What is the future for shale gas extraction in the UK? by A Sewell

What is the future for shale gas extraction in the UK? GROUP Q

Annelies Sewell, Michelle Vandersypen, Werner Van Wyk, George Parris, Daniel Smart, Lauren Miller 4241649, 4854829, 4361229, 3994643, 4706625, 4744284

Contents Executive Summary ................................................................................................................. 2 1. Introduction .......................................................................................................................... 3 2. Understanding shale gas resources and geology................................................................ 9 3. Barriers to public acceptability of shale gas extraction ................................................. 24 4. Economics of shale gas extraction .................................................................................... 32 5. Climate change and emissions of shale gas extraction ................................................... 39 6. Limitations of investing in the development of the UK shale gas industry ................... 47 7. International politics of shale gas .................................................................................... 57 8. Conclusion ........................................................................................................................... 63 9. Recommendations .............................................................................................................. 65 10. References ......................................................................................................................... 66

Executive Summary This report focuses on the feasibility of the exploitation of ‘unconventional’ shale gas resources within the UK. The means of extraction is through the relatively new process of hydraulic fracturing, or ‘fracking’ which was first successfully used in 2005 in the United States. The US is the world leader in extraction of unconventional gas and will be used as a case study to help identify whether shale gas is a viable domestic fuel source for the UK. By looking at how the technical, economic, political and social aspects within the UK differ to the US and other countries with shale resources; the potential of the UK can be established.

The geologic potential of shale gas extraction within the UK has increased due to the discovery of both biogenic and thermogenic shale gas. Two primary locations have been identified as major potential resources: the Northern Petroleum System (NPS) and South Petroleum System (SPS). The NPS has the larger recoverable resource estimate of the two and therefore more likely to be economically feasible. There is potential to use US fracking techniques but they will require modification to adjust to differences in UK shale basins. The application of the US fracking process to UK resources will determine the extent of economic gain. Shale gas will create economic growth at both the regional and national level as long as the cost of producing the shale gas is below the European Gas Market Price. The power of public support is vital in the success of shale gas development, as seen in the banning of shale gas exploration in France. Negative attention can be limited through promoting public knowledge concerning the limitations to environmental and public health risk, as well as financial incentives. The uncertainty in the GHG emissions from shale gas may cause the greatest public opposition. The environmental benefit of diverting from coal to shale gas as the primary energy source could potentially lead to an increased cumulative GHG emission total. Coal produces more CO2 per BBtu however shale gas has a high concentration of fugitive methane emissions; which has much uncertainty in the long term climate change effect. The greatest effect may be the diverting of funds from renewable green technologies that could curb methane emissions. There are numerous regulations and legislations in place that limit exploration of onshore petroleum reserves. Licences to operate are scarcely granted and only to companies that prove technical competence, show environmental awareness and have financial capacity. Furthermore, local authorities monitor and enforce stringent regulations. The regulations and legislations are restricting the necessary exploration required to establish accurate shale gas estimates. The majority of the international claims about shale gas often have a basis in conjecture – as the US remains the only profitable exploiter. Even within the US, where extensive drilling has occurred, estimates are still considered unreliable due to limited exploration. 2

1. Introduction

1.1 Background The focus of this report is on the feasibility of hydraulic fracturing, or ‘fracking’, for shale gas extraction and whether there is a future for further development within the UK. As shale gas exploration by hydraulic fracturing is a relatively new concept in Europe and the UK, this report will review the more established US shale gas market, where it is more readily accepted, and consider the technical, economic, and social aspects within the UK to establish its potential for development. In spite of US success, extraction is not very profitable at present and there is a lot of scepticism which surrounds the environmental impact of shale gas development.

1.2 What is Shale Gas? Shale gas is a natural gas found within very fine-grained organic rich shale, it is classified as ‘unconventional’ source due to the nature of the geology (DECC, 2012) The impermeable nature of the reservoir rock means that until recently shale gas has not been an economically viable option, partly because the process of extraction is more difficult than that used in conventional drilling; it involves horizontal drilling and hydraulic fracturing to increase permeability so that the gas can be captured.

