UK gives backing for fracking - shale gas go ahead
With hydraulic fracturing back on the agenda in the UK, Tim Probert explores the next steps towards Britain’s ambition to create a shale gas revolution.
There has been no end of hyperbole about shale gas in the UK over the past two years. But for all the wildly varying talk about the potential riches or environmental damage from shale gas, hydraulic fracturing (fracking) has been on ice since Lichfield-based Cuadrilla Resources was found to have caused two relatively large earth tremors in Lancashire of 2.3 and 1.5 magnitude in April and May 2011 respectively.
After an 18-month hiatus, the Department of Energy and Climate Change (DECC) finally gave the green light to resume exploratory fracking in December 2012. Given the large gas-in-place resource estimates in UK shale basins and the potential for Her Majesty’s Treasury to accrue many billions of pounds in tax revenue, some would say the decision was never really in doubt.
The DECC has laid down some tough new regulations for exploration, primarily aimed at mitigating induced seismicity. Analysis carried out by Cuadrilla, and confirmed by DECC, concluded the cause of the tremors was the movement of the frack fluid into and along a fault that was already under stress. The additional pressure of the fluid caused the fault to move, resulting in the tremors.
The Department says many other faults in the Lancashire area have similarly unrelieved stresses and could, in a similar scenario, result in tremors. Shale gas drillers must, therefore, take a more cautious approach to the duration and volumes of fluid used. Fracking will also be subject to a traffic light regime, so that operations can be quickly paused and data reviewed if an unusual level of seismic activity is observed.
The DECC took a dim view of Cuadrilla’s response to the tremors, saying the company ‘demonstrated some weaknesses in its management of environmental risks’. In other words, the drilling team did not tell the Cuadrilla board about the incidents quite as swiftly as it should have done. So DECC has imposed a strict regime for the company’s exploration programme in Lancashire, setting the remedial action level for the traffic light system at magnitude 0.5. This is seen as a conservative level as it is far below a perceptible surface event, although larger than the expected level generated by fracking.
In order to simplify and streamline the regulatory process and to provide a single point of contact for investors, the DECC will create the Office for Unconventional Gas and Oil, working with the Department for Environment, Food and Rural Affairs (Defra) and other Government departments. Regulation of activities associated with shale gas exploration, such as groundwater protection and well integrity, will remain the relevant responsibilities of the Environment Agency and the HSE. Meanwhile, HM Treasury will announce a targeted tax regime for the shale gas industry at the 2013 Budget on 20 March.
So far, Cuadrilla has drilled three shale gas wells in Lancashire and has completed a 3D seismic survey of more than 100km2 of its 1,200km2 license area known as PEDL165, in west Lancashire. As is well known, the company has announced an extremely large gas-in-place resource estimate for the area – 200 trillion cubic feet, equal to more than 60 years’ supply of gas. It is understandably keen to establish gas flowback rates and recoverability factors as soon as possible, and the company says it expects to restart fracking in the first half of 2013, upon receiving planning approval from Lancashire County Council.
If all goes to plan then Cuadrilla will seek to frack at least three wells in the initial exploratory stage. While the Preese Hall site in Wheeton, near Blackpool, has been plugged to avoid a repeat of the earth tremor incidents in 2011, Cuadrilla will conduct intensive fracking at the Anna’s Road site in Westby near Lytham St Annes, the Grange Hill site in Singleton near Poulton-le-Fylde and the Becconsall site in Banks near Southport.
The Anna’s Road site is seen as a crucial well for Cuadrilla. Starting from a vertical well, at over a mile beneath the surface, an extension will gradually ‘arc’ into a horizontal path. The well will be 21.5cm in diameter and the 12-stage horizontal frack will extend 1,400 metres from the site to the west.
From this and Cuadrilla’s other exploratory wells, the company intends to produce gas for one year to determine how much can be produced and how fast gas production declines. The output will be burned in an on-site generator to produce electricity. After the initial 12-month period, if flow rates are sufficiently promising then Cuadrilla would approach the DECC, notifying its intention to proceed to production stage.
As a pre-cursor to full-blown production, Cuadrilla is expected to drill approximately 200 wells from 20 single-site pads, from which operators can move a drilling rig in order to drill 10–12 wells without the disruption of dismantling and re-erecting the rig each time. These wells, roughly three kilometres vertically and five kilometres horizontally, would be drilled over a larger area across Cuadrilla’s PEDL165 license area.
