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Friday, 2 August 2013

Issue 5: What are the technical steps to success with unconventional gas production?

Understood geology - Good companies - Controlled costs - Economics - Environment

In the previous blog I said that there were about 400 tcm of recoverable unconventional gas resources. Well, to begin, what is unconventional gas?

What is unconventional gas?

Unconventional sources of gas are trapped underground by impermeable rocks, such as coal, sandstone and shale. There are three main types of unconventional gas:

  •  Shale gas, which is found in shale deposits and is not yet exploited in the UK.
  • Coal-bed methane (CBM, also known as coal-seam gas (CSG) in Australia), which is extracted from coal beds. Dart Energy have submitted planning applications, to Falkirk and Stirling Councils, which if successful, would open the way for Letham Moss near Airth in Scotland being the UKs first unconventional gas development.  
  • tight gas, which is trapped underground in non-shaly but impermeable rock formations. 

How is unconventional gas produced?

There are many methods, but one of the most common methods is hydraulic fracturing (also known as fracking).

In hydraulic fracturing a well is drilled, and large volumes of water (mixed with some sand and chemicals) are injected underground under high pressure to create cracks in the rock which remain open due to the sand grains that remain propping the cracks open. This frees some of the trapped gas and allows it to flow into the well to be produced. Hydraulic fracturing is often carried out using horizontal wells.

Horizontal drilling enables the well to penetrate significantly more rock in this gas bearing strata, increasing the chances of gas being able to flow into the well. Horizontal drilling also allows a large lateral area to be produced while minimising the surface impact, and so is seen as an environmental benefit. One drilling pad of about 2 hectares has the potential of opening up almost 30 square kilometres of a sub-surface shale formation for exploitation.

For how long has unconventional gas been produced?

In the USA, tight gas has been produced for more than four decades and coal-bed methane for more than two decades. Production of shale gas in the United States began more recently, and has increased rapidly from 2005 onwards, mainly because each land-owner benefits financially from every producing well in a direct fashion.

In 2010, shale gas represented more than 20% of United States gas production and had turned the USA into a net exporter of gas and allowed it to export more of its coal. If the USA had signed up to the Kyoto agreement, it would be well on the way to fulfilling its obligations, if not there already, while importers of the coal, such as the UK, would ironically, be slipping in the race to meet their obligations.

How much unconventional gas is currently produced?

According to the IEA, as of 2010, 

“…unconventional gas production reached an estimated 15% of global gas production. The majority comes from North America, with around 420 bcm produced in 2010, and half of which was  tight gas. Throughout the rest of the world, coal-bed methane production is estimated at approximately 10 bcm and tight gas at 60 bcm. Shale gas output increased by a factor of 11 over the last decade, to reach just under one-third of total unconventional gas production in 2010. However, as of 2010, shale gas output was still concentrated in the United States.”

So why the recent interest?

We do it because we can. Hydraulic fracturing with propane was being done 50 years ago in shallow aquifers in order to improve flow in domestic water wells. Far from being considered dangerous or toxic, the propane fracking of aquifers in Canada was seen as a beneficial tool, with the local wells being left for a few days for the propane to dissipate.

These propane aquifer fracks were relatively easy procedures at shallow depth. Modern hydraulic fracturing has had to overcome technical problems associated with the need to fracture rock at over 3000 m depth. The new technology is expensive, but in the 2000’s extremely high gas prices drove technological advances and their immediate use.

Ironically, perhaps, the strong growth in production in the United States over the last few years has led to a significant decline in gas prices, but output still remains robust and other countries have been prompted to explore whether they could enjoy similar results.

The countries most interested are, of course, those that have net gas imports because if they are able to produce significant volumes of unconventional gas, they would have greater energy security and more energy independence.

Technical steps for success with unconventional gas production? 

A number of key things need to be in place if unconventional gas is to be produced successfully:

  • Geology: Potential areas for exploitation need to be identified. In the UK, this has already started with the BGS report on the Bowland-Hodder shales. Exploratory wells have to be drilled to assess the rocks before any fracking can even be planned. Not all shale contains sufficient gas and of that not all is fracturable, and of that not all will flow economic volumes of gas. Tests must be carried out to ensure that the well is prospective before production is put in place.
  • Companies: The companies involved in operations must have first-rate engineers, a sufficient number of available rigs, and significant experience of drilling. Most of the UK companies do not currently reach the required level of resourcing. However, they will be able to do so if exploration wells prove prospective. But putting expertise and equipment in place takes time.
  • Costs: The rate of development will depend critically on the quality of the gas field. In the USA there is a wide range of costs associated with different field quality. In the UK and the rest of Europe only the highest quality fields will be economically producible because the government and population should hold the companies to a high standard of industrial behaviour through regulations and consultation.
  • Economics: Development of unconventional resources will only happen if (i) there is an internal and external market for the gas, (ii) the country is a net gas importer, (iii) the country has a weak energy security, (iv) benefit will accrue to all concerned, including the local population, (v) the country promotes the development with tax breaks, and (vi) the appropriate fiscal and regulatory frameworks are in place. In the UK, the first three criteria are already fulfilled and points (iv) and (v) have been recently addressed. More needs to be done to ensure that the whole industry is properly regulated with laws specifically designed for it.
  • Environment: Europeans will not stomach unconventional gas if there is an unwelcome effect on their environment. It has often been said that the UK, and elsewhere in Europe, the population density is too high for development, and behind the recent ridiculous comments by Lord Howell on the ‘…desolate North-East’, an original Howeller! However, the UK population is incredibly urban with over 80% of the population living on less than 7% of the land according to Corin Taylor, so that argument maybe specious. Nevertheless, sustained development would only be possible if (i) landowners and local communities will not only accept drilling, but become stakeholders in it, (ii) all environmental risks have been taken into account and addressed, and again (iii) the appropriate fiscal and regulatory frameworks are in place.

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