Recent announcements by the UK government encouraging development of shale gas are not enough to ensure its commercial viability, and the key determinant will be the quality of the subsurface and well performance, Wood Mackenzie Ltd. said.
The UK government lifted a temporary moratorium on hydraulic fracturing and has discussed economic incentives to encourage shale development (OGJOnline, Dec. 13, 2012).
In a report entitled “UK Shale Gas–fiscal incentives unlikely to be enough,” WoodMac said commercially viable shale gas development hinges upon UK subsurface characteristics being as good as the best shale plays in the US and Canada.
Noting higher costs in the UK, WoodMac’s economic assessment shows that average performing plays would need natural gas prices in excess of $9/Mcf to break even.
Niall Rowantree, WoodMac unconventional play analyst, said well performance will be key regardless of regulatory support.
“Until many, many more wells are drilled, fracture stimulated and flow-tested, it is not possible to accurately predict the ultimate recoverable volume of shale gas in the UK and therefore any estimates of the ultimate impact on UK gas supply are premature,” Rowantree said.
He notes up to hundreds of well have been required in the US to determine whether a play is commercially viable.
WoodMac believes it’s unlikely that UK shale gas development can keep pace with the UK's anticipated dependency on gas imports in coming years.
“Consequently, we think it is unlikely that shale gas production from the UK alone will have a material impact on the UK's gas price dynamics to 2025,” offers Yvonne Telford, WoodMac UK Upstream Research Analyst for Wood Mackenzie.
Obstacles to development
The report outlines four significant barriers that need to be addressed to develop the UK’s shale gas resource.
“The most important first hurdle is overcoming what we see as being two linked issues: addressing the public’s concerns about the safe practice of hydraulic fracturing, and the lack of incentives for communities to permit drilling in their area,” Rowantree said.
A second issue critical for successful development is attracting a variety of companies, Rowantree said.
“In North America, the most successful plays have a cross section of companies involved and active acreage turnover,” he said. “A variety of participants means greater variety in drilling and completion techniques and a higher probability of the play’s subsurface being successfully decoded.”
WoodMac said the UK’s onshore supply chain will need to grow to ensure wells can be drilled affordably, quickly, and safely.
On the UK regulatory side, there is what WoodMac calls “a laborious permitting process with multiple agencies involved.”
“Most successful plays in the US have a transparent and efficient regulatory regime with rapid permitting for wells and a well-trained and properly staffed regulator,” Rowantree said. During peak development of the Barnett shale play in Texas, operators drilled about 500 wells/year.
“We’ve seen developments in more laborious regulatory environments, like Poland, progressing at a much slower pace,” Rowantree asserts.
Contact Paula Dittrick at firstname.lastname@example.org