Articles from The Sunday Times - 28/12/14 & 01/03/15
Last week Ali al-Naimi, Saudi Arabia's oil minister, gave the strongest indication yet that the price of crude will stay in the doldrums for the forseeable future. Speaking on behalf of Opec, the cartel of oil-producing nations that accounts for a third of the world's output, he said: "It is not in the interest of Opec producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60, it is irrelevant".
The fall is the result of a confluence of factors. One is the slowing down in China. For the past decade the world's most populous country was the main source of demand growth. It's economy has finally started to cool. At the same time the shale revolution in America has brought new supplies on a scale few foresaw.
For the first time in years, supply is outstripping demand. American production has accounted for virtually all of the increase (outside of Opec) over the past four years.
Saudi Arabia's strategy appears to be to choke off the newcomers by letting the price stay low. Riyadh is estimated to need oil at $95 to balance its national budget but has enough cash reserves to see it through for a while. And on a per-barrel basis, nobody can compete.
By virtue of the sheer size of its reservoirs and the fact that they are on land, Saudi crude costs as little as $2 a barrel to pump out of the ground. Some of America's frackers, on the other hand, need crude near $70 to break even. Nearly all of them struggle to make money at $50.
That's because fracking, the process of blasting underground rock formations with high pressure water, chemicals and sand to free the fuel locked inside, is expensive. To maintain production, new wells need to be sunk constantly because the formations drain quickly once they have been tapped.
Of the world's 3,000 drilling rigs, nearly half - 1,450, according to research from Canaccord Genuity - are operating in America. However, hundreds have already been pulled out of action. About two thirds of the oil rigs in Texas are expected to be shut in 2015 according to forecasts from the oil companies themselves. There is still oil and gas being produced but the exploration has stopped until the oil price recovers.
As of 7th January 2015:
Brent Crude - USD50 per barrel
US Oil Price - USD50 per barrel
(West Texas Intermediate)
This is the lowest price since April 2009.
Fast Track Frack Licences November 12 2014
Tim Shipman: The Sunday Times – 27/7/14
The new Tory Energy Minister, Matthew Hancock, has revealed that fracking for shale gas is to be fast-tracked because it will give Britain greater energy security and protect it from Russian aggression. He went on to say that the Government would make it ‘much quicker’ for companies to get approval to drill for shale gas.
At present firms that want to frack have to wait about six months for permission through a 15-stage process. Hancock hopes to slash that in half.
He said “Shale gas has the opportunity to increase our energy security, potentially to cut costs and also to reduce carbon emissions by reducing the amount of coal that we burn. Those three are the holy grail for energy policy. With what we’ve seen in Russia over recent weeks [the shooting-down of flight MH17], the importance of an indigenous energy supply can’t be overestimated.
He went on to say “Payments to villages and towns of £100,000 a well [described by some as bribes] have to come from the industry rather than the government”.
Hancock, a keen countryman, campaigned against windfarms in his West Suffolk constituency, saying “Climate change is an important consideration but so is local beauty… putting up windfarms in beautiful landscapes against the strong opposition of local people is not right”.
Fracking puts insurance cover on shaky ground August 20 2014
Based on an article in The Sunday Times - 3/8/14 ~ by Ian Cowie
Some American Insurers are excluding claims for fracking damage from household cover and, some British Insurers are considering followings suit. It’s a fact that dozens of local authorities in America have banned fracking, and litigation is under way between some of them and a few energy companies.
Martin Milliner, of the insurers LV, stated “Fracking is alleged to have caused earth tremors in Lancashire and environmental damage in America, where financial loss, suffered as a result of this risk, has been excluded from some insurers’ standard household cover. With an estimated 30% of the UK potentially suitable for fracking, insurers will have to debate their appetite for related risks. As with flooding, in the extreme case where a house becomes uninsurable, it could also become unmortgageable and unsellable.”
Nationwide, an American Insurer unrelated to the British Building Society of the same name, has apparently excluded fracking damage from a wide range of policies, after Texan drillers paid compensation to householders for methane gas found in their tap water.
Bricks and mortar are many Britons’ most valuable asset. Household insurance is meant to protect us from unlikely mishaps. Fracking risks must be properly assessed and evaluated.
Extracted from www.engineerlive.com
Helge Lund of Statoil believes that the lack of public and political support for shale gas, coupled with the population density in Europe, will hamper [development] efforts in the near future. And with BP ruling itself out of shale gas drilling in the UK (in February 2014), the Swede is in good company. In the Netherlands (which has traditionally been a big producer of natural gas), the government won't even decide whether or not to allow drilling until 2015. The gas pipeline network in the EU is a long way off being complete - in many cases the infrastructure between countries is almost non-existent.
