The rapid rise of US shale gas is prompting great interest in whether other parts of the world - particularly Europe and China - could also see a similar boom, but it’s early days for both.
So how promising is it? Below are extracts from an FT Energy Source interview on the subject with Rhodri Thomas, who is Wood Mackenzie’s Europe and Sub-Saharan Africa upstream research manager:
Is shale gas truly proven, an economic source of energy?
There are still many unknowns in terms of shale gas, but what has been proven is that significant volume can be produced at below market prices in the US.
The industry has been extremely successful in driving down costs and the price required to make shale gas viable has fallen in a number of areas in North America. Everyone expected the processes and technology developed in the Barnett shale play (the first one to be developed on any significant scale) to be transferrable, but what caught people out is how quicky it was transferrable.
There is some excitement about very nascent unconventional gas plays in Europe. How much is known about that outlook there?
In North America, you had many factors aligned in the support of unconventional gas. In Europe, these factors aren’t aligned in the same way. That’s from the subsurface geology, the services in terms of supply
chain, issues such as land access, access to infrastructure, government regulations, and environmental restrictions. All of those will act to slow down the development of unconventional natural gas.
The fundamental requirement is supportive geology. And so far we just don’t know whether the shales, coals or tight gas sands of Europe are going to support economic development There is a lot of news flow, licencing, people working on projects, but there are only a very small numbers of wells drilled, so we just don’t know whether shale, tight gas or CBM will make a material impact on European supplies because we just don’t know enough about the geology.
If the geology does prove to work then it could take off, as in Europe you have a very attractive gas market in terms of price, a very hungry market for gas, and an increasing import requirement. These are key in attracting companies to look for unconventional gas in Europe. However, the factors mentioned above will act to slow the rate of development and we don’t expect to see the same dramatic rate of increase as we’ve seen in North America.
And those are the main issues in Europe?
Yes - the subsurface, supply chain, access to infrastructure, in terms of processing facilities, access to land to drill and link wells together and the regulatory environment. Many of the North American unconventional plays were developed in the same location as existing oil and gas producing areas. That’s true in some examples in Europe, but to a much lesser degree.
As a result the European unconventional gas [market] will not be able to piggy back off existing infrastructure for processing, compressing and transporting the gas and more of these facilities will need to be built. Even where they do exist, many of the existing [facilities] in Europe are ageing.
Is the gas transport network an advantage?
Europe does have a very extensive gas transportation network. That is definitely a benefit. But the point on infrastructure is on the local level; it doesn’t exist to the same extent across Europe. Then you have to get planning permissions; local authorities have to be involved. And depending where you are, in some areas it may be welcomed, a source of jobs; in other areas, less welcome.
Are environmental concerns warranted? Will this be a bigger problem in Europe?
Very much the perception of the environment is important. In terms of getting projects done - you need to not only ensure it’s proteted, but that the local population understands, and trusts and believes that it is protected.
In Europe, there is less of an existing onshore oil and gas industry, and as a result the local populations are less well aware of how the oil and gas industries work, so the education of local populations about how this is extracted, what the environmental risks are, and how they’re managed, will be very important.
In the US, Texas is a good example. The oil and gas industry has been part of people’s lives and people are very aware of how it works and the benefits it brings.
It’s something that the companies involved are very aware of.
Is the population concentration a potential problem?
There are clearly areas of Europe that are very densely populated… the oil and gas companies are very well aware of the impact of getting it wrong, so I think they’re going to be very conscious of approaching it in a sound manner.
What do you think of the unconventional developments in China?
China is extremely interesting both from a subsurface perspective and above ground. There has been lot of newsflow, and some activity around tight gas sands and CBM but people are just starting to assess the potential of shale gas.
The geology does look very interesting. But equally there are other challenges - some of the same that are faced by Europe. But China is better set up to overcome the factors that aren’t aligned than Europe is. In China the development of indigenous resources is very much a strategic decision - both in terms of subsurface and above-ground issues.
Related links:
Where the European shale gas plays are (FT Energy Source)
More on the European shale gas rush (FT Energy Source)
Interactive graphic: Unconventional oil and gas