The head of the newly-established INEOS Upstream oil and gas exploration division has warned that its Grangemouth petrochemical refinery – which is hugely important to the Scottish economy – depends on a domestic Scottish shale gas industry to guarantee a long term future for the plant.
The Swiss-based chemicals giant wants to use shale gas as a raw material for the Grangemouth plant and last year bought licences for shale gas exploration across more than 1,000 sq. km. in the Central Belt.
Last month, however, the Scottish government announced a moratorium** on the fracking technique used to extract the gas earlier – putting a huge political and economic question mark over the nascent Scottish shale gas industry.
** ‘UK shale gas licence ‘timebomb’ continues ticking below Scottish fracking moratorium’ – http://goo.gl/ziW2fv
Speaking at a conference in Edinburgh attended by senior civil servants in the Scottish Government, Gary Haywood, Chief Executive, INEOS Upstream, said that buying in shale gas from abroad was not a long-term solution.
He said it would be feasible to get a shale industry up and running in the UK “within three to five years”. He said:
“If you look forward five years, it is possible we could be producing gas from that point onwards. That would mean that we have some time to develop the resource and replace what we get from the US. Can we do that efficiently enough to make Grangemouth make sense in the future? That is a real challenge.”
When asked if the plant would have a future without an indigenous supply of Scottish or UK shale gas, Haywood said it would be “very difficult”.
He said: “When you are shipping in material <from overseas> you are always at a disadvantage. It is a very special situation at the moment, with ethane being available in the US at very low prices, because of the rapid increase in production and the lack of demand in the US.
“That has meant we have been able to get that ethane at very, very cheap prices, relatively speaking. We can’t see that going on. Unless we can develop an indigenous source, it is unlikely that the cracker at Grangemouth has a long-term future.”
Last year, the refinery was shutdown indefinitely by INEOS as a result of industrial action by its workforce over the company’s planned changes to its employee pension scheme, before workers later agreed to return to work.
The industrial and economic significance of the permanent closure of the Grangemouth refinery led to urgent, high-profile intervention by governments in Holyrood and Westminster, and resulted in additional financing facilities being made available to INEOS to build a shale-gas importing terminal on the Forth estuary.
Last night seasoned industry observers predicted that the Scottish Government would maintain its ‘fracking freeze’ this side of the UK general election – to do otherwise, would lead to large loss of public trust (and votes). But after the election – when formal power to licence shale gas applications has passed to Holyrood – and after the yet to be held further public consultations and (private) meetings with the shale gas industry and Scottish government Ministers – the Scottish Government will be squeezed between a political rock and an economic hard-place, resulting in a highly cautious, step by step approach to approving shale gas exploration licences.
Fergus Ewing, Scottish Energy Minister, issued a tight-lipped comment in response to INEOS’s statement: He said: “The <unconventional oil and gas> consultation will allow everyone with a view on this issue to feed it into government. It is a logical next step in the careful and evidence based approach we have demonstrated to date, and is an example of our commitment to the community engagement which this Government believes in.
“Industry bodies including Ineos and the UK Onshore Operators Group welcomed the opportunity to engage in the consultation and environmental organisations including Friends of the Earth Scotland and WWF Scotland also both welcomed the announcement.”
A spokesman for INEOS added: “We understand the importance of public consultation to assess the impact of unconventional oil and gas. We welcome the Scottish Government’s decision to manage an evidence based approach and the opportunity for Ineos to provide detailed information.”
The Scottish Shale Energy Conference 2015
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Crude oil price slump won’t stop shale exploration and development
Patrick Keenan, Chief Executive of UK-based Guardian Global Technologies has warned that – despite cutbacks in US shale oil production as convention oil prices have slumped – new players, with new technology will emerge to compete at lower prices.
He said: “Whilst current oil market volatility, and the possibility of an extended period of low oil prices, could pose a risk to shale oil production in the future, the falling price of crude should have a relatively small immediate impact on drilling in shale in the US.
“Most shale oil producers are likely to have hedged a significant proportion of their future production already and are guaranteed that price through mid-2015. In addition, break-even prices for shale oil vary significantly from basin to basin, depending on crude quality, geographical remoteness and means of transporting the oil to market.
“This means there is no single lower price at which all shale oil is affected.
“Whilst high debt servicing may hit weaker producers, we will see the stronger players identify new ways to cost-efficiently drill and complete their wells, thereby boosting existing production. This will provide opportunities for growth for service companies with innovative technologies tailored for, and readily deployed into, those market segments.”