UKOOG pin their hopes on some shoddy scenery
Yesterday UKOOG (The UK Onshore Operators’ Group) released a new report called “Updated shale gas production scenarios“.
A scenario is literally “that which is pinned to the scenery” and it looks to us as though the scenery here is pretty shoddy.
First of all let’s be clear about what the report doesn’t do. It does not attempt to revise the forecasts for gas in place in the Bowland Shale, so anyone hoping that there was going to be a marvellous story of a new age of energy independence was going to be disappointed. Not that that stopped them making some pretty fantastical claims as we shall shortly see.
The motivation for the content and timing of this report is immediately clear of course. It is intended to provoke the BEIS into allowing what the report describes as “an unhindered flow test” – or to put it differently they are hoping to have the seismic TLS limit raised and so are bigging up the prospects of the “prize” to be had for any politician foolish enough to swallow their bait.
You would imagine that such an important potential result for the industry would mean that this report was a carefully prepared, academically sound piece of innovative research with some unimpeachable conclusions. You would be wrong . The report itself is a misleading, internally inconsistent and lazily referenced mishmash of data from old reports and some modelling that they have undertaken to improve the rather flakey looking immediate prospects for the industry. Somehow UKOOG seem to have built a whole sequence of scenarios around one well (PNR-z1) that was only five per cent fracked and had to shut down because of the continual risk of earthquakes.
The scenarios themselves are quite revealing. Clearly the industry wants a good news message to convince the government that there is a massive prize available in the near future. From that perspective it is interesting that last year Edison Investment research provided a report for AJ Lucas which used a 30 year type curve sourced from Cuadrilla to calculate the production decline rate.
This new analysis uses a 20 year curve instead, apparently “analogous to typical US shale gas type curves” for 3 Estimated Ultimate Recovery (EUR) scenarios.
While the end result would be the same, the shortening of the timescale in the curve pushes the production forecast forwards and allows them to claim bigger benefits more quickly. It’s a simple trick but an effective one when you want to front load your benefit case to politicians. Those of you who are keeping abreast of the arguments will obviously have noticed the downside for them here, which is that they just cut their employment forecast timescales by 10 years as well.
Coupled with this we see them increasing the average Estimated Ultimate Recovery (EUR) from the IoD’s 3.2 billion cubic feet (bcf) per well to a range from 3.0 bcf to 8.0 bcf. When looking at the new per well EUR forecasts it is interesting to read that “As a result of continuous improvements in completion techniques and the selective development of subsurface targets,improvements in per-well economically recoverable reserves are anticipated over time. This natural increase in well productivity is assumed to be included in the range of scenarios presented“. In other words these new scenarios do depend on an awful lot of wishful thinking!
We would point out here for the purposes of comparison that a 2019 report for the Oil and Gas Journal , based on the highly productive Marcellus shale suggests that the EUR for a 2.5 km lateral would be have a much wider range of 1.65bcf – 8 bcf (much lower at bottom end than is suggested in this report) and highlights the highly variable range of unconventional plays. It would seem then that forecasting a possible average EUR of 8.0 bcf is very optimistic to say the least.
To achieve the extraction volumes they are talking about they propose massive 40 well pads (something which they avoided discussing in their last amusingly titled report – “Developing Shale gas and Maintaining the Beauty of the British Countryside“) and reference examples in the USA. However, the article they reference here actually talks about these 40 well pads requiring sites of 10 acres. That’s 4 hectares each. That is almost twice the size of PNR’s pad and 4 football pitches in size – It seems we are a long, long way from Francis Egan’s reassuring “just a rugby pitch” spiel now.
In fact Encana’s mega pad that they discuss is capable of holding 64 wells on one large, single pad sized in the order of eight football fields long by two football fields wide. That is 16 hectares. – six times a big as the PNR pad and 16 times as big as what Francis Egan was claiming to the press would be all that was needed a couple of years ago. In spite of this they still repeat the claim on page 17 that we’d have “each pad the size of two football pitches”. See what we mean about being internally inconsistent?
The development schedule looks “ambitious” compared to the government’s unreleased Implementation Unit Report on Shale Gas which foresaw only 155 wells drilled by 2025. Even if they started commercial development in 2020 (which seem rather unlikely) they claim to be able to have 40 pads and 342 wells in production by 2025. That’s more than twice the government estimate, and given the incredibly slow progress so far and the continuing planning challenges they face the possibility of that looks vanishingly small.
Perhaps the most questionable claim in the whole report though is that their modelling shows “Net gas imports being almost eliminated in the early 2030s, improving the balance of payments by around £8billion a year.”
However having modelled their assumptions it would appear that, using their central scenario, while production might ramp up so that by 2034 they are producing almost enough to equal projected imports for a year or so in the mid thirties, by the mid forties the decline in production means they are only producing half of that peak rate and it continues to decline swiftly thereafter, becoming inconsequential around 2050.
To claim therefore that imports are almost eliminated by UK shale gas is frankly poppycock, and yet this PR message seems to have been swallowed wholesale by the press!
You can see exactly why they think it’s worth trying to dupe us can’t you?
If you are in any doubt about how they are trying to disguise the reality consider that they show this graph to demonstrate their point:
However, this is hugely misleading as they really ought to show the full picture which shows very clearly the temporary nature of their impact and the fact that it is only achieved for a short period even in the most optimistic scenario and not at all in the other two.
They claim that they might expect a recovery factor of the gas in place of between 15%-30% according to a “recent” MIT study
The “recent” study is from 2011. However, if they expect to extract up to 30% of the 200 tcf they have claimed is in their licence area then they would need 7,500 wells with an average EUR of 8bcf or 20,000 wells with an EUR of 3 bcf. At 40 wells per pad that is between 187 and 500 well pads even if they could site 40 laterals on each pad. That would be a remarkable feat for a UK industry who have so far failed to frack a single well without encountering problems. Strangely the UKOOG scenario doesn’t look at those sorts of numbers at all.
The other major claim they make is the beneficial impact UK shale gas development might have on the level of global Green House Gas emissions. Their reliance here on the 2013 Mackay and Stone report to support a hypothesis that UK shale is less GHG intensive than imported LNG is perhaps unfortunate given that the relevance of, and the weight that should be accorded to, this report have come under question in a recent court judgement.
What they fail to admit here is that in the absence of any means of guaranteeing that the LNG concerned will not simply be burned elsewhere the savings are more likely not to exist and the effect to be negative. In other words UK shale gas is simply going to add to the world’s total emissions and not save anything.
Even the industry’s supporters have acknowledged that it can only be consistent with the UK’s climate change objectives if its emissions are mitigated by Carbon Capture and Storage (CCS). However, for all of the flammery about carbon emissions in the report you will search in vain for any reference to CCS. It doesn’t exist there anymore than it exists as a commercial reality in the real world.
Finally almost every one of their charts using any of their scenarios simply illustrates the fact that the industry will take too long to ramp up to be consistent with the UK’s legally binding climate change objectives and will then decline swiftly until by 2050 it is almost invisible again as can be seen here.
The capital intensity required to fund development and the steep initial declines in productivity are clearly demonstrated here and this explains why the industry is unlikely to ever be profitable unless the price of gas at least doubles. We can’t know whether that might happen or not but current indications suggest it is unlikely at least in the short to medium term
Will this report provide the fig leaf that the government might want to hide behind so their dignity and modesty are maintained as they change the TLS limit? We think it is unlikely as this is a rather amateur PR job that really is not convincing anybody. Even Claire Perry should be able to see this for what it is.
