,000 cases of contamination have been documented by courts and state and local governments in Colorado, New Mexico, Alabama, Ohio and Pennsylvania’ 26 . These are only five of the many states where shale gas production is currently underway. There are several ways in which it is thought that contamination may occur. Whilst it is not possible to go into much detail here, there is evidence that the drilling process itself, inadequate casing of drill holes, unintended ‘communication’ between separate wells (where fracking fluids from one well have shown up in another up to 715m away 27 ) and pathways opened up through the fracking process which join up with natural cracks in the rock are all potential sources of contamination. Anthony Ingraffea, a professor of civil and environmental engineering at Cornell University and a member of the Cornell Fracture Group, is quoted in a paper by Ben Parfitt saying that ‘it is possible that the fracking process could open up a pathway upwards to freshwater...it is not right to say that thousands of feet of impermeable rock between where the shale formation is fracked and points higher up prevents such an occurrence’ 28 . As a result of growing concern about contamination and public opposition to shale gas, the US Environmental Protection Agency is currently investigating the links between hydraulic fracturing, drinking water quality and potential impacts on public health to
http://www.waterbank.com/Newsletters/nws17.html Parfitt, B. 2010. Fracture Lines: Will Canada’s water be protected in the rush to develop shale gas? 25 Ibid 26 Lustgarten, Abrahm. November 13, 2008. ‘Buried Sectrits:Is Natural Gas Drilling Endangering U.S. Water Supplies?’ ProPublica.. 27 http://www.ogc.gov.bc.ca/document.aspx?documentID=808&type=.pdf 28 Parfitt, B. 2010. Fracture Lines: Will Canada’s water be protected in the rush to develop shale gas?
inform potential new regulations. The results of this study are due in 2012. In addition, draft legislation called the FRAC act has been proposed to congress. Well Blowouts According to Gény 29 , there have been two recent consecutive well blowouts in the Marcellus shale area in the US. One such incident occurred in Clearfield County, Pennsylvania at a well operated by EOG Resources Inc where natural gas and drilling fluids were shot 23 metres into the air 30 . Water Consumption Shale gas production is known to be very water intensive. Estimates for the volume of water required from start to finish of the fracking operation vary significantly probably due to lack of reliable data and differences in depth and geology of shale plays. For example an estimate in Parfitt’s paper states that hydraulic fracturing of 10 shale gas wells requires circa 910,000 cubic metres of water which equates to 91,000m³ per well 31 . However, according to the recent Tyndall Centre report ‘the entire multi-stage fracturing operation for a single well requires around 9,000-29,000m³’ 32 . More research is needed on the actual quantities required and the impact of site specific variables on final water requirement. According to the Environment Agency’s Catchment Abstraction Management Strategies (CAMS) ‘there are considerable pressures on water resources throughout England and Wales’ 33 . Disposal and Treatment of fracture fluids Of the large volume of water used in the fracking process around 60% ‘flows-back’ (although flow back rates appear to vary significantly) as contaminated wastewater which must be disposed of. This wastewater is highly saline with a high mineral content and is contaminated with chemicals used in the fracking process, including known carcinogens in the US context, and heavy metals 34 . Assuming Gény’s figure that c91,000 cubic metres of water are required for each well this equates to around 54,600 cubic metres of wastewater per well. It is possible to recycle wastewater and should shale gas production take place in the UK this should be mandatory. Like the actual drilling and fracking process, wastewater has been linked to incidents of water contamination 35 . The treatment and disposal of this contaminated wastewater is a contentious issue. Wastewater is usually stored in open pits or tanks prior to treatment. Gény states that ‘Because of the large quantities of waste to be handled, the risks of contaminating surface water and soil during storage, transport and
Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, 30 http://www.businessweek.com/news/2010-06-07/shale-gas-well-blowout-raises-specter-of-new-bp-energymarkets.html 31 Parfitt, B. 2010. Fracture Lines: Will Canada’s water be protected in the rush to develop shale gas? http://www.powi.ca/pdfs/groundwater/Fracture%20Lines_English_Oct14Release.pdf quoting a presentation to the sixth annual shale gas conference in Calgary, Alberta in January 2010, by Ken Campbell, a professional geologist and senior hydrologist with Schlumberger Water Services. 32 http://www.tyndall.ac.uk/shalegasreport p21 33 http://publications.environment-agency.gov.uk/pdf/GEHO1208BPAS-e-e.pdf 34 Parfitt, B. 2010. Fracture Lines: Will Canada’s water be protected in the rush to develop shale gas? http://www.powi.ca/pdfs/groundwater/Fracture%20Lines_English_Oct14Release.pdf quoting Lee Shanks of the British Columbia Oil and Gas Commission. 35 Parfitt, B. 2010. Fracture Lines: Will Canada’s water be protected in the rush to develop shale gas?