These 200 wells would be operated for a year to ascertain flow rate and recoverability. At this stage, in late 2014 or 2015, Cuadrilla would enter full-blown production. This would entail the development of a further 800–1,200 wells from around 100–120 pads spread over 50 square miles between Cleavleys to the north of Blackpool, Kirkham towards Preston, and Lytham St Annes.
Exploring and developing shale gas plays will not come cheaply. Cuadrilla says well drilling costs are £20,000 per half-day, with each exploration well costing £10.5 million, falling to £9 million in commercial extraction. At the time of writing, Cuadrilla was reportedly in negotiations with Centrica (owners of British Gas), ExxonMobil, BP and Shell to sell a stake in their shale gas assets.
Not the only show in town
But make no mistake, UK shale gas exploration does not start and finish with Cuadrilla Resources. UK firm IGas Energy says test results indicate more than nine trillion cubic feet of shale gas in place at its sites in Ince Marshes near Chester and Doe Green in Warrington, and is evaluating possible drilling.
Eden Energy is a 50% partner of Bridgend-based Coastal Oil and Gas Limited with exploration licenses across South Wales, from Cowbridge to Pontypridd, Neath, Port Talbot and Swansea. Eden Energy reports its seven licences in South Wales have gas-in-place resources of 34 trillion cubic feet.
In Scotland, Dart Energy intends to develop its Airth sites, estimated to contain 0.7 trillion cubic feet, near Stirling in Clackmannanshire. Dart Energy also holds several exploratory licenses for the Cheshire Basin and Gainsborough Trough in northwest England. Several more companies are expected to prospect for shale gas when the DECC finally completes its 14th licensing round for onshore oil and gas exploration.
State of plays
In general, UK shale basins tend to be very different from the United States, in that they are much smaller and the geology is more complicated. Many of the US basins are intra-cratonic, which tend to form in geologically stable regions with relatively small amounts of faulting and deformation of Earth’s crust.
By contrast, in the geological past the UK was situated close to the boundary of several tectonic plates, and so many of the UK shale basins have undergone much more deformation. That means buried faults are contained within the basins that cut through and offset the shale deposits.
The good news is that the sequences of shale are very thick, and that is undoubtedly beneficial in a country such as the UK with a high population density sensitive to developments. Yet the thickness of the shale could be a double-edged sword. The gas pay zone is much deeper than the US shale plays and, therefore, it may be more dispersed and more difficult to extract.
What is certain is that there will be good shales and bad shales with a huge amount of variability within them, as Dr Nick Riley, Team Leader for Unconventional Gas at the British Geological Survey (BGS), explains. ‘There’s a lot of single depositional tectonics going on. So not only do you have overprinting of faults between the late-Carboniferous and post-Carboniferous Periods, but you’ve got active faulting during the Carboniferous Period, and that is controlling a lot of the quality and the thickness of the shale. Plus, at certain times of the Carboniferous period the sea level went up and down as polar ice caps waxed and waned, which changes the organic nature of the shale.’
As yet, there is no exploration data in the public domain appraising whether the good shales have so-called sweet spots of shale gas all the way through. Geologists can, however, conduct burial history analysis to determine how quickly and steeply sediments were buried at the time they were originally deposited, in order to make pressure estimates ahead of drilling any wells.
Dr Jonny Imber, a structural geologist at Durham Energy Institute, says brittle layers of rock are preferable for extracting hydrocarbons from shale. He explains, ‘The hydraulic fractures will propagate more easily, and will remain open, within very brittle layers. They tend to be layers that contain quartz and calcites.’
Shale gas companies look at the stratigraphy by extracting cores of rock to analyse the layers. Dr Imber continues, ‘But the well is like putting a pinprick in a very large cushion – you don’t know what’s going on laterally. The key challenge is to try and work out how the geology varies as you move around the compass positions away from the well.
‘Shale gas production often relies on natural fracture systems within the shales and a well is essentially a one-dimensional sample through a three-dimensional rock volume. It can be difficult to understand the geometry of the natural fractures just by looking at a single well.
‘They can use seismic reflection data to produce a seismic survey over an area of interest, but the resolution of the data is probably only around 30 metres vertically. It will give you a broad overview of the structure and the different layers but it won’t get you anywhere near enough information.’
Even when sweet spots are located, extracting hydrocarbons from shale is not straightforward, says the BGS’s Dr Riley. ‘In places producing shale gas they can drill wells very close to each other in the same layer where one well will flow and the other will not. Also, one horizontal leg may not flow and they don’t know why. There is still a lot to learn.’
In the end, it will be a case of suck it and see. Graham Tiley, Shell’s general manager for an unconventional venture in Ukraine, expects disappointments. ‘That is why it is called exploration,’ he says. ‘We drilled three shale gas wells in southern Sweden but didn’t find the gas content in the shale and exited that project.
