European Shale Gas: Give it Time
Could shale gas make a big impact in Europe? asked Chris Faulkner, CEO of Breitling Oil & Gas in his talk at the CEE Unconventional & Shale Gas Development Forum in Budapest, Hungary.
Regarding this, he named three unknowns in Europe: the local service sector, attracting continued investment, and reducing the environmental impact.
Of continued investment, he said, “You see in the news there are certain mixed results from Shell in Sweden, or early results from 3Legs Resources in Poland, and you hear these negative comments from people: ‘These wells are marginal at best.’
“These are brand new, frontier plays, which I think a lot of people are not giving a fair shake, comparing them to wells that we’ve drilled in the US that have two miles of horizontal length compared to a well that has 800 feet of horizontal length. There are many naysayers as to whether this will work and how.”
He added: “I still feel like what we’ve seen early on gives us a lot of optimism. With continued investment, we can get the levels that we need to impact the market in a meaningful way.”
Things haven’t always been easy for unconventional gas development in the US, either. In his talk entitled The Potential for Extracting Shale Gas, the Opportunities for Europe and the Critical Path for Effective Operations, Faulkner listed the US risks and uncertainties on the supply side.
“Obviously, the resource base in the US is pretty vast,” he said. “I think until the latest EIA Outlook the US was considered the biggest in potential shale gas; now China’s listed as #1. But still our resource base is vast and the supply is in tremendous glut and the pricing per MCF of natural gas has reached an all-time low. We’ve got to figure out in the US how we’re going to reduce that glut and the production of the US will start being curbed. Large E&Ps are moving those rigs out of shale gas basins and into shale oil or liquids plays.”
He said he would highlight three risk and uncertainties, the first being environmental resistance.
“Everyone in this room has heard plenty about the anti fracking movement and while I didn’t think it was impacting Europe in a major way, when I was at an even in Poland around Christmas time, there was picketing and things going on with the anti fraccing movement,” he reported. “I had hoped that the negative PR that we get in the US wouldn’t have impacted what was happening here in Europe, but it definitely has been seen in Poland.”
According to him, the political tension over unconventional gas was likely to continue, which would result in slow permitting.
He said in America the Environmental Protection Agency had already signaled it was going to introduce additional regulation around hydraulic fracturing, probably some time this year.
There were also questions, explained Mr. Faulkner, over the estimated ultimate recovery of wells, making it difficult to say how long they would produce. “We’re just starting to figure out how long these wells will perform and how we can apply that to our future efficiency models and how we can drill better wells,” he commented.
He also mentioned the competition with oil for upstream dollars and services.
“I think it’s very obvious that no one’s drilling shale gas, dry gas in the US – all of our E&P and capex now is focused around our operations in the Utica, the Bakken and some of our mid continent plays in Kansas and Oklahoma, but we’re now drilling all liquids with some associated gas, and that’s where I think we’ll be remaining for the next five years or beyond; I don’t see the natural gas price in the US moving toward an economic level through 2016-18.”
Mr. Faulkner explained that on the demand side the US had not increased its drivers to deal with the glut, but that LNG export could be possible by 2015. The other opportunities were coal-fired plant retirement and coal displacement, and natural gas vehicles, which had shown mixed success.
“One thing that has happened is that EPA regulation has come out about coal and meeting standards for carbon emissions. There is no current technology that exists to make current coal plants reach those thresholds, so natural gas power plants do. So we’re hoping some of that displacement could occur on a shorter time table.”
Weak demand and recession, he noted, had taken demand growth off of the table, but the US economy was now likely exhibiting signs of life, helping gas markets to rebound.
Then, Mr. Faulkner said he would characterize the difference between North American unconventional gas and in Europe, mentioning concerns regarding how other emerging unconventional areas would keep up with a rigorous drilling schedule, “the fact that we have to drill so many wills to maintain consistent production rather than having a decline. I don’t know that these areas are going to tolerate the drilling required.
“Obviously we’ve got to drill better wells and get more efficient,” he commented, “if we’re going to have emerging basins anywhere near the level that we have in the US.”
The costs were nothing to sneeze at. Faulkner said it could cost as much as $500 million (or more) to develop a basin and figure out what the potential was.
“We have a very competitive service sector – I think that’s the reason that we got out in front of most other countries,” he added. “Obviously, lots of completion rigs, drilling companies, fracc kits, a lot of horsepower there which I think will move to other parts of the world as demand dictates. We also have access to large amounts of data and access to tax incentives that have driven independent companies like us to get out and drill new wells, find new basins.”
Densely populated areas were not an obstacle in the US, said Mr. Faulkner, who also made mention of the US natural gas transit network. He added that the challenges of developing unconventional gas had not changed much, contrasting Europe with the US, where mineral rights were owned by those leasing the land.
“If you look at the areas where we get in trouble with drilling, it’s in and around New York City, in Pennsylvania around the Marcellus shale, that’s where this argument about anti fraccing has heated up. We don’t see a lot of this conversation happening in Texas, Oklahoma or other areas that are not as densely populated,” he explained, adding, “A lot of folks are just concerned about contamination, spills, things they don’t want happening in their own backyard, even if they receive royalty payments it’s still an issue in certain areas.”
He offered that a moratorium on hydraulic fracturing was being discussed in New York.
According to him, a lot of public engagement was still necessary in the US to explain the unconventional gas process. “A lot of people at drill sites where we drill don’t understand what’s happening with fracking – they think that it’s a new technology that we just invented, that it’s untested and untried. So I still do a lot of community relations dealing with the concerns over what people have seen on TV.
“I thought that you guys could pick up where we left off,” Mr. Faulkner said to the European delegates, “which is the last decade of making mistakes and learning from those mistakes, but it seems like that’s already impacting access here in Europe.”
He noted the moratoriums in France, Bulgaria, Romania and in a region in Germany.
Mr. Faulkner said, “Poland seems to be the country that’s most out in front of things with positive drivers and even signals from the government, who think that fraccing is safe and doesn’t impact the environment according to a study they did. That’s the first time we’ve seen that.”
3Legs Resources had had good results in its plays with ConocoPhillips, he noted. “I think they’ve mentioned that they would like to have that production into the market by 2014, making Poland the first country in Europe to get ahead of the curve as far as unconventional gas. I hope that happens,” he said.
There was a very diverse mix happening, he said, with a lot of investment starting to pick up. “But it’s too early to see how big of an impact it’s going to be.”
Mr. Faulkner asked if “green” unconventional gas development was possible?
“Yes,” he answered. Multi-well pad drilling, he said, was reducing land impacts and had saved operators hundreds of thousands of dollars and could reduce massive truck traffic. He added, “Coupled with closed-loop drilling, closed loop fracturing, you’re also saving more time and money and are recycling fraccing fluid.”
He said that such techniques could be used from the get-go in other parts of the world.