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UK's offshore shale gas a North Sea lifeline

The country's vast reserves could revive ailing production and sidestep the public's opposition to fracking

But high development costs and the possibility of cheap gas imports from the US mean offshore shale production won't be happening in the UK any time soon. "It has the potential to revive North Sea hydrocarbon developments and put the UK in a leadership position on the technological side," Claudia Belahmidi, an analyst at IHS, told Petroleum Economist. "It could have great potential economically for the UK, if it was to pioneer the technology, in the same way that the UK has a leadership position in offshore wind."

There has been heated debate in the UK about whether the government should allow the country's onshore shale gas reserves to be developed. Some ecologists fret about the impact of fracking on the landscape, voicing concerns similar to those raised in the 2010 film Gasland, which depicted the extraction technique as one that could pollute groundwater and devastate local communities. 

When Cuadrilla Resources's drilling for shale gas in northern England caused two earth tremors in 2011, that didn't help to convince the public that the process could be done safely, either.   

The UK government gave fracking the go-ahead last year after placing a moratorium on the process in May 2011.

Cuadrilla Resources is hoping to develop the 200 trillion cubic feet (cf) of shale gas it says lies within its licence area in the Bowland basin, in northern England. Throughout the rest of the UK there could be more than five times this amount, one UK parliamentary source told Petroleum Economist.

If this figure is proved to be true it could be hugely important for the UK's energy security. The UK's conventional gas reserves are 1.7 trillion cf, according to Cedigaz.

A long-awaited study on the UK's prospective onshore shale gas reserves should be released soon by the Department of Energy and Climate Change (DECC). The British Geological Survey (BGS), which provided DECC with data for the report, has been tight-lipped about the reserve figure but there has been much speculation that the resources could be large enough to slash European gas prices.

Offshore reserves

Supporters of shale gas development in the UK say that there could be vast reserves sitting offshore as well. If these could be extracted it could provide greater energy security for the UK and could avoid any opposition to fracking onshore from the public.

Although there are no official studies of UK offshore shale-gas reserves the BGS has suggested the reserves could be five to ten times higher than the nation's onshore shale-gas resources.

The BGS has offered "a tentative resource estimate", according to the government, of 1,000 trillion cf for the east Irish Sea Basin alone. This figure was based on Cuadrilla's 200 trillion cf estimate for its adjacent onshore acreage in Lancashire. 

With UK gas consumption at around 3 trillion cf per year these resources could potentially provide hundreds of years of gas supply.

Nick Riley, the BGS's unconventional gas team leader, told Petroleum Economist there are several offshore shale-gas deposits, often with conventional gasfields sitting above them. They are in several locations including the Irish Sea, such as the Morecambe Bay gasfields, and the Dublin basin.

Riley said that although the BGS has not carried out any specific studies on offshore shale-gas resources it has published a series of memoirs which describe the UK's offshore shale geology.

Although these describe how thick the shales are and at what depths what's really needed is a full study of the UK's offshore shale-gas reserves. "We've so little production information and there's no full-scale commercial production in Europe. We only have exploration wells," Riley said. "It's not until we start to get a finger on how the shales in Europe behave that we can get more robust estimates of the likely gas we could produce, under various economic scenarios, could be."

Huw Clarke, a geoscientist from Cuadrilla Resources, told Petroleum Economist that the lack of data for UK offshore shale reserves was a huge problem. "The gross rock volumes could be done with the data that's already there but what we're missing is the modern wireline coring and log data to work out exactly how much gas is stored within that rock," Clarke said. "You can use analogies from different US or Canadian shales but they would just be that: analogies."

The available data would help to measure the gross shale rock volumes but there is still no way of telling exactly how much gas is stored within that rock, Clarke said.

The upcoming DECC report on onshore UK shale reserves is not expected to include offshore reserves, the BGS said.

Costs

But it's the development costs, rather than the lack of data, which remain the the key obstacle.

Riley said developing offshore shale gas would be "several orders of magnitude" more expensive than producing onshore because of the additional equipment needed and the technological challenges.

IHS analyst Belahmidi said development costs for offshore shale would be comparable to enhanced oil recovery, which uses water and gas injection techniques to push out previously inaccessible oil and gas from mature fields.

The UK would also have to pioneer the technology needed as there is no offshore shale-gas production anywhere in the world. This would be costly.

Cuadrilla's Clarke said that despite the resource potential for offshore shale development, the company is not considering it any time soon. "Although there is infrastructure offshore I think the economics are slightly different and onshore is certainly more attractive," Clarke said. "It costs a fair amount more, flying people out on helicopters and running rigs. The discovery that we've made onshore is certainly enough to keep us focused there for the time being."

Riley suggested that targeting near-shore reserves, such as at Perenco's Wytch Farm oilfield, in southwest England, could be one way of cutting costs. "If we can do that, surely we can do shale gas," he said.

Belahmidi added that if cheaper US gas exports reach the UK it could also make domestic, offshore shale-gas production less economically viable. In March the UK utility company, Centrica, struck a 20-year deal with US independent Cheniere Energy to buy 89 billion cf per year of liquefied natural gas from the Sabine Pass plant in Louisiana. 

"It would always have to be compared to the option of natural gas imports," Belahmidi said. "As long as these will be more economical potentially with LNG imports from North America in the not too distant future, offshore shale gas might be quite a few years out."

Regulation

Whether the UK can develop offshore shale gas will also depend on how attractive the government can make fiscal and regulatory conditions for developers.

The government said in March it would develop a favourable new tax regime for onshore shale-gas development. This includes extending the ringfence expenditure supplement, the amount by which companies can offset expenditure against losses, from six to 10 years for shale-gas projects. UK finance minister George Osborne also announced plans to cut the corporation tax rate, from 22% now to 21% in April next year and 20% in 2015. New shale-gas projects could also be eligible for funding of up to £3bn ($4.5bn) from the major infrastructure regime starting in 2015.

The government said it will also develop proposals by summer 2013 to ensure that local communities benefit from shale-gas projects in their area. It will also provide details of the proposed Office of Unconventional Gas and Oil's objectives, remit and responsibilities.

But the government has yet to provide regulatory clarity for shale gas development. It said it will produce guidance on technical planning, mainly related to health, safety and environmental protection, for shale-gas development by July 2013.

The Energy and Climate Change Select Committee (ECCSC) urged DECC to hurry up with clarifying the regulatory regime in a report published at the end of April.

The ECCSC report said that despite offshore shale gas being economically unattractive to develop right now it could have more potential than onshore in the medium- to long-term if the technology can be developed.

The report said the government must clarify tax breaks for encouraging offshore shale exploration before the UK's North Sea oil and gas platforms are decommissioned over the next 10-15 years. Otherwise the UK may miss the opportunity to use existing infrastructure. 

Belahmidi says the most needed boost for UK shale prospects would come from greater clarity from the government."The biggest incentive the government can offer is regulation. I think they (operators) will come, tax incentives or not, but getting the communication right with the public is the biggest issue," Belahmidi said. "That needs to be addressed if the government wants to be successful with offshore or onshore shale gas development."

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