‘At the end of the day, if you have drilled 1,000 wells, the question is does the average recovery per well exceed the economic threshold? Some wells will come in lower. A few wells will hopefully come in much higher. But the critical factor is your average recovery per well.’
Gaining public confidence
Much of the screeching from opponents to shale gas is overblown, yet there is no doubt that poorly constructed wells could result in extensive groundwater pollution, as has occurred in the USA.
In its report, Shale Gas Extraction in the UK: A Review of Hydraulic Fracturing, the Royal Society said well integrity is the highest priority to practise safe fracking. Dougal Goodman, Chief Executive of The Foundation for Science and Technology and member of the Royal Society’s shale gas extraction working group, says monitoring should be carried out before, during and after shale gas operations to detect methane and other contaminants in groundwater, and potential leakages of methane and other gases into the atmosphere.
Goodman continues, ‘In the USA there have been casing failures and with a very large number of wells drilled this is perhaps to be expected. In the UK the well design has to be reviewed by a third-party independent examiner, but we recommend that this examiner should also make on-site visits rather than merely review the paperwork for the design, drilling and completion stages.’
The HSE appears to have heeded the Royal Society’s advice. Steve Walker, Head of HSE’s Offshore Division, says it will engage with the onshore drilling industry to gain public trust in shale gas. Walker notes, ‘One of the issues raised by the Royal Society was not so much concern about well integrity but public confidence in well integrity. The industry is also concerned about cowboy frackers cutting corners to cut costs, so it is saying it will go above statutory requirements. [Shale gas developers] say they do not need the well examiner to do ‘x’ but they will make sure the examiner does it in order to deliver extra public assurance.’
Cuadrilla operates an open-house policy on its activities, says Chief Operating Officer Eric Vaughan. ‘We have given hundreds of residents, MPs and councillors tours of our fracking sites and we have a full-time visitor cabin when we are drilling so people can come and see what we do.’ Yet the company has not covered itself in glory in recent years. Aside from the earth tremors, which were hugely damaging in a public relations sense, last November the company was forced to abandon a borehole at the Anna’s Road site after a packer (testing equipment used to investigate a cement failure) was lost and became jammed 2,000 feet below the surface.
Incidents such as these do nothing to assuage fears that shale gas is unsafe. ‘There is no love for shale gas in the UK,’ says Simon Whitehead, Managing Director of energy PR firm Hill and Knowlton. ‘There needs to be an industry-wide offensive campaign with a fresh new narrative giving more of a brand feel to shale gas developments. Fracking needs a re-brand, perhaps with a kitemark for safe developers.’
Developing community benefits
Yet this may still not be enough to ensure shale gas operations go ahead. The industry recognises that it may be rational for communities to oppose developments because they could come in for all the downside of fracking – road traffic, noise and potential groundwater pollution – without any of the upside of increased money in the local economy.
Ultimately, the social licence to operate resides within the communities and no amount of exploration licenses guarantee access to hydrocarbons without it. Public acceptance may require some tangible benefits and shale gas companies are talking with local and national Government to explore ways to transfer some of the revenues back to the communities affected by drilling activities.
In Poland, Hutton Energy has set up a community advisory board comprised of key stakeholders – local residents, the local mayor, the landowner, company representatives and, in some cases, the local priest. Another developer in Poland, San Leon, even goes as far as working with priests to spread the good word about shale gas, attending Sunday worship and making donations towards church maintenance.
A similar approach may work in the UK, says Andrew Austin, CEO of IGas Energy, which operates 30 oil and gas fields with production in the East Midlands and the Weald. ‘Around 10% of our operational expenditure, or 3% of our revenue, is on business rates, which remains in the local community,’ he says. ‘Those rates may mean a weekly bin collection or two more bobbies on the beat. In addition, we make annual contributions to a voluntary community fund run by independent trustees. The local parish councils are able to bid for projects such as music festivals, village hall restorations, bus shelters and so on.’
Austin says shale gas developers will have a much higher probability of getting community approval if they build on the similarities to conventional oil and gas rather than highlighting the differences. ‘One of the biggest obstacles is to get over the impression that the drilling rig will stay forever, like a mobile phone mast or a wind turbine. The rig is there for 90–120 days and then it goes. All that remains is a wellhead.’
The time for talk is over. Shale gas developers such as Cuadrilla and IGas now need to get on with the business of exploration to ascertain the rates at which gas flows out of the shale. Then, and only then, will we know whether shale gas can make a meaningful difference in the UK.