Marcus Pepperell from Shale Gas Europe, a platform run by FTI Consulting is cautiously optimistic that things are not as bleak as Helge Lund and others may think. He states, "The European Commission estimates that Europe could see the start of commercial drilling as early as 2015 in member states where trials are most advanced. Exact reserves are unknown and further exploration needs to take place. However, current activity is well ahead in the UK, Poland and Romania. In many other parts of Europe, such as the Netherlands and Denmark, the authorities are undertaking extensive studies to estimate shale gas potential."
Indeed, the UK and Poland have gone so far as to join forces in this arena, declaring themselves 'natural allies' and agreeing to produce joint research to detail how "the potential of shale gas can be realised." (France, however, have a ban on hydraulic fracturing).
Pepperell does believe there is a compelling business case evident already. He explains: “Industry is an important part of the European economy but Europe has higher energy prices than in other parts of the world. The recent Commission study on energy costs shows that European gas prices are much higher than in Latin America or continental Asia and more than three times higher than in the USA. This has an impact on the competitiveness of European industry, especially for high-intensive energy industries such as the chemical, paper or metal sectors. It means European business is at a disadvantage when competing in the global market.”
Pepperell goes on to say “In Germany, for example, the phasing out of nuclear energy and support for renewables, energy taxation and carbon licenses, has led to much higher energy costs than elsewhere in Europe. Other member states, such as Poland and Bulgaria, are very dependent on a single external energy supplier that imposes high costs. Industry in these countries is therefore at a disadvantage. The development of new potential domestic energy sources, for example shale gas in the UK, is also dependent on the creation of a reliable regulatory and enforcement process to achieve policy support.”
It's the politicians that could prove key to improving the situation with regard to energy costs. Pepperell and his colleagues at Shale Gas Europe recently issued a press release calling for political leaders to step up and address the future competitiveness of energy-intensive industries. Pepperell says simply: "Politicians are an important part of the policy-making process and energy policy has a direct impact on energy costs."
"A survey by FTI Consulting conducted in April 2014 shows that in the UK, 47% agree that in light of the crisis in Ukraine, the need for the UK to consider fracking for its own gas supplies increases, while only 21% disagree."
A big-name player that concurs with this is Cuadrilla Resources, which has recently gone one step further and put a - hesitant - starting date on it. The company has stated that by the end of 2015 it is hoping to fuel British homes with shale gas. They said, "For example, local communities will receive £100,000 for every exploration well site that is hydraulically fractured in addition to 1% of revenues from future shale gas production. This could equate to over £1 billion over a 20 to 30 year production timescale in Cuadrilla's Bowland Basin licence area alone."
Cuadrilla announced their intention to apply for planning permission to drill, hydraulically fracture and test the flow of gas from up to four exploration wells on two sites - one at Preston New Road and the other at Roseacre Wood.
UK's biggest shale gas explorer created
In May 2014 IGas acquired its rival Dart Energy to create the UK's largest shale gas explorer. The deal was worth almost £120m and the combined portfolio covers 1 million acres of potential fracking land.
IGas produces around 3,000 barrels of oil and gas a day from 110 sites in the UK while Dart holds licences to produce gas from coal seams in Scotland.
The new business will also harness the power of two joint venture partners in Total and GDF of France. The overall venture will be far larger than Cuadrilla Resources, which has been the most well-known name in the UK market thus far.
Based on an article in The Sunday Times – 30 March 2014
Oil prices are still set in world markets. Fracking oil is too light and too sweet (low in sulphur) for use in American refineries. So America continues to be a big importer of heavier crude oil, dependent on unstable regimes for steady supplies at tolerable prices. Natural gas will not become a geopolitical tool until substantial political barriers to its export can be hurdled.
In America the current administration regards oil and natural gas, along with coal, as responsible for climate change, and to be phased out as the transition to renewables is completed. For them natural gas is at best a “bridge fuel” to take us to the day when the world relies completely on solar, wind and other non-fossil fuels to operate highly energy-efficient cars, factories and homes.
Just 6 of 37 applications to build the terminals needed to liquefy natural gas for export (at an estimated cost of $30bn each) have climbed the first step on the ladder to approval, and only one is under construction. Environmental groups fear the impact on areas in which these terminals would be built. America’s Energy Advantage, a lobby group led by Dow and Alcoa, want to keep these resources for domestic use at low prices; and the law requires special government review of any natural gas exports to nations with which the US does not have a free-trade agreement.
Add to all of this a 40-year-old statute that makes it virtually impossible for American companies to export crude oil, and it will be a long while before America becomes what it might become – the world’s largest exporter of crude oil.
