Who’s betting on UK shale gas? Cuadrilla, and maybe somebody big

Who’s betting on UK shale gas…and who’s betting against it? Right now there’s a dramatic gulf between pessimistic statements at last week’s World Energy Forum meeting in Davos that UK shale gas is no great game changer, and the fact that the next few days might witness an energy major farming in to the one company that intends to revolutionise UK gas production.

To start with the pessimism, if only to err on the side of caution. At Davos on Thursday, Centrica CEO Sam Laidlaw, one of Britain’s biggest gas chiefs, was quoted as saying that said it would be at least a decade before the UK saw any shale gas production and that, even then, it would not be “the game changer we’ve seen in North America”.

But on Friday, a source close to Cuadrilla, which says it has some 200 trillion cubic feet (about 5.7 trillion cubic metres) of gas-in-place in its section of the Bowland Shale Group, told this blogger: “They are dotting the ‘i’s and crossing the ‘t’s” on a farm-in agreement with an energy major.”

Who this is has not been disclosed, but Shell, BG and Statoil have all been sniffing around. And at least one market seems to believe something big is afoot; on Friday, shares in AJ Lucas, which holds some 41.5% of Cuadrilla, jumped on the Australian Stock Exchange from Australian $1.56 to almost Aus $1.90.

Blog post continues below…


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A farm-in by such a major would certainly help Centrica, in terms of both cash and technology. Cuadrilla may be sitting on a potentially massive resource base, but it is still some way from converting that base into actual reserves, let alone production.

Even so, Laidlaw’s comment that it will take 10 years to see production — by which one can presume he meant significant sustained production as opposed to start-up activities — seems both highly pessimistic and at odds with what is known of Cuadrilla’s development programme.

Cuadrilla, in a 2012 presentation, said that under its central case for development of its Bowland Shale resource, “we expect the drilling phase to last around nine years.” If the company’s hopes are fulfilled, and they secure the go-ahead for fracking later this year, first production could start as early as next year. Were this to happen, it would certainly confound Laidlaw’s pessimism, although it is worth noting that the combination of UK bureaucracy and technical challenges could well add a year or two to such a timetable.

But when will actual production start? Cuadrilla CEO Francis Egan provided the most up-to-date public assessment on corporate activities in testimony to Parliament last month. He noted that although the company was drilling wells, a current moratorium on the key issue of hydraulic fracturing meant they were not able to flow-test them all. “So we can tell you how much is in the ground, but we cannot tell you how much will flow out of the ground,” he told the Energy and Climate Change Committee.

The government already has signalled its willingness to permit a resumption of hydraulic fracturing in the wake of investigations into minuscule earth tremors recorded during previous Cuadrilla fracking operations, but it will still take some months to secure local environmental impact assessments and complete public consultations before fracking resumes.

But long before Laidlaw’s decade is out, Cuadrilla should have started contributing significantly both to actual and potential British shale gas production. Moreover, it intends to do so in a way that should counter a further reported comment of Laidlaw that it would take time to develop UK shale gas “partly because of the environmental concerns and partly because we don’t have a well-developed supply chain”.

On the environmental front, Cuadrilla must be particularly careful. The heart of its license area is the Fylde peninsula, a stretch of small town rural England full of pretty villages and neat small towns lying between the old cotton mills of Central Lancashire and the seaside resorts of Blackpool and Lytham St Anne’s. It’s an area that relies heavily on tourism, which generates as much as £500million a year for the local economy.

Cuadrilla is understood to be looking to address environmental problems by concentrating its production units on a few specific sites that would extend deep underground, becoming, in effect, reverse skyscrapers. Like giant dams in which you take the elevator 10 or 14 floors down to the turbine hall, each level would serve a cluster of wells. This is a highly ambitious and, one would presume, expensive approach, but it does signal the scope of Cuadrilla’s ambitions, and may also be one reason why it would be happy to see a major farm-in.

Does all this constitute a game changer? The potential is stunning; it’s the delivery that is still questioned. When Cuadrilla announced in September 2011 that it had discovered 200 trillion cubic feet (tcf) of gas-in-place, it said that “even if a fraction of this could be extracted at a commercial rate, then this could have a positive effect on the UK’s energy mix.” Since then, there’s an increasing assumption that eventual recovery rates of around ten to 20 per cent might prove reasonable, with some asserting a much higher recovery ratio is possible. But even a 10% recovery rate would eventually yield some 20 trillion cubic feet (570 billion cubic metres); not bad when one considers that the UK only produced 1.6 tcf (45.2 bcm) in 2011, while its consumption amounted to 2.8 tcf (80.2 bcm).

And the resource does look promising. In places, it’s 6,000 feet thick; by comparison the Barnett and Marcellus formations in the US are generally around 300 feet thick. And then there’s the issue of probable under-estimating on the underlying resource. There’s speculation in the industry that the overall size of the Bowland Shale might be as high as 1,000 tcf (around 28 tcm), of which Cuadrilla’s license area accounting around one-quarter or a third.

Whether such a figure is justified will soon be known. The UK’s Department of Energy and Climate Change updated version of its study on “Unconventional Hydrocarbon Resources of Britain’s Onshore Basins” is currently expected at the end of February (although no firm publication date has yet been set). The study will include a basic geological assessment of gas-in-place for the Bowland Shale although it will not include any specific figures for recoverable reserves. For that, the DECC, along with Cuadrilla, wants to see flow data.

