The Impact of Shale Gas on Energy Markets - Energy and Climate Change Contents

3 The Prospects for shale gas

14. The use of different definitions when reporting shale gas estimates in the media has caused confusion. This a key issue in relation to public acceptance (discussed in chapter 4). Estimates of shale gas are uncertain but current estimates put European technically recoverable resource between 2.3 trillion cubic metres (tcm) (81.22 trillion cubic feet - tcf) and 19.8 tcm (699.2 tcf).[33] These are significant but small in compared to global technically recoverable resources of between 188 tcm (6,639.2 tcf) and 208 tcm (7,345.5 tcf). One trillion cubic metres (35.32 tcf) is equivalent to roughly 10 years of UK gas consumption at current demand levels.[34]

Defining shale gas estimates

15. There are two principle terms used when discussing the quantity of shale gas: resource and reserve. Neither has a single agreed definition (see box 1 for basic definitions). There is often considerable overlap between estimates of the two. This is exacerbated by the use of imprecise or ambiguous terminology which limits the ability to compare figures. Consequently, different estimates, using different definitions are often compared in the media as though they were equivalent. This creates disagreement and confusion.[35] WWF suggested that media reports, which refer to huge finds of shale gas often fail to appreciate the distinction between 'gas in place' and 'technically recoverable reserves'. The Minister told us that the Government is exercising caution over shale gas estimates in the UK.[36]

16. We conclude that it is right for the Government to exercise caution over shale gas estimates given the uncertainty and confusion over definitions. If and when the Government does decide to issue estimates of UK shale gas resources it should set a good example and ensure that it is explicit about which definition it is using. We recommend that it should use the definition which is most relevant to the general public, which in our opinion is recoverable resources. The Government should also clearly communicate the uncertainty inherent in some of these figures by emphasising the difficulty of producing an accurate estimate of shale gas.

Box 1 - Definition of resource and reserve

Resource, refers to the total volume of natural gas that is underground prior to development.[37] Resource is also sometimes referred to as gas in place . Some of the resource might never be accessible.[38]

Recoverable resources is a commonly used term.[39] It is usually broken down into either 'technically recoverable' or 'economically recoverable' resources. The former is larger than the latter.[40] Calculations of recoverable resources do not usually account for social and political factors which might influence how much of the gas is recoverable in practice.[41]

Reserve refers to a group of resources that are estimated to have a specified probability of being produced.[42] They are quoted to three levels of confidence: possible, probable and proven.[43] Estimates of reserves can change over time.[44] In addition to changes to estimates resulting from additional drilling and seismic, the size of a reserve is influenced by technological, economic, social and political factors which can make it more or less likely that the gas will be extracted.[45] The changing nature of reserves makes them inherently uncertain.[46]

Calculating shale gas estimates

17. Estimates of shale gas are uncertain and will ultimately need to be checked by practical production experience.[47] Shale gas resources are hard to determine because they are located in heterogeneous rock formations which are extensive and hard to map.[48] A UK Energy Research Centre (UKERC) review which looked at studies that provided original estimates of regional and global shale resources concluded that existing estimates had a very high level of uncertainty because of a lack of production experience and should, therefore, be treated with considerable caution.[49] In practice, the amount of shale gas which can be extracted will be subject to technological, economic, social and political factors.[50]

18. The case of Poland provides an early example of how original estimates can change once testing starts. An original assessment of Poland's recoverable resource of 5.3 tcm (187.2 tcf) has recently been reduced significantly to 0.35-0.77 tcm (12.36-27.19 tcf).[51] This change in prospects has been corroborated by the experience of ExxonMobil. Mr Smith of the British Geological Survey (BGS) suggested that "Exxon[Mobil] have pulled out of Poland after drilling two wells" because, "gas flows were not high enough" and that the technology they had developed in the US was not working particularly well in Europe.[52] However, Mr Yeager warned us that: "the first well is likely to be poor, the second a little better and the hundredth brilliant. This could be part of what we have seen with ExxonMobil in Poland - lots of drilling is needed to build an accurate picture.".[53]

19. In the UK context, current shale gas estimates are very uncertain. We will only know how great the potential is after significant further drilling has been undertaken. However, Mr Smith observed that, "the speed of activity is so slow in the UK", especially compared to the US.[54] On 13 December 2012 the Secretary of State, the Rt Hon Edward Davey, said:

"I am satisfied that fracking for shale gas can now in principle resume, and I will be prepared to consent to new proposals, subject to case-by-case scrutiny by my Department, to the new requirements to mitigate seismic hazards, and to confirmation that all other necessary permissions and consents are in place.[55]

When asked whether DECC would issue licences to other shale gas companies the Minister of State, John Hayes, said he, "would expect companies to come forward".[56] However, he also said, "it would not be appropriate for me to make a prediction about timescale."[57]

20. In order to get a better estimate of shale gas in the UK, Mr Smith of the BGS told the Committee that he would like to see more sharing of information, such as gas content and production figures, with shale gas companies.[58] We were astonished that the BGS did not routinely have access to the test results of all shale gas wells drilled in the UK. Mr Smith suggested that the BGS had previously received information from oil and gas companies but , "that is not the case now". However, Mr Egan of Cuadrilla thought that they had already reported their data but added that if, "they [BSG] are looking for data from us, we do not have a problem providing them with that data" as long as commercially confidential data is protected.[59]

21. We conclude that it is impossible to determine reliable estimates of shale gas in the UK unless and until we have practical production experience. Therefore, if companies can demonstrate that they can meet the required standards the Government should encourage exploratory shale gas operations to proceed in order to improve current estimates, providing that public concern over environmental impacts is recognised and taken into account. It should require shale gas companies to share their gas content and production figures with relevant research bodies (subject to commercial confidentiality).