LPG Fracturing July 23 2014
Extracted from the Letters Page of the Catholic Universe dated 08/09/2013 (unconfirmed claims)
LPG fracturing is a rare breakthrough in the oil and gas industry that can deliver both economic and environmental benefits.
Almost 80% of the water used to frack stays in the well. The flowback water is potentially a radioactive waste, requiring treatment, due to occasional contamination by natural uranium present in the formation.
Using LPG allows operators to use abundant hydrocarbons already being produced to extract more hydrocarbons whilst eliminating the need for the addition of biocides to the fracking fluid. LPG can be stored at ambient temperatures, and reduces the need to flare after production.
LPG provides a consistent viscosity, does not require the addition of CO2 or N2, nor does it require any special cool down or venting of equipment.
Propane LPG liquid is half the Specific Gravity of water reducing the haulage costs to site until it can be produced at the wellhead when trucking ceases. Trucking can be reduced by 90% overall. The yield of each well is improved by about 30%.
Cuadrilla’s Allan Campbell – How he believes shale gas from fracking could transform Britain July 09 2014
Interview by Danny Fortson (The Sunday Times 08/12/13)
Allan Campbell’s company, Cuadrilla Resources, discovered the reservoir under northwest England.
A video on Cuadrilla's Fracking Procedure:
“This is the North Sea all over again”, Campbell says. “In America they are playing with 300ft of gas-bearing rock layers, we have 6,000ft, this is a game changer!”
Campbell claims the Bowland basin, an underground formation that stretches from the Isle of Man across northwest England and down to the Midlands, could do for Britain what shale has done for America, where a critical gas shortage has transformed to more than a century of supply thanks to ‘fracking’.
Campbell continues “At the moment there is a vacuum of information that is being filled with hyperbole with no foundation in facts”. His idea is to launch a “big conversation” in the form of 40 town hall meetings across Britain, ideally in partnership with non-governmental organisations that do not share Cuadrilla’s vested interest in shale. Cuadrilla has, like other drillers, agreed to hand 1% of revenues from each well to locals – two-thirds to parishes, the rest to councils.
In 1995, Allan Campbell took over a tiny engineering company called A J Lucas, which got into the booming business of tapping coal seams for gas. Following huge success in this area, he hired two experts to scout Western Europe. They homed in on the Bowland basin after studying publicly available geological data, including details from four wells drilled by British Gas in the 1980s.
In February 2008, Cuadrilla Resources, a 100%-owned subsidiary of A J Lucas, applied for licences to explore 450 square miles of Lancashire. Cuadrilla claims that the Bowland shale holds 200 trillion cubic feet of gas, enough to supply Britain for 57 years. However, the British Geological Survey estimated the Bowland could hold six times as much.
Campbell hugely underestimated the political aspect of the project and states that he regrets not relocating to Britain from the offset, but he did manage to bring on board Lord Browne, the former BP chief executive. His private equity firm, Riverstone, bought a 45% stake in Cuadrilla which is the same stake as A J Lucas holds with the staff sharing the remaining 10%.
This summer, British Gas bought a stake in the company’s acreage and agreed to cover some of the drilling costs. Campbell himself owns 20% of A J Lucas, which has kept a quarter stake in Bowland for itself – Cuadrilla owns the rest. Between the two companies, Campbell holds just under 9% of the Lancashire bounty.
Here is a video on Cuadrilla's well design:
CSG Co would be happy to receive views on this subject for incorporation into a future article. We see the advantages of a national secure supply of gas/power whilst our complex Energy Policy is politically agreed and implemented with adequate safeguards. The quarry industry has, just like everybody else, experienced large increases in the cost of energy and fuel over the past decade. It has had a significant impact on our costs at a time of decreased demand for our products. Reduced or stabilised energy costs would be warmly welcomed. We recognise that having shale beds twenty times deeper than those being commercially exploited in America means that drilling pads in the UK can extract 20 times the volume of their American counterparts all things being geologically equal. This would offer the opportunities to do far more processing on site and to reprocess drilling fluids etc, to reduce traffic movements. Our gas mains infrastructure is also available to transport processed shale gas. Our chemical industries would welcome the availability of long-chain petrocarbons which can comprise up to 50% of the outputs by value from each well. Mothballed and abandoned quarry sites, collieries and industrial sites in the UK are abundant and are generally available for redevelopment as drilling pads and process areas.
Planning law and Environmental Oversight and Monitoring in the UK are already more stringent in their applicability to Oil and Gas than in the USA and can be developed further to impose strict conditions on Operators. Just as the Nuclear Industry is expected to design to safeguard against low probability occurrences so too can fracking licenses be subject to operational risk/hazard conditions to protect our aquifers and environment.
