Energy and Climate Change CommitteeWritten evidence submitted by the UK Onshore Operators Group (ISG 09)
1. UKOOG’s Objectives are:
To act as a representative body for, and be the voice of, the onshore UK exploration and production gas and oil industry
Enhance the profile of the onshore industry
Promote open dialogue with key stakeholders
Develop and deliver industry wide initiatives and programmes
Strive to ensure safety, environmental and operational standards are raised and maintained
2. The purpose of this submission is to respond to questions raised in the call for evidence on impact of shale gas on energy markets, issued 27 July 2012 with a deadline of 1 October 2012.
What are the estimates for the amount of shale gas in place in the UK, Europe, and the rest of the world, and what proportion is recoverable?
There are a number of assessments of Shale Gas for many countries in the world. US Energy Information Administration (2011) is the most comprehensive and estimates 20 trillion cubic feet (TCF) recoverable resource for UK; 639 TCF for Europe and 6622 TCF for entire world. Note that this represents “technically recoverable resource” and report quotes assessment as being “moderately conservative risked resource”. For context, UK volume would correspond to approximately 10 years UK gas consumption at 2009 levels or, with 2009 UK production and consumption, remove dependence upon imported gas for 20 years. There are assessments much greater than this and reports that volumes are insignificant/“not a game-changer”. In September 2011, Cuadrilla announced it had discovered 200 trillion cubic feet (tcf) of Gas in Place within the Bowland Shale in Lancashire.
While a wide ranges of resources are presented for UK and other countries; this is an expression of uncertainty at this early stage of exploration. UKOOG position is that volumes are likely to be significant relative to UK energy demand and that the industry should be supported in its intentions to explore through drilling operations and data gathering. This will reduce uncertainty and deliver a reliable assessment of UK resources.
Why are the estimates for shale gas so changeable?
It is not unusual for shale to have the capacity to generate and retain methane and other gases. It is relatively straightforward to predict where they are and a range of gas-in-place from geological mapping of onshore areas where unconventional gas is explored. However, it is relatively unusual to be able to extract gas for commercial purposes, using techniques such as hydraulic fracture stimulation. This cannot be assessed without drilling, analysis of data from drilling and, where encouraging, stimulating reservoir. For a variety of reasons including rig availability and the socio-political landscape, very little exploration drilling has taken place in UK and this leads to great uncertainty in estimates of recoverable gas volumes.
It is also not straightforward to ensure a benchmark across the assessments eg “gas-in-place” versus technically recoverable versus economically recoverable. Estimates often combine Shale Gas with Coal-bed methane or other resources. Estimates are also subject to the bias of groups who wish to downplay the potential positive impact upon the country’s energy supply.
As the then DECC Minister of State Charles Hendry said in Parliament 20th June 2012: “ … as little drilling or testing has taken place, it is not at this stage possible to make any meaningful assessment of how much of the shale gas resource would be recoverable and how it might potentially affect gas prices.”
What are the prospects for offshore shale gas in the UK Continental Shelf?
Shale Gas is as likely to exist offshore as onshore considering subsurface conditions. Economic recovery parameters mean that we have not seen unconventional gas developed offshore (some tight sandstone reservoirs have undergone hydraulic fracture stimulation but in conventional hydrocarbon traps). However, by its nature, shale gas and other unconventional gas are defined by being a widely distributed resource with low pressure, where wells produce relatively small volumes of gas compared with those from conventional traps. Onshore drilling and reservoir stimulation are relatively inexpensive (compared with cost of operating in an offshore environment) meaning all UG is currently developed onshore with easy access to the gas network.
Offshore UG may be commercially viable in the future subject to developing technology bringing down the cost of operations and access to the gas network.
Should the UK consider setting up a wealth fund with the tax revenue from shale gas?
UKOOG does not have a position upon this without a detailed understanding of how such a fund would be set-up and to what purpose it would be applied.
What have been the effects of shale gas on the LNG industry?
LNG typically brings stranded natural gas from areas of high resource/low demand to areas of low resource/high demand with long-term contracts in-place. Typically, LNG technology (liquefy/gasify) plus long-distance transport, make LNG relatively expensive (compared with domestic gas production). To-date there is a good deal of speculation of LNG being impacted by large volumes of shale gas depressing price and making LNG contracts unattractive but to-date there is little expression of this. In the event that UK and European prices continue to rise and North American shale gas makes US natural gas plentiful and low price, then it is reasonable to assume that North American shale gas and LNG will be an attractive economic proposition in the future of UK and European energy markets.
Could shale gas lead to the emergence of a single, global gas market?
Natural Gas has never had a single, global market. It is hard to envisage such a prospect in the near-term (next ten years) as it would require major investment in LNG processes; de-regulation of gas markets in many countries including many in Europe where there is still a link to oil price.
What are the effects on investment in lower-carbon energy technologies?
There have been no noticeable effects on investment in low-carbon energy technologies to-date. Development of shale gas and coal-bed methane has the potential to contribute significantly to UK energy mix. By reducing cost of gas relative to foreign imports, UK economy will benefit, bringing jobs and revenue compared with imported energy. Such benefits can help investment in technology towards a true low-carbon technology.
A domestic gas supply could act as a bridge to a low carbon technology era by supporting current gas demands. As the easiest fuel to stop and start power generation it provides a role as a partner to other forms of energy
Effects of a UK growth in shale gas upon lower-carbon technology would be for government to consider and influence if they choose
What is the potential impact on climate change objectives of greater use of shale gas?
Assuming climate change objectives are to reduce GHG emissions then it has been demonstrated that USA has reduced CO2 energy-related emissions to a 20-year low (U.S. Energy Information Agency, a division of the US Energy Department). This has been attributed to a demonstrable shift from coal to natural gas as latter became abundant due to shale gas development. Abundance of shale gas has reduced price of gas making coal uncompetitive. Natural gas produces 25–50% less CO2 compared to coal when burnt to create the same energy output.
As UK produces about 1% of global CO2, it is hard to imagine that a shift in energy usage will have a significant impact upon global CO2 levels without commitment from the rest of the world
Greater use of Shale Gas in UK and other European countries is likely to displace imported gas which will be more expensive (or shale gas will not work) in these countries so it cannot cause UK net CO2 emissions to increase.
A significant supply of UK shale gas would bring significant revenue to UK allowing funding of UK research into the renewable energy technology of the future
Impact of shale gas upon UK climate change objectives would depend upon UK government energy policy and government decisions for resulting revenues.
September2012