Britain Looks to Fracking as North Sea Oil Dwindles By STANLEY REED Published: October 18, 2013 BARTON, England — Driving down a bumpy country road in northwest England, one comes upon a bare patch the size of a soccer field at the edge of a peat bog. Workers are erecting a security fence and unrolling watertight film to protect the soil from chemical contamination. Near the middle is a big rectangular hole where a drilling rig will go. A large amount of shale gas is estimated to be in the ground in northern central Britain. Inauspicious as it may look, what happens on this patch of ground in the coming months could help determine the future of Britain’s, and even Europe’s, approach to shale gas. The energy source has made the United States, for one, suddenly self-sufficient in natural gas, but it raises environmental concerns that have made many countries on this side the Atlantic dead set against it. Shale gas is extracted by the technique known as hydraulic fracturing — or fracking, the harsh-sounding word that can stir the passions of the technology’s harshest critics. In France, the nation’s highest court recently upheld the government’s right to ban fracking. In Germany, fracking activity is suspended at least until a new government is formed. But within the European Union, Britain — struggling to confront its energy future as its North Sea oil reserves are depleted, dirty coal is demonized and nuclear power remains expensive and geopolitically fraught — stands out as the country in which the government has officially encouraged the development of shale gas. Prime Minister David Cameron has thrown his support behind shale gas drilling, hoping to reap some of the benefits seen in the United States. John Blaymires, chief operating officer of IGas Energy, said the government’s support could reap big rewards for Britain, especially in the industrial Manchester-Liverpool region, where the soccer-field-sized bare patch is being readied in Barton. “There is another Aberdeen waiting to be created,” he said, referring to Scotland’s North Sea oil hub. “Manchester and Liverpool could be centers of excellence.” IGas, one of the small British companies chasing big dreams of shale-gas riches, has assembled a large package of acreage in an area that geologists say looks particularly promising. The company plans to drill an exploratory well here before the end of the year. If it likes what it finds, the company would then probably apply for permission to hydraulically fracture that well, or others that they may also drill in the area, to find out whether there are strong enough gas flows from the shale rock to make further investment worthwhile. On a recent day, Mr. Blaymires led a tour of the windswept site and another about a half-hour’s drive to the west, in Warrington, where the company is already producing methane gas from coal beds — a conceptually similar technique that is also still considered unconventional. IGas was founded in 2004 mainly to develop coal gas. But the company now reckons that shale gas, which it thinks can be found at greater depths than the coal in the area, may prove more promising. Mr. Blaymires said that 2014 and early 2015 were shaping up as a “critical period” for the company and the industry. “In all likelihood, a number of wells will be drilled and fracked, and that will determine the commercial potential of shale in the U.K.,” he said. If so, those will be the first tests of hydraulic fracturing in shale since another small company, Cuadrilla Resources, set off seismic and political tremors with fracking in 2011 at a site not far from Barton. This summer, a well that Cuadrilla drilled in Balcombe, in the commuter country south of London, set off protests from environmentalists and local opponents that received enormous attention from the media; the fact that it was a conventional oil well, not a fracking well for shale gas, almost seemed beside the political point. British environmental groups remain largely opposed to shale gas fracking, even though it has the potential to help reduce greenhouse gas emissions if used as a substitute for coal in power generation. Even more than seismic concerns, they worry about possible water pollution, noise and other disruptions. But they say their greatest worry is that companies like IGas might actually succeed, turning shale gas into an abundant enough source of fossil fuels that it will reduce the incentive to invest in renewable energy sources like wind and solar power. “We believe that if you care about climate change, you shouldn’t be looking for new fossil fuels,” said Leila Deen, head of energy policy for Greenpeace in Britain. “We believe you should leave it in the ground.” The Cameron government is intent on encouraging the development of Britain’s energy resources, which is a reason that the chancellor of the Exchequer, George Osborne, played a prominent role on Thursday in announcing that Britain would welcome Chinese money into its nuclear power program. In support of shale gas development, the British government has established an office of unconventional oil and gas and has indicated that it will set up a favorable tax system as well as rewards to help overcome potential local opposition. In addition, the government is preparing the first licensing round of onshore leases since 2008 with a possibility that bigger players with strong balance sheets will be persuaded to play. The government owns all mineral rights in Britain although companies like IGas lease individual sites from businesses and farmers. This year, the British Geological Survey published a survey estimating that a strip across northern central Britain had a