1.3 Shale gas and the US The US has hailed shale gas as a “game changer” in onshore production transforming the global gas market (Yergin, 2012) It has been used as a resource in North America since 2005 (Pereira, 2011) and since then it has grown rapidly (International Energy Agency, 2012). In fact the Barnett Shale in the US is the world's most developed shale play - in 2008 it produced 44bcm (0.044Tcm) of gas from 12,000 wells, and shale gas now provides the US with 14% of its domestic gas supply (Weijermars & McCredie, 2011). In 2010 47% of UK energy was generated using gas, and since 2004 the UK was a net importer of gas, with 31% of total gas supply coming from an imported source (Rogers, 2011). With stocks of conventional gas in long-term decline in the UK, and an increased reliance on imports from countries such as Russia and the Ukraine, shale gas development could be a viable solution. Research suggests that shale gas has half the CO2 emissions of coal per kilowatt of power generated and thus could bridge the imminent energy gap while the UK’s transition to low carbon economy is being achieved (Lynas & Santillo, 2012). Current legislative targets require a 60% reduction 3

in carbon emissions from 1990 levels by 2050, 34% of which is needed by 2020 (Climate Change Act, 2008).

1.4 Shale gas and the UK Concerns about fuel supply security, declining supplies of conventional gas, technological advancements and the US shale gas success has led to discussions into the potential of shale gas development within the UK. In Europe, Poland and France have the largest reserves but there are also several potential development areas in the UK (Figure 1.1). Although the current amount of gas trapped in these reserves is unclear, it has been suggested that the UK could have 20Tcf

(0.6Tcm) of recoverable resources (IEA, 2011). However, without

exploratory drilling it is impossible to put an exact figure on this. Furthermore, research by Weijermars & McCredie (2011) suggests it is important to consider shale gas as a viable future fuel, particularly as there are many problems associated with nuclear. They highlight that we cannot continue to rely as heavily on coal for energy production due to its carbon and environmental impact and likewise that renewable energy is not developed enough at present to meet the UKâ&#x20AC;&#x2122;s current and future energy demand.

Fig. 1.1: Global shale gas resources (Tcf). Source: EIA, 2011 from The Royal Society 2011.

1.5 Cuadrillaâ&#x20AC;&#x2122;s exploration At present only one company, Cuadrilla Resources, has started drilling exploratory wells for shale gas in the UK, although other companies including Exxon Mobile have expressed an interest (Danny Fortson, 2012). Unfortunately, the drilling of the first well in the Bowland

shale near Lancashire had to stop due to the process of hydraulic fracturing producing noticeable seismic tremors (Cuadrilla, 2013). Despite no damage being caused, further investigation was required, resulting in unexpected consequences and costs. While a full investigation was taking place, the Department of Energy and Climate Change (DECC) suspended all fracking operations pending a full report into the cause of the tremors and preparation of a mitigation plan for seismic risk in future operations (Green et al., 2012). The outcome of the investigation has allowed for exploratory drilling to commence again as of the 13th December 2012 (DECC, 2012) but this only highlights how complicated this type of extraction can be.

1.6 Challenges within the UK Despite Cuadrilla being given permission to explore prospective plays, even if sufficient reserves are identified for extraction there are several stages before production can occur, and unlike the US there are many different regulations and licences that would need to be adhered to. Environmental regulations tend to be stricter and awareness greater, this can make the applications for planning a time consuming and costly process (DECC, 2013). Increased media coverage about shale gas exploration has also increased public awareness of the situation, which in turn has ensured regulation surrounding its development is even more stringent. This coupled with a high population density (The World Bank, 2013) and the fact that UK landowners do not own the mineral rights to their land (DECC, 2012), adds to the challenges that prospective developers will face.

1.7 Factors for development In order to develop shale gas successfully the International Energy Association (2009) has suggest the following six key factors, these are based on experience gained from the Barnett Shale development in the US: 

Early identification of location and potential of production areas



Rapid leasing of area



Exploratory drilling and adaption of drilling and completion based on site conditions



Engagement and acceptance from Local communities



Resolution of environmental issues relating to fracking and water use and disposal



Adequate local infrastructure

1.8 Study objective The objective behind this report is to consider whether shale gas extraction in the UK will be a feasible option, the report will draw on available information up to the 27th February 2013, focussing on the US, who at present are at the forefront of shale gas production. Information will be considered based on six key criteria which are felt could be pinnacle to its feasibility. These are: 

Our understanding of the UK geology, particularly how this will affect the availability and accessibility of reserves



Public acceptability of shale gas development, focusing on perception



Economics viability of shale gas extraction in the UK



Impact of its development on climate change and comparison to existing technologies



Relationship to existing and future policies on energy, focusing on current legislation and guidelines for shale gas extraction



International politics of shale gas and how this spills over to the UK market

Shale gas extraction in the UK stems from these six key criteria and they will be discussed in detail within the report with the goal of identifying under which circumstances and scenarios fracking in the UK would become a feasible option.

