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Huge opportunities in EU shale gas

Regulatory concerns and infrastructure issues must be overcome if European shale-gas output is to reach 35 billion cm by 2020

Shale-gas production in Europe could reach 35 billion cubic metres a year (cm/y) by 2020, or about 20% of EU member states’ output now, with Poland and the UK the leading producers, says a new report.

Unconventional Gas World Production & Drilling Forecast, a study by consultants Douglas Westwood, claims shale-gas output in Poland and the UK could reach 11 billion cm and 2 billion cm respectively by 2020.

Poland has been aggressively promoting domestic shale-gas drilling and last month Cuadrilla Resources claimed to have discovered 5.7 trillion cm in northern England. Prospects for developing shale-gas resources beyond North America are “looking good”, said analyst Joseph Dutton, author of the report.

Huge potential

Although North America will continue to dominate the global shale-gas sector – US production totaled 136 billion cm in 2010, according to the Energy Information Administration (EIA) – there will also be “rapid development” of shale gas in Europe, Asia, Australasia and China, the report said. Growth in Asia will “outstrip all other regions”, with production set to rise by 1,000% between now and 2020, to reach 65 billion cm/y.

“China has a very optimistic and forthright attitude to any kind of economic development and it doesn’t have the same issues from a regulatory point of view that Europe does,” Dutton said. “The potential in China is huge.” With shale-gas reserves estimated by the EIA to be 36 trillion cm. China is pushing development of the resources in a bid to avoid a 5 billion cm/y gas-supply shortfall from 2015.

Australia will also see “near-exponential” unconventional-gas growth, with output reaching 69 billion cm/y by 2020. Most of this production will be coal-bed methane (CBM), as production in Queensland ramps up to supply planned liquefied natural gas export projects.

In Latin America, unconventional output is set to reach 5 billion cm/y by 2020, Dutton said, as companies such as Repsol explore for and develop shale gas in Argentina’s Neuquén basin. In Africa, meanwhile, shale output is also forecast at 5 billion cm/y by 2020.

The International Energy Agency (IEA) estimates global unconventional-gas reserves – including tight gas, shale gas and CBM – to be around 921 trillion cm, with 98 trillion cm in Europe alone. Global unconventional production will make up one-third of gas-supply growth, says the IEA, with shale gas and CBM from China and Australia important contributors.

Services sector trouble

But this projected production boom will place “considerable demand” on the global services sector, Dutton said. To achieve shale-gas output of 35 billion cm/y in Europe, a huge number of wells must be drilled rapidly and many more rigs will be essential.

“We’d need 4,000 wells to be drilled a year, with around 800 drilling rigs operating, to reach the forecast production,” said Dutton. “The regulatory and environmental frameworks in Europe are an issue, but even if that’s sorted out, a huge investment is required in the drilling sector.” In March, Douglas Westwood said Europe may need to spend $10 billion on its oilfield services sector to see significant unconventional gas production up and running on the continent.

Wells, wells, wells

Adding to the financial burden, drilling costs in Europe will be significantly higher than in the US because of the depth of the shales and the lack of available equipment and infrastructure. Well costs for shale gas in Europe could be as much as $10 million to $15 million each, the consultancy said while drilling tight-gas wells could cost as much as $18 million to $28 million. By comparison, shale-gas drillers in the US say per-well costs are now often beneath $5 million.

While nearly 2,000 rigs are active in the US onshore, in Europe the number is just 75 – and only around 20 of those would be suitable for unconventional gas production, Dutton said. Consequently, new rigs must be built to cope with the deep drilling and multi-stage well stimulation needed for unconventional operations.

There is also an issue with high decline rates from shale-gas wells – which are around 60% in the first year, according to Dutton. To reach output levels estimated in the report, 25,000 wells will have to be drilled every year to counteract such steep production falls. “Within Europe, the energy industry is predominantly developed around the offshore sector,” Dutton said. “The transfer to onshore is possible, but will require a lot of investment.” It offers “huge market opportunities” for oilfield services companies, he said.

Commercial in 2020

The report claims that countries such as Germany, France and the Netherlands could achieve commercial shale-gas production by 2020. But polarised views on hydraulic fracturing (fracking) within the EU could hinder development.

France, which could have the second-largest shale-gas reserves in Europe – 5 trillion cm according to the EIA – has recently banned fracking and revoked all shale-gas exploration permits. In Germany fierce environmental opposition to fracking is hindering development.

But since Poland – thought to have the largest shale-gas reserves in Europe, 5.3 trillion cm – assumed the EU presidency on 1 July, it has pushed a pro-fracking agenda and said it will veto any attempts by other EU member states to introduce pan-European shale gas regulation. With the re-election of Poland’s pro-shale gas prime minister, Donald Tusk, the commitment to developing shale gas looks set to continue.

“The EU needs to tread very carefully,” Dutton said. “Various member states are very keen to develop their own indigenous sources of gas, but it’s about how these are offset from a legal and regulatory standpoint.” 

Natural gas “ticks the boxes” for the EU’s climate-change targets and is much more commercially viable than renewable energy, which requires such high government subsidies, said Dutton, adding: “Shale gas development in Europe is something we can’t afford to miss out on. The battle ground is going to be around the regulatory issues.”

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