very large amount of shale gas in the ground. The midrange figure was 1,300 trillion cubic feet, or 36.8 trillion cubic meters. If even 10 percent of that gas could be produced, it could satisfy British natural gas consumption for about 45 years at current rates. But how much can be recovered if any is unknown. Shale gas deposits appear to be widely distributed around the world. Political, economic and social factors will likely loom large in determining what countries actually exploit these resources. “We do have the rocks; we do have the technical capability,” said Peter Styles a professor of geophysics at Keele University. The question is “do we have the political will?” Besides Britain, Poland so far seems to be relatively open to shale gas exploration. Not only does it have potentially promising underground deposits, but Poland is also trying to reduce its heavy reliance on air-polluting coal and on natural gas from Russia. That is why when it comes to shale gas development, of all the European countries “Britain and Poland look the most promising in the next five to 10 years,” said Menno Koch, an analyst at Lambert Energy Advisory in London. There would certainly be customers for the natural gas, not only for direct energy productions but as feedstock for the fertilizer and petrochemical plants at Merseyside, not far from where IGas is looking. One of those companies, Ineos, a petrochemical company with operations in Britain, is watching the shale gas developments with interest. “We have a clear view that the development of indigenous shale gas within the U.K. is essential for a competitive energy market and particularly for a competitive chemical industry,” said Tom Crotty, an Ineos spokesman. IGas talks big numbers. The company’s chief executive, Andrew Austin, a former banker, estimates that it has as much as 170 trillion cubic feet of shale gas under its northern acreage. If it could recover just 5 percent of that amount, it would have about the equivalent of three years of current British consumption, or about $85 billion worth at today’s prices. IGas already operates a pilot coal-bed methane site at a place called Doe Green in Warrington. Four horizontal wells have been drilled into underlying coal seams. The resulting gas is fed to power a generator, which feeds into the electric grid. IGas also operates more than 100 onshore oil wells around the country. Those wells produce about 3,000 barrels of oil a day, but the company is betting that more shale resources lie beneath some of those oil fields. IGas is no Big Oil behemoth, but essentially an energy start-up. For the 12 months ended March 31, the company, which is listed on London’s AIM small company exchange, reported revenue of £68 million, or $110 million, and a loss of £18 million, or $29 million. Mr. Austin flirted with bringing in an equity partner last year to pay for the new wells. Instead, IGas raised £23 million in new equity this year and also floated a $165 million bond in Oslo this month. After drilling two wells and fracking at least one, the company will look for a partner to bring capital and expertise, Mr. Blaymires says. He conceded that the shale gas quest “has proven a little more difficult” than he envisaged when he joined in 2010. “There’s nothing I have seen to date that says this can’t work,” he said. “We have to get some wells drilled and fracked to demonstrate that it is commercially practical.” Mr. Austin and Mr. Blaymires say they think they may have a way of overcoming environmental concerns. They say that the British shale formations appear to be 3,000 to 4,000 feet, or 915 to 1,220 meters, thick — several times as thick as those found in the United States. Because of the presumed greater production of the formations, the executives say they hope to be able to drill many wells from a single site so as to reduce the environmental impact above ground. Hydraulic fracturing involves drilling down vertically, and then horizontally, creating fissures into which a combination of water and chemicals is pumped to force the gas from the rock. Mr. Blaymires said a single site could extract gas from an underground formation of four or five square miles, or 10 to 13 square kilometers. The back-of-the-envelope economics look encouraging. A site with 10 wells, each with four lateral branches, might produce gas worth more than $1 billion at today’s prices during its lifetime, according to a study by the Institute of Directors, a British business group. But to bring in sand, water and equipment for fracking might, over 20 years, require as many as 31,000 truck visits to the site, the group estimates. The prospect of big rumbling trucks rolling through their communities is one of the reasons local people oppose oil and gas development. Winning over local skeptics may not be easy. Treading carefully as it parses its descriptions of what it is up to in Barton, IGas says on its Web site, “We are not hydraulically fracturing but just taking samples for analysis,” even though the company does indeed hope to frack the well. The Salford city government, which has jurisdiction over the Barton site, so far is under the impression that IGas is looking for coal bed methane, not shale gas. “What will begin soon, undertaken by IGas, is coal-bed methane exploration drilling. There is no permission for ‘fracking’ in Salford,” Ian Stewart, the mayor of the city of Salford, wrote in an e-mail. “Should the company or anyone else wish in the future to engage in ‘fracking,’ then they would have to seek separate planning permission from the council.”
Posted on: Sat, 19 Oct 2013 10:55:36 +0000
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