Shale Gas

Memorandum submitted by the Geological Society of London (SG 15)

1. 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.

2. 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.

4. 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.

6. 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.

8. 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.

11. 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 multi-stage 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