2015 is shaping up to be a crucially important year for the fledgling UK shale gas industry. There has been no hydraulically fractured shale gas well drilled since 2011 when Cuadrilla drilled the Preese Hall Well resulting in the much publicised minor induced earth tremors. To date, the UK has not seen one horizontally fractured well and as a result no flow testing. So we really are at the start of the shale gas journey.
The significant commercial and political interest is of course driven by the British Geological Survey assessment of Bowland Shale Gas resource which, in the reported mid case, estimated 1329 trillion cubic feet (tcf) of gas in place, a world class resource. Of course only a small fraction of this gas will be producible (and ultimately termed as ‘reserves’) but the scale of the resource is impressive.
Bearing in mind that the UK consumes just under 3 tcf of gas per year, it is clear that even if only 5% of the resource can be produced, that would equate to 66tcf or 22 years' supply. Of course shale gas would be part of a gas supply portfolio including indigenous production and imports so the shale gas industry could be with us for several generations. However, there is significant opposition to shale gas development in the UK.
Shale gas development requires careful environmental and community management reflecting risks of water, soil and air pollution as well as community impacts such as increased traffic management at some development phases. In order to mitigate against these risks, the UK has a complex and multi-agency regulatory process involving inter alia the Environment Agency, The Health and Safety Executive, the local Minerals Planning Authority (MPA), DECC and possibly the Coal Authority. UK operators realistically need to complete Environmental Risk Assessments (ERA) and Environmental Impact Assessments (EIA) in order to gain MPA consent and perhaps more importantly need to develop and maintain an effective community engagement process in order to achieve the most difficult ‘licence’; the Social Licence to Operate (SLTO) All three major UK political parties are in general supporting shale gas development.
The much-debated Infrastructure Bill, currently at Committee stage in the House of Commons has highlighted some disparity; the Labour Party added additional amendments to their proposed eleven amendments reflecting a more cautious approach to shale gas development1,2Unlike the USA where land ownership generally confers ownership of below ground resources, UK oil and gas is owned by the state with operators requiring a licence to produce oil and gas. Onshore licencing is nothing new in the UK; the Department of Energy and Climate Control (DECC) is currently assessing the bids for the 14th onshore oil and gas licensing round which closed on October 28th last year.
DECC have told me that they received 95 applications for 295 blocks. DECC have also indicated that they will be ‘ready’ to announce the successful applicants later this month although it remains to be seen what political influences may be brought to bear as we approach the May General election. The current Parliament dissolves on March 30th so unless the 14th Round awards are made before this, there will inevitably be a delay of several months as the new government policy is formulated and agreed. The pressure is on.
Meanwhile Cuadrilla, in many ways the ‘pioneer’ shale gas developer in the UK, awaits the outcome of the Lancashire County Council review of its applications to drill, fracture and flow test up to four wells at both its Preston New Road and Roseacre Wood sites in Lancashire. The applications relating to the Preston New Road site are scheduled to be decided at a meeting on 28th January. The applications relating to the Roseacre Wood site are scheduled to be decided on 29th January. The council's planners have been working since the applications were received in June to consult with the public and other statutory agencies, and assess the applications, to ensure all the information needed to determine them is put before the Development Control Committee2. There is no doubt that the decision of Lancashire County Council is critically important in shaping the pace of development in the UK. IGas plan to drill 2 wells in 20153 subject to planning consent.
So 2015 is panning out to be a critical year for the UK shale gas industry, will we see drilling, horizontal wells, fracturing and flow testing and the introduction of new players through 14th Round awards? Or will we see a more cautious approach driven by increased environmental and community awareness and deferral of the announcement of the successful 14th Round licence awards?
All this compounded by the reduction in the oil price of over 50% in the past few months with the resulting reduction in capital expenditure programmes for most oil and gas companies. All this under the backdrop of the long term reduction in UK Continental Shelf gas production and the resulting growth of Liquified Natural Gas (LNG) imports including imports from Qatar, Algeria, Trinidad and elsewhere. Along with imported gas via pipelines from Norway, The Netherlands and Belgium, the UK is expected to be 70% dependent on gas imports by 2020. Will shale gas help fill the supply/demand gap and in doing do provide a much needed economic boost to the UK balance of trade or will shale gas development have a fundamentally more cautious development programme reflecting environmental, commercial and community uncertainties? Interesting times.
For further information contact: John Leeson
- UKOOG Briefing Wednesday 7th January 2015