The right wing press like the Telegraph and Mail take every opportunity to optimistically declare fracking – the exploitation of shale gas- to be Britain’s new energy future. Whilst it is probable that trillions of cubic metres of natural gas is locked up in both onshore and offshore shale deposits the future is not simply ‘drill baby drill’.
The Times reported that shale gas was ‘to good to be true’ with 1500 years worth of reserves and heralded a new energy age similar to that of the US Shale Gas Revolution. But even the Times admits that only a fifth of this reserve is recoverable, but that is still 300 years of cheap gas; isn’t it?
Most of the hyperbole is driven by the US experience which has seen shale exploited for gas [and indeed tight oil] over the last decade or so and reduced the price of gas from around $8 /mmBtu to less than $4 [an all time low of $1.73 was hit in 2012- compare that to the 2005 high of $15] . For the gas drilling companies this is bad news as the consensus is that the price needs to be $8 to make a profit. So why are they selling cheap.
Like all booms shale gas exploitation has attracted a huge amount of investment, everybody wants to cash in and with all that money drilling companies bought up leases. The US is different to the UK and Europe in that rights to gas and oil belong to the land owner not the state. These leases must be activated within a certain time frame, if drilling doesn’t commence the value of the ‘reserve’ is lost from the balance sheet of the oil or gas company. Production and actual turnover is only one aspect of an oil/gas company, its long term value is based on ‘reserves’ that is the amount left in a well and the potential of future wells.
This business model is particular to mining and drilling, if BP, as an example is used, any investor will look at the long term profitability of the company. BP may be producing X $billions from oil but the old wells will decline in production so new wells need to be discovered. If the rate of field discovery declines, as it has then potential profits will also decline so that is why ‘reserves’ or future production is so important. Oil and gas companies have every reason to convince investors that there is plenty of oil & gas in wells they haven’t drilled yet.
Investors have seen the US shale gas boom as a gold rush, in turn this has financed dozens of companies who in turn have been buying up leases for drilling rights but in the rush there has been an over exploitation with supply out stripping demand. It is, of course, completely unsustainable and a number of oil & gas industry experts are expecting a crash before 2015. Gas companies are trying to rectify the problem by concentrating on profitable ‘wet’ rather than ‘dry’ gas fields: wet gas contains small amounts of oil and liquid gas that have maintained a high value. Incidentally Qatar sells gas to the UK and elsewhere with marginal profits with the oil and liquid gas from its vast ‘wet’ gas reserves being the main prize.
Conventional reserves of gas will have a few well which produce for decades, shale gas wells, on the other hand will deplete by 80% in the first year. Unlike a conventional gas field which you could imagine as a rocky crumbly Cheshire cheese, a shale gas field is like Cheddar. One hole in the top of Cheshire will allow all of its cheesy smell to rise up at a fairly constant rate until all the cheesyness is depleted, in the Cheddar you need to drill into the top and then laterally, then crack the cheese with pressure and only after this will cheesyness flow out. But the extraction process is limited to the area drilled so to more holes need to be drilled into it until eventually it looks more like Swiss cheese. Currently the US has 60,000 holes.
To get an idea of the scale a typical drilling operation would work like this. A landowner sells a lease to the company for royalties, the drilling operation will occupy an acre or two of land to build a pad and associated tanks for water to the the fracking which is then pumped out and stored until disposal. A rig on the pad will drill 6 or so wells that go down one and a half miles, these 6 or so wells may converge into a single well-head and where they split off horizontally and they may extend 5,000 feet into the surrounding shale. [This pdf from the industry explains the process in more details and also lists the 'secret' chemicals used in the water/sand fracking fluid]
The area covered by the horizontal wells have to fit into the property otherwise it would trespass and on average they fit on farmland of between 500 to 1000 acres. With drilling technology limited to 8 km [the world record is 12 km straight down] each well pad needs to be between 2 to 4 Km apart. If you have travelled across or flown over the middle plains of the US you will know first hand how big the farms are and sparse the population. The Bakken and Gammon fields in the state of Montana are located in areas where population density is under 3 people per Km3 where as Lancashire where the test drilling is operating has 381 people per Km3.
In the UK the small size of land properties, when compared to the US is less of a problem as ownership of the gas is with the state. Without the royalties the problem is encouraging landowners to allow drilling on their land. Rent and access rights will offer some income but not the bonanza of wealth seen in the US. One benefit and possible cost saving of drilling in densely populated European countries is the proximity of the existing natural gas national grid but that too has problems. Gas in its natural state is unlikely be fit to burn straight away, most natural gas contains impurities which have to be processed and therefore piped to a gas refinery. Plumbing each well head into a distribution or rather collection system that takes it to the refinery is an expensive process and on this occasion the shale gas companies will have to pay rent to landowners for laying pipes across their land. Offshore North Sea gas has not had this problem as the refineries are on the coast.
If it were ‘to good to be true’ and 300 years of gas self sufficiency did lie just a mile beneath our feet and there were no problems with the density of wells being located every 5km apart across Lancashire [and across the densely populated S.E. see map] and if were possible to build the pipeline infrastructure across the UK to delivery it to the refineries, then we would not see a drop in domestic gas bills.