1.9 Understanding shale gas resources & geology Understanding shale gas resources is of high importance in the basis of determining a site for shale gas extraction. To understand the total recoverable resource available in the UK, the underlying geological viability needs to be understood (IEA, 2009) - including the thickness and depth of the shale beds, the composition and relative methane content (DECC, 2011). Existing studies by the DECC (2012) and Harvey & Andrews (2012) allow some insight into areas of geological viability for shale gas fracking in the UK, with additional data drawn from comparisons to existing US shale gas plays (IEA, 2009). Induced seismicity in relation to hydraulic fracturing also occurs under the geological feasibility umbrella, and is highlighted as a potential limitation by The Royal Society (2011), following the moratorium on fracking after two seismic events at the Cuadrilla fracturing wells in Preese Hall in 2011. Particular geological worries about aquifer contamination (Davies et al., 2011), in addition to seismicity worries, extend to social perception limitations. All the above criteria will be discussed in this

report to gain an insight into what further information is needed and under what scenarios shale fracking the UK will become geologically feasible.

1.10 Economics of shale gas extraction Unconventional gas resources are now at the point where they have the potential to be economically feasible against conventional resources (The Royal Society, 2011). Whilst the US is the world leader in extraction of unconventional gas, the UK is merely in its infancy. Therefore, the US will be used as a comparative case study to identify the key economic issues that need to be addressed in making shale gas extraction feasible within the UK. Thus, the key question is whether the success seen in shale gas extraction in the US can be transferred to other major reserves, such as the UK, to remain within the global gas market price (IEA, 2009). Economic viability will be discussed in this report in accordance to and including energy security, transport, waste-water treatment costs, as well as the cost of the well and drill pad itself.

1.11 Barriers to public acceptability of shale gas extraction Social perceptions of the hydraulic fracturing of shale gas have the potential to affect feasibility, as without public acceptance, it will be very difficult for the industry to move forward, particularly in light of US experiences of well water contamination and negative media coverage. Much of the discussion with the UK stems from the impact of induced seismicity, health impacts, and pressures on local communities and their infrastructure. This section will discuss these key criteria in an attempt to understand the public sway. Despite only limited information on social perceptions in the UK, this report will attempt to highlight which public measures are necessary to aid Government decision-making (The Royal Society, 2011).

1.12 Climate change and emissions of shale gas The Climate Change Act of 2008 highlights the 60% reduction of UK carbon emissions by 2050. As part of this, there is a need to decarbonise the economy, and unconventional sources of energy such as shale gas are beginning to be seen as a ‘transition’ fuel away from ‘dirty’ fuels such as coal, in addition to the development of renewable energy technologies (The Royal Society, 2011). However, the carbon emissions of the hydraulic fracturing of shale gas are of some debate between academics, in addition to environmental groups (Schrag, 2012; Lynas & Santillo, 2012), with The Royal Society (2011) highlighting that shale gas 7

exploration may simply lock countries into a fossil fuel economy. This section will compare the relative emissions of shale gas to other sources.

1.13 UK regulations on shale gas In a bid not to get left behind following US discoveries of shale gas and the subsequent drop in US gas prices, the UK has been developing regulations to allow for exploration on this side of the Atlantic. In the US, the fracking industry has been exempt from many regulations including disposal restrictions (The Royal Society, 2011). So far, conventional reservoirs have made shale gas fracturing un-economic (The Royal Society, 2011), but with current developments in US fracking technology, the potentials are revisited and have been shown to exist, through Cuadrillaâ&#x20AC;&#x2122;s drilling in the Lancashire area. However, many new regulations are being put into place, which will aim to promote investment from the private sector, but current regulations are discouraging investment.

1.14 International politics of global shale resources The dash for shale gas is not just a UK phenomenon - the development of UK policies and regulations must be in line with EU and other international policies. The global policy context must be with relation to potential global shale gas resources (The Royal Society, 2011). This section will determine the international politics of shale gas feasibility, including some mention of energy security, funding and competition. There is the possibility of a huge shift in economic power to new exporters of shale gas.