disposal are very high 36 ’. Concerns have also been expressed in the US over contaminated wastewater being sent to municipal facilities. According to the website for the shale gas documentary Gaslands, whilst the wastewater is being stored in pits or tanks, Volatile Organic Compounds (VOCs), a known health risk, are ‘evaporated’. ‘As the VOCs are evaporated and come into contact with diesel exhaust from trucks and generators at the well site, ground level ozone is produced. Ozone plumes can travel up to 250 miles 37 ’. The transportation of such large volumes of water requiring treatment also puts additional strain on local infrastructure. Infrastructure and impacts on local communities The drilling process requires large volumes of water, sand and chemicals as well as heavy industrial equipment to be transported to the site. Waste products such as drilling mud and wastewater much of which is likely to be classed as hazardous waste 38 will then need to be removed. Wells are often arranged in ‘pads’ of 6 wells grouped together. Each well will therefore require access roads to be built placing unforeseen demands on local transport infrastructure. The Tyndall Centre’s report demonstrates that 4,315-6,590 truck journeys to each well pad will be required in the pre-production phase, of which 90% are associated with the fracking process 39 . Noise pollution is also likely to be an issue both from trucks travelling to and from the site and pre-production activities, which the Tyndall Centre report indicates could be expected to last 500-1500 days, including several weeks of 24 hour drilling per well, for each 6 well pad 40 . The UK is far more densely populated than North America. Even without taking into account possible contamination issues, shale gas production is clearly likely to be highly disruptive to local communities and have a negative impact on local roads, buildings adjacent to access roads, noise levels and air quality. Regulation UK and EU regulation of the oil and gas industries is more stringent than that of the US. However, according to a recent ENDS report article fracking is not mentioned in UK regulations. A spokesperson from the Environment Agency told WWF that ‘the Environment Agency is currently developing policy at the national level on shale gas permitting’ and that ‘fracking’ will probably not be able to go ahead without a permit’. It is clear that there are significant risks associated with allowing any shale gas production to take place in the UK. Large scale shale gas production has been allowed to take place in the US prior to any impartial research over its impacts on human health and the surrounding environment being conducted. New York State has recently imposed a moratorium on any new drilling of shale gas wells pending the outcome of the current US EPA investigation. There is therefore considerable uncertainty as to the full extent of the environmental impact of shale gas exploration in the US. Conclusion
Geny, F. 2010 Can Unconventional Gas be a Game Changer in European Gas Markets? http://www.oxfordenergy.org/pdfs/NG46.pdf, 37 http://www.gaslandthemovie.com/whats-fracking/ 38 http://www.tyndall.ac.uk/shalegasreport P58 39 Ibid p24 and p70 40 Ibid p23 and 70
Taking into account all the environmental impacts described above WWF does not believe that shale gas production should be allowed to take place in the UK. At the very least, WWF considers that no permits should be granted for shale gas activity in the UK until there is a robust scientific consensus demonstrating exactly what the risks are and what, if any, practices may be adopted to minimise hazards associated with shale gas, drilling and hydraulic fracturing.
Question 4: How does the carbon footprint of shale gas compare to other fossil fuels? There is very limited publicly available information on the carbon footprint of shale gas in relation to other fossil fuels. Emissions may be higher than those associated with conventional gas due to methane leakage or the additional energy requirements of unconventional sources of gas such as shale. It is therefore important to take into account the full lifecycle emissions of the use of shale gas before drawing any conclusions as to its carbon intensity. The Tyndall report estimates additional carbon footprint of shale gas and production and draws the conclusion that additional emissions would be around 0.2-2.9% higher than those associated with gas from conventional sources. However, it is highlighted that the impact of fugitive emissions, for example leakage of methane gas during production, were not taken into account in this estimate41 . This is significant because these emissions are cited in a preliminary review paper by Robert Howarth which suggests that there is approximately a 1.5% methane leakage rate for the oil and gas industry and that therefore emissions from coal may be similar to those from natural gas 42 . Howarth’s is only a preliminary paper which has not been peer reviewed but it highlights the urgent need for a comprehensive assessment of the full range of emissions of greenhouse gases from using natural gas obtained by ‘hydrofracking’. Clearly, this information must be independent and subject to unbiased peer review. January 2011
http://www.tyndall.ac.uk/shalegasreport P73 Howarth, Robert W. 2010. Preliminary Assessment of the Greenhouse Gas Emissions from Natural Gas obtained by Hydraulic Fracturing.
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