Firstly the UK is part of a larger gas supply system where North Sea gas is sold to the Europeans, Norwegian gas is sold to us and where Qatar gas is shipped for distribution into Milford Haven. This open system means gas prices are international whereas the US is largely a closed system. The next issue is the way land leases work here as opposed to the States, as the government will issue leases there is no rush to drill as fast as possible and create a situation of over-supply. The gas companies in the States have learnt from their mistakes and unless they are very stupid are not going to ‘drill baby drill’.
The single biggest factor that will make UK shale gas only a marginal impact on energy policy is a combination of equipment and expertise. America has a very long tradition of oil & gas drilling and has had huge reserves of both resources to exploit and as such it has built a drilling industry which is the largest in the world with dozens of companies which range from huge multinationals to ‘wildcatters’ with just a rig or two. The number of oil & gas rigs is based on the number of wells being drilled in any one month, these can be huge rigs for drilling into deepwater or small ones that come on the back of a big truck. They can also be rigs that do most of their drilling within the month or ones that take months to do their task and they can be drilling for either oil or gas- but taking into account these difference around 4000 wells were being drilled Globally in December of 2012 of which 64% were operating in the US. Along side those drilling operations was a huge support industry supplying spare parts, water tanks, pipes, and all the things a business needs as well as a refinery industry distributed throughout the country. Then there is the human resource of skilled operators and support staff, some of those drilling operations may be half a dozen drillers and the bigger deepwater platforms may have 200 with perhaps as many as four times the support staff. It is an industry employing thousands of skilled workers and it is a skill base not found in Europe which had only couple of hundred rigs operating during December 2012.
The US drilling industry is cutting back on shale gas wells and turning to the more lucrative ‘wet’ gas fields and tight oil but that doesn’t mean US drillers will be coming to Europe in their droves. Shale gas and tight oil is the hard to get fossil fuel that was left in the ground because the easy fields were just that, you could drill a well and the oil just came out under its own pressure over a period of decades where as tight oil and gas lasts a couple of years. The drilling costs are the same but the new fossil fuel rush requires companies to just keep drilling: the US is running just to stay still. As for the UK’s huge off-shore shale gas reserves: well unless they plan to float out a rig spaced every 5 km the gas might as well be on the moon, there is no ‘off-shore’ shale gas industry and nothing is in development. Which leads neatly to that other great energy hope: thorium nuclear reactors.
When the Queen hit switch to bring the first British reactor on line in 1954 at Calderhall [Sellafield] a big electricity meter whirled around to show the public the new energy future. The electricity meter was a fake and the main purpose of the reactor was to produce nuclear bomb material. Britain was able to join the nuclear club for two reasons: its scientists had worked on the Manhattan Project and the ex colonies of Canada and Australia had major reserves of the raw material uranium. As a friendly nation the US didn’t have a problem with the UK having access to uranium.
Uranium has the advantage over thorium in that it is more reactive, the interest in thorium was due the prospect of uranium ore being depleted so the initial interest was to supplement the supply of uranium. As it happened uranium reserves wasn’t a problem and interest in thorium as a fuel diminished except in India where thorium is abundant.
Nuclear power is really just a technical advance on burning coal, the process after steam has been created isn’t much different to Victorian electricity generation. All that changed was how the heat was generated. With uranium being highly reactive and also being useful in creating nuclear bomb material why bother using thorium which is less reactive and doesn’t make bomb material. Thorium, by the way, is not safer than uranium, it may not produce weapons grade material but it produces a similar amount of toxic materials. So even if the UK was to commit to nuclear as a ‘greener’ energy option there is no reason to switch to the less developed and therefore more expensive route of thorium reactors. UK uranium supply is secure, the expertise is present as is the research and uranium simply boils the ‘kettle’ better.
There have been 15 thorium reactors built and with the exception of 3 Indian power stations they were all experimental. The Indian reactors are conventional PWR [pressurised water reactor] that supplement the uranium feed stock. Just like fusion the commercial thorium reactor is 20 years away and just like fusion it may not ever amount to anything. And this is the biggest problem when we look at our energy needs in the future: The magic bullet solution to all our energy needs is fantasy. The solutions are the technology we have now such as wind, tidal, wave and solar, it is these technologies that have shown a real development in both efficiency and cost reduction.
Our energy crisis is not a technical but psychological one: it appears that when most of us look into the future we turn to the past. The past whether 10 or 20 or 30 years worth was a time a plenty, it followed a pattern of growth and wealth that was not restricted by fossil fuel depletion and those time are over. No amount of fracking for gas or oil is going to return the prices down to $35 a barrel and even if decline was gentle and plateaued in the coming decade or so there is still population growth. Half the developing world is under 25 and they want a future, they want a family and a job and the demand for fuel will continue. Optimism may help us sleep at night but it is a delusion and one that will require more and more fist waving as the price of fuel continues to rise, because if ‘it is too good to be true’ what is really going on? Governments will be blamed, the oil companies will be both saviour and oppressor and conspiracies will circulate. One might as well rage on as to why the government or someone isn’t investing in unicorn farts.