But, so long as Cuadrilla receives permission in due course to resume fracking, then the scale of its resource base, together with the prospect of new investors, means that UK shale gas production should get well under way well before Laidlaw’s ten year prospect.

And as for being a game changer, well, if Cuadrilla only has a quarter or a third of the Bowland Shale…


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Comments

  1. Daniel Mirante at August 28, 2013 5:09 pm

    It is a skewed reality where currently, if a fracking exploration site is below 0.99ha, it does not legally require an Environmental Impact Assessment (EIA). It’s very important that the law is reformed for frackiing sites to have one. EIA should be required through the Planning System and be made publicly available during any consultation on the application. This would ensure that the EIA is completed to a suitable standard, and that planning officers, local communities and interested parties have sufficient information available to them to be able to make an informed assessment of the level of environmental risk posed by hydraulic fracturing.We need solid research and protections in place to mitigate the hazards of this approach, if indeed it is suitable at all. It seems personally insane to me that we are considering around 6,700 wells in Sussex alone. We need to balance all factors and open up a participatory democratic debate about renewable energy vs fracking, before rushing ahead with an approach that in its current form will be extremely detrimental to ecological integrity and quality of life.

     
  2. Martynas at February 13, 2013 5:37 pm

    I just created a new petition and I hope you and your friends can sign and spread the world this message: STOP shale gas drilling in LITHUANIA

    This issue is very important to me, and together we can do something about it!

    Read more about it and sign it here:

    http://www.avaaz.org/en/petition/STOP_shale_gas_drilling_in_LITHUANIA

     
  3. John Busby at February 2, 2013 6:29 am

    The most significant event in the shale gas saga is the financial losses in 2011 of three major players in the US shale gas ventures. BHP Billiton, British Gas and BP have written off $2.84 billion, $1.3 billion and $2.1 billion respectively, totalling $6.24 billion and others are unlikely to invest at this scale in future.

    The cause is largely reported due to the reduction in the North American gas network gas price, which needs to be perhaps $8 per million BTUs, whereas it fell to $2 and is now around $3-$4 per million BTUs. (One million BTUs is from one thousand cubic feet natural gas.)
    To consider the future of the shale gas project an analysis of the inputs per gas output over the life of a well is needed.

    The energy inputs are mostly from diesel, used for site excavation, roads, laying pipelines, fuelling trucks, high pressure pumps, vacuum pumps, site generation and of course powering the drilling rigs. The high input price is probably due to the oil in, but just gas out.

    Centrica’s Sam Laidlaw doesn’t expect shale gas to appear in the UK for another 10 years. See why in BG Group’s annual report 2011

    http://www.bg-group.com/InvestorRelations/Reports/ara2011/Documents/2.%20Sections/2-bg-ar11_business_review.pdf

    See extract:-

    “Production
    In the USA, forecasters have, over the past year, lowered their outlook for long-term US gas prices, now projecting $4-6 per million British thermal units (btu). BG Group’s price expectations lie towards the lower end of this range. There are factors on both the supply and demand sides that are currently keeping prices particularly low – a situation the Group expects to continue for the present. Given current weak prices, the 2012 programme for the Group’s interests in the USA will be reduced, with the rig-count expected to fall in 2012 from 35 to around 8. The Group’s forward plans currently assume about 80 000 boed production from US shale gas in 2015, some 110 000 boed less than last year’s plan.”

    Clearly BG’s shale gas production is falling, but we need to see the business review for 2012 to get a better picture. We also need to see BHP Billiton and BP’s figures for 2012.

    Sam Laidlaw will know the 2012 results which is why he is so cautious.

     
  4. Michael Martin-Smith at February 1, 2013 10:47 am

    The risks from fracking are hypothetical and certainly far less than the misery and hardship caused by the Presebnt trend to higher prices; the sooner the “Game is Changed” by breaking up the Big Six and driving prices through the floor by cut-throat competition, the more millions of consumers will be pleased.
    In January 7 in 10 consumers faced a choice between heating and eating; this is an intolerable disgrace in a modern economy, and all available means should be taken to end it as soon as possible. To hell with preserving the corrupt status quo

    WE want a price war in energy. If our rulers do not provide one, they should remember that they are disposable. Lamp posts have two main applications- one is lighting up streets at night…

     
  5. john at January 28, 2013 4:13 am

    These ‘groups and individual’ vegan hippies should get jobs and not try and ruin the potential for work for anybody else that doesn’t want to be some flakey scrounger. There are more people for shale gas than against but as usual only the moaners get any exposure in the media.

     
  6. Striebs at January 27, 2013 1:45 pm

    Yes Tina ,

    So many selfish people determined to stop other people working for a living , whether it’s opposing drilling a well or building a a factory .

    The country can’t go on importing it’s entire lifestyle forever .

    What alternative are you offering for heating peoples homes , powering their cars and generating their electricity ?

     
  7. Tina Louise at January 26, 2013 5:47 pm

    Community Opposition
    There are more and more groups and individuals in this area who are determined to stand against this dangerous industry – investors should take this into account as it is clear that disruption and delay will feature.

     
    • bmatkin at January 27, 2013 5:22 pm

      Tina: There are more and more groups and individuals who are determined to stand against people like you. You’re either paid by the green lobby, a low information reactionary or just plain inane.
      Investors have already determined that a. it’s going to proceed, b. it’s good for humans and all plant and animal life which depends on CO2 for life. c.there is going to be profits made d. as people become more affluent, the environment gets better.

       

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