Shale Gas: A Focus on Positive

Jobs, royalties and more from shale gas development in Europe

There’s a big difference between developing conventional oil and gas and unconventionals, according to James Elston, Director of Palladian Energy Advisory, former CEO of Realm Energy International, and known on this site as the Rational Evangelist for shale gas in Europe.

“The great contrast with conventional O&G exploration,” he explained, “is in a general O&G field you can drill a few wells and you can produce out of those wells with no intervention for a very lengthy period and therefore the returns can be very high, correspondingly the investment level is very low. And once the rig has come and gone, that is it really for the field.

“So there’s not a great deal of investment that goes into a local area – you have people staying in hotels for the couple of months it might take to drill a well, and another couple of months for the surface facilities, and then they go.”

He said things were quite a bit different at unconventional drilling sites, where personnel and affluence were around to stay. In his recent presentation at one of Europe’s premier energy conferences, Flame, Mr. Elston highlighted the associated benefits of developing unconventional gas.

“The difference really is that with shale oil and gas, you have to drill a great deal of wells and you have to do that continually over decades and the effect that has is really continual injection of money through the value chain in various ways,” he said.

According to Elston, security of supply is one very likely benefit; he said he was a bit skeptical about lower gas prices from unconventionals development.

Still, he continued by listing the benefits. Jobs, for one.

“Certainly in America, many hundreds of thousands of jobs are generated – probably even millions of them are generated by the shale gas phenomenon. And it’s not just for a year or two; this is a generational thing. This lasts and will last decades, so you’re going to have people at various levels within the shale gas business around the world really working their entire lives in particular regions, in support of the value chain.”

He continued: “You have substantial, well-paid, generational job opportunities – this isn’t just some quick bubble that comes and goes and you have to make your money on it while you can, like in a property boom. This is substantial, well-paid generational opportunities in rural areas, which means you don’t need to go to a city to earn a good living.”

Royalty revenues, he said, were also a great windfall.

“In America these go to the landowners, while in Europe all minerals are owned by the government, so royalties go to the government at the local or say state level as in Germany,” he explained.

“In France they have an interesting thing where royalties are split within various different levels of governments and you have the situation, oddly enough in the Paris basin, where you have local areas that don’t have property taxes, or that are effectively minimized off the royalties by one or two oil wells.

“So, royalties can be real, be they going to the local or national levels, and of course they’re paid from day one of production,” said Elston.

Corporate tax revenues, according to him, were generated from producers, service companies and suppliers developing a shale play.

“And perhaps even more importantly,” he said, “given the very high level of this taxation in Europe, payroll taxes – your personal taxes and, more importantly, the national insurance contributions, social security, which you don’t see on your payslip because they’re paid by your employer. These numbers are quite enormous.

“And as you can imagine you’ve got generational job opportunities: people are employed for their entire careers and they’re paying very substantial payroll taxes - this is a tremendous revenue stream for governments, even ignoring the tax take directly from oil and gas.”

Elston said there were also multiplier effects on the rest of the economy. He cited studies done on the Fort Worth region for the Barnett shale, which showed benefits, multiplier effects on the economy, and how many people were employed from drilling operations. “There are multiplier effects from massive investment going into a local region that benefit most everybody.”

“And I think perhaps last of all there are gains for pensions funds and other investors in the value chain investing in little companies like Realm, big companies like Exxon, or the many many service companies that come and work on the businesses: civil engineering contractors doing things to do with preparing well pads, or digging trenches for pipelines. There’s just a large amount of investment going in where profits can be made and investors can be rewarded.”

He contended that governments at local and national levels would see substantial cash flows from this business, which would help maintain living standards in Europe.

Elston said developing unconventionals could have a profound effect upon rural areas within Europe.

“If you look at the Lower Saxony area in Germany, its finances could do with an injection of money,” he offered as an example. “Royalties in Germany go to the state, so it really helps with employment and investment. It’s nice to have something happening in the countryside beyond farming, alternative choices of employment.

He added: “And these are well paid jobs; if you work in the onshore business in Europe, you make a lot of money.”

Initially, he said he thought a fair number of teams of people would be moving over from North America in terms of fracking, which wasn’t commonly available in Europe.

“Given the cost of doing that, Halliburton, Schlumberger, Weatherford will be very keen to train local people in quantity from day one, and they’ll just take people from the technical schools and universities, or perhaps Poles who’ve worked in Britain doing various things. They’ll train them up over a period of years and the intention will be to have localized workforces in all plays very quickly, as it’s more cost effective as well as being more politically acceptable than having a lot of people moving in form North America,” explained Elston.

Considering Poland was likely to be first place on the continent where shale gas was developed, perhaps Poles would comprise the first indigenous unconventionals workforce in Europe, he surmised. Having experienced the huge Polish workforce in the UK, he said no one would underestimate the ingenuity, rapid learning and work ethic of Poles, who might eventually be found working in France’s unconventional plays.

Related Reading: Wall Street Journal - Poland's Shale Sector Needs Hands HERE