In order to distinguish between earthquakes and tremors the following table may assist:-
Grangemouth boss proposes to offer 6% of gross revenues from fracked wells to landowners and the local communities May 20 2014
Extracted from Dominic O'Connell (17/5/14) and Danny Fortson (28/9/14) - The Sunday Times
Jim Ratcliffe, of Ineos, will import 1.6bn tonnes of cheap American shale gas per year for ten years from terminals on America’s Atlantic coast and the Gulf of Mexico. The gas will be sent to a facility in Norway owned by Ineos, Ratcliffe’s giant chemicals company, and to Grangemouth in Scotland.
The imported gas will be used to make ethylene, a vital chemical in the manufacture of plastic. About half the gas will come from the Marcus Hook terminal in Pennsylvania, and the rest from Houston Bay in Texas. A huge surge in gas production in America – almost all of which comes from the hydraulic fracturing (fracking) of underground shale – has pushed down prices to between one third and one half of European levels.
In North America, 55 shale gas wells are currently drilled every day. The cheaper energy produced has given the American manufacturing and chemicals industries a boost, with thousands of jobs being created in new factories and refineries. In contrast, the pace in Britain has been sluggish: just one well has been partially drilled since the first license was granted in 2008. The government, prudently invoking the precautionary principle, issued an eighteen month fracking ban in 2011 after drilling caused tremors, apparently equivalent to those typically created by a bus or lorry passing by the front door of an urban terraced house, to be recorded near Blackpool.
Ineos has said it will now also consider pursuing shale gas exploration licenses in Britain. In October the Government closes the bidding for hundreds of six mile (ten kilometer) by six mile exploration blocks, and the auction winners will be revealed by June - after the General Election. Each block might comprise ten pads each with a (stacked) cluster of twenty wells which are scheduled to produce over a twenty year life. To this end Ratcliffe has hired the team credited with starting the shale gas revolution at Texas explorer Mitchell Energy. Drilling expert Nick Steinsberger, and geologists Kent Bowker and Dan Steward, have signed up to five year contracts with Ineos.
The Coalition Government is now attempting to stimulate shale drilling by changing the laws of trespass on underground exploration and by promising windfalls for locals. The proposal seems to exempt access at more than 300m (1000ft) below a property from the law of trespass. The Government is very positive about shale, but they need more positive feedback from people in the UK to go out and really push it.
Cardigan Sand would like to add: Some business tax on shale gas will be allocated to the Local Authority and some explorers, notably Cuadrilla, are also offering to remit 1% of revenues specifically to fund Community or Environmental projects local to the exploration sites. We understand that the Minerals (Oil, Petrochemical and Gas in this case) are owned by the Crown Estates who remit the majority of its income to the State coffers, and there is therefore little incentive for locals to allow fracking. Jim Ratcliffe has offered to up this to 2% from UK wells developed by his company and give an additional 4% to the landowners. The Lancastrian hopes this "game-changer" will spark the industry into life. By his reckoning each 100 square kilometre block will generate 20 million pounds per annum for twenty years for the community, all paid for by the six percent allocation of revenues suggested. Most of the Shale in the UK is in the old industrial heartland, which is still largely depressed. Shale gas, he contends, has the potential to re-vitalise manufacturing in these areas.
Lord Browne: Fracking will not reduce UK gas prices March 18 2014
Damian Carrington - The Guardian: Friday 29th November 2013
Fracking is not going to reduce gas prices in the UK, according to the chairman of the UK’s leading shale gas company.
“We are part of a well-connected European gas market and, unless it is a gigantic amount of gas, it is not going to have material impact on price” he said.
Browne said there was no evidence that fracking itself had caused water pollution in the US, but said there had been “issues to do with the leaking of gas into aquifers as a result of imperfect operations, mainly to do with the concreting of well casings.”
Ministers rejected the Royal Society’s recommendation in June that specific fracking regulations are drawn up, a suggestion Browne backs, arguing that the current patchwork of regulation from the energy department, the Environment Agency, the Health and Safety Executive and planning rules are sufficient.
On Friday, energy minister Michael Fallon announced that the latest oil and gas licensing round had seen an all-time number of licenses awarded and that independent oil and gas companies would be encouraged to invest and undertake additional exploration. Lord Adair Turner, the former chairman of the Financial Services Authority and Committee on Climate Change, said that solar power costs had fallen “beyond our wildest dreams” by about 80% in five years.
Browne, once known as the “sun king” and who said he is now co-head of the largest private equity renewable energy fund in the world at Riverstone Holdings, said: “Solar is a very good technology and we should use more of it.”