Latest shale gas estimates

Onshore estimates

22. Global estimates of shale gas have been described by Mr Smith of the British Geological Society (BGS) as, "massive" and technically recoverable resource estimates range from 188 trillion cubic meters (tcm) (6,639.2 trillion cubic feet -tcf) to 208 tcm (7,345.5 tcf).[60] By comparison, the globally technically recoverable resource of conventional gas[61] is estimated at 432 tcm (15,256 tcf).[62]

23. European shale gas estimates are not at that scale but, nonetheless, significant.[63] The UK Energy Research Centre report includes estimates which range from 2.3 tcm (81.22 tcf) to 19.8 tcm (699.2 tcf).[64] In the UK, estimates of technically recoverable resources range from 0.15 tcm (5.29 tcf) to 1.15 tcm (40.61 tcf).[65] The BGS derived an early estimate of potentially recoverable resource for specific parts of the UK of 0.15 tcm (5.29 tcf) by comparing similar geological structures in the US and the UK. This excluded Wales, Scotland and Northern Ireland). The BGS was keen to point out, however, that because, "no UK drilling had taken place at the time of this estimate [the figure was] tentative.".[66] Cuadrilla have stated that exploration has shown that the Bowland Shale in Lancashire is over a mile thick - far thicker than any comparable US shale.[67] This could affect what is technically recoverable and reduce the visual impact of development. For example, Cuadrilla went on to suggest that, "this opens the possibility of developing [shale gas] with a much lower-density surface "footprint" than US shale plays.".[68]

24. A number of shale gas companies in the UK have started to produce resource (or gas in place) estimates. Cuadrilla, for example, has estimated a resource figure of 5.67 tcm (200.2 tcf) in Lancashire which has been described as "highly significant".[69] Mr Smith of the BGS said that this figure was, more reliable than the original BGS estimate.[70] The BGS is currently finalising a study looking a shale gas resource estimates for the whole of the UK's Bowland shale. It has been suggested that their figure will be of a similar order of magnitude to Cuadrilla's estimate. IGas has estimated 0.26 tcm (9.23 tcf) in the north west of England (the actual area is unknown and could include some offshore sites), Eden energy/UK Methane in south Wales has estimated 0.97 tcm (34.19 tcf) and Dart energy which has licences in Scotland and England has estimated 1.86 tcm (65.56 tcf).[71]

Offshore estimates

25. There is currently no reported offshore exploration activity for unconventional gas anywhere in the world. Offshore shale gas resources are excluded from global estimates.[72] This is unlikely to change in the near future because there are a number of logistical and operational hurdles which make the cost of exploration and development uneconomic.[73] In the UK, the BGS has suggested that offshore shale formations are larger than those onshore and have offered a tentative resource estimate of 28.32 tcm (1,000 tcf) for the east Irish Sea Basin (based on Cuadrilla's figures on their adjacent onshore acreage).[74]

26. With the UK's high population density and the possibility of public opposition to onshore shale gas development, the UK's offshore resources might become attractive in the future because extraction of them might avoid much of the public concern associated with the environmental impact of onshore operations.[75] Professor Davies of the Geological Society suggested that, "the economic hurdle may be the key [factor] but, of course, just like wind energy, it is easier done offshore in terms of social acceptability."[76]

27. Some witnesses pointed out that the UK could develop its offshore resources by taking advantage of the skills and expertise already developed in the North Sea oil and gas industry.[77] Mr Smith of the BGS posed the question "what do you do with those platforms [in the North Sea] when they come to the end of their life?". He suggested that, "there are a lot of competing ideas for the use of these platforms" which includes using them for shale gas extraction.[78] Professor Davies of the Geological Society highlighted that the "window to grab this opportunity is probably in the next 10 to 15 years" because companies will start to decommission their platforms over this period.[79]

28. Socit Gnrale suggested, "companies could use fracking techniques for offshore fields."[80] Similarly the UK onshore Operators Group said, "offshore unconventional gas may be commercially viable in the future subject to developing technology bringing down the cost of operations and access to the gas networks."[81] DECC highlighted that, "if shale gas development can be proven to be technically and commercially viable onshore, it is possible that the industry may look to the offshore for future exploration, and further study could be merited at that time."[82] The Geological Society warned, however, that, "should the UK attempt to exploit offshore unconventional resources, this would nonetheless require us to pioneer offshore shale gas exploration and production, which would be no small undertaking.".[83]

29. While it is unlikely that offshore shale gas will be pursued in the near future, strategically, it may have the most potential for the UK in the medium- to long-term, especially if it avoids public opposition associated with onshore operations. We repeat the recommendation made in our previous report that DECC encourage the development of the offshore shale gas industry in the UK, working with the Treasury to explore the impacts of tax breaks to the sector. This must be done before the UK's North Sea oil and gas platforms are decommissioned, otherwise the opportunity to utilise the UK's offshore oil and gas assets may pass.

33 UKERC (ISG 24A) Back

34 Assuming that UK total demand for natural gas is approximately 1,000,000 GWh [giga/billion Watt-hours] of energy. This is equivalent to approximately 10tcm. Back

35 Ev 72; Ev 136; Ev 129 Back

36 Q 299 Back

37 Ev 129 Back

38 Ev 62 Back

39 Ev 129 Back

40 Ev 126 Back

41 Q 6 Back

42 Ev 129 Back

43 Ev 94 Back

44 Qq 96-97 Back