ALASDAIR BUCHANAN is Senergy’s Chief Operating Officer and Managing Director of the Group’s Energy Services division. He is also a committee member of the Unconventional Gas Aberdeen conference, which takes place at Aberdeen conference centre on March 25-26. Here he explains some of the key challenges facing the industry.
How important as unconventional gas to the UK economy?
Action is needed over the UK energy mix and import solutions, and unconventional gas comes centre stage in the country’s energy debate. With more than 50% of natural gas coming from more costly imports, we need to try harder to secure UK supply and drive costs down.
Imports, dominantly from Norway via pipeline and from Qatar via LNG, have increased the cost of natural gas, which has typically made up about 40% of UK power generation and approximately 75% of domestic and business heating.
The offshore industry has ensured a domestic supply of natural gas since the 1970s but in 2011, the UK imported more gas that it produced from domestic reserves for the first time. The steady North Sea decline in supply, most recently a 15% drop in 2012, means that we need to look at the energy mix, and the vital gas component, to provide affordable, reliable, low carbon supply.
What are the economic and fiscal implications?
Importing gas reaps no tax rewards for the UK but when shale becomes profitable companies will be liable for 62% tax. Each site is also expected to deliver between £5-10 million worth of community benefits from the operators and create numerous jobs.
Shale has the potential to reduce UK import gas by 50% and action is needed over the role unconventional gas has to play in the future energy arena.
The increased cost of imported gas not only impacts upon UK balance of payments and cost of energy to the consumer, but also caused a shift in the balance of coal and gas in the energy mix. In just one year, from 2011 to 2012, the proportion of gas to coal in UK energy mix reversed from 40:30 to 30:40.
The use of cheaper coal (also dominantly imported) is also increasing. It generates 25-50% more CO2 than gas for the same energy, meaning carbon emissions targets are slipping out of reach.
The increasing price of natural gas and technological advances such as directional drilling, horizontal drilling and hydraulic fracture stimulation mean that onshore UK natural gas resources have the potential to solve impending energy challenges for the country.
Does the industry have the ability to mine unconventional gas?
The UK’s main energy source of recent decades has been the North Sea oil and gas sector, which is usually out of sight and largely out of mind until an incident occurs when it enters public awareness temporarily.
Bringing energy production back onshore has changed the perception of hydrocarbon extraction. The public, in the UK and around the world, is more aware of shale gas than of the previously producing fields.
However, it was said making the North Sea work was impossible and it became the backbone of our supply. There are issues to address around unconventional gas, but if this can be done in the right way it could give the UK potential to be energy self-sufficient once again.
Given early results from drilling and testing in UK, suggesting the subsurface is favourable for shale gas and coalbed methane, success will depend upon operators winning ‘hearts and minds’ of communities hosting extraction operations and proving the safety of these activities.
Communicating the facts about onshore natural gas extraction is a crucial task. It is important to demonstrate that the ‘cost’ in terms of disruption and environmental damage is low and the benefits are significant.
There are already hundreds of sites in the UK and most of these sites are around two hectares in size, about the same size as a football pitch and equating to only 0.1% of the UK’s entire landmass. The emissions footprint is also smaller than that of imported gas.
How dangerous is fracking?
Fracking is a contentious issue, but a Government report in 2012 found there was no risk to surface life through hydraulic fracturing. Fracking has taken place onshore in the UK for 50 years, and 2.5 million hydraulic fractures have been carried out in the world with only a couple of seismic events.
In order to gain sufficient public acceptance to allow work to proceed, operators need to do several things around communication and engagement. There is a need to understand the variety of stakeholders; their needs and mode of communication and develop a simple message which describes the processes, issues and benefits.
How important is public trust?
Engaging with stakeholders to deliver this message in the most appropriate way is key. This includes social networking sites where it is also important to monitor communications and set the record straight where needed. There also must be a transparent relationship with government and other influencers to advance understanding of the facts.
Ultimately, only track record will demonstrate that these resources will benefit the local and national economy and that they can be delivered without fuss and without incident.
The UK has the skilled people needed to make this a success. Whether that is the transfer of oil and gas expertise into unconventionals or the wealth of young talent coming up through the universities and from other sectors, we have the energy and engineering pedigree to develop the resources on our doorstep.
While building this track record we have to collaborate for a consistent message and accept that, just like the early days of the North Sea, there will be those saying it can’t be done.