Table of abbreviations NPS

Northern Petroleum System

SPS

Southern Petroleum System

Tcm

Trillion cubic metres

Tcf

Trillion cubic feet

Bcm

Billion cubic metres

IEA

International Energy Agency

DECC

Department of Energy and Climate Change

GHG

Greenhouse Gases

GWP

Global Warming Potential

CCS

Carbon Capture Storage

REC

Reduced Emissions Completion Technologies

EPA

Environmental Protection Agency

2. Understanding Shale Gas Resources & Geology 4241649 2.1 Introduction The uncertainties over peak gas are beginning to make themselves known (IEA, 2009) resulting in a rush to discover new energy resources which are both ‘cleaner’ than coal and aid energy independence and security. This is resulting in research into unconventional resources such as shale gas.

Shale gas is a natural gas found within very fine-grained organic rich shale (DECC, 2011), an ‘unconventional’ source due to the nature of the geology. Through recent developments within the last decade, hydraulic fracturing of shale within the US has opened up a new market and a large energy source available to address the issues of energy security and decarbonisation, which will be discussed in Sections 5 and 7. In Europe, particularly Poland, Germany and the UK, have increased their interest in this method of extraction to reduce dependence on Russian gas (Johnson & Boersma, 2013). However, much of the feasibility of shale gas extraction within the UK through hydraulic fracturing stems from the geological viability (IEA, 2009), and therefore whether the techniques used in the US can be transferred to shale gas extraction of geological strata in the UK.

To understand shale gas resources the underlying geology must be examined, including the formation of shale gas, the thickness and depth of shale at various locations within the UK, and the estimated gas reservoir potential at these sites. To understand the impact of geology on feasibility of shale gas extraction within the UK, the processes of hydraulic fracturing and potential resultant impacts such as induced seismicity, will be addressed.

2.2 What is shale gas & how is it formed? Whilst ‘conventional’ sources for natural gas include sandstones and limestones, to which the gas has migrated to from other primary sources, shale gas comes under ‘unconventional’ gas reserves, alongside tight gas and coal bed methane (Rogers, 2011). Shale is both a primary source rock and sink formed from organic matter, mud, silts and clays deposited over long time spans (The Royal Society, 2012). Temperature and pressure exert influence on the shale forming a source rock with very low permeability and low porosity where shale gas, 9

predominantly methane, is produced.

Two methods of natural gas production exist– thermogenic and biogenic (Selley, 2012). Thermogenic gas maturation occurs at depth, whilst biogenic methane develops through bacterial methanogenesis from groundwater percolation at shallower depth, resulting in a window for shale gas viability (Figure 2.1) (House of Commons, 2011; Martini et al., 1998). The discovery of both types of methane opens up more areas for shale gas exploration, particularly much of the Weald and Wessex basins in the Southern Petroleum system (DECC, 2011). However, it is the storage of the gas in the source rock that makes it an ideal source, but requires new methods of extraction.

Fig. 2,1 Window for shale gas Source :Boyer et al., 2006

Due to the shale morphology, the gas fails to escape the source rock and thus will be stored in one of three ways: through microscopic pores in the source rock, through existing fractures, but also directly bound to the surface of the rock via minerals and organic matter (Rogers, 2011) called ‘adsorption’ (DECC, 2011). The porosity and permeability of the shale aid the location of the UK shale gas window (Figure 2.2). The shale morphology identifies its labelling as an ‘unconventional’ source, as extra mechanical force must be exerted to increase the surface area of the rock and subsequent flow 10

of gas to the surface. However, to estimate the quantity of available shale gas in the UK and viability of drilling, the location must be investigated.

Fig.2.2: Shale gas potential of UK geology. Source: Selley, 2012

2.3 Location of potential shale gas plays Despite an apparent recent interest in hydraulic fracturing of shale gas resources, a growing information pool over the last 25 years has evaluated the UKâ&#x20AC;&#x2122;s shale gas potential (Selley, 2012). The literature identifies two main areas within the UK â&#x20AC;&#x201C; the carboniferous Northern petroleum system (NPS) containing the Namurian Bowland Shale basin, and the smaller Southern petroleum system (SPS) (Figure 2.3), consisting of the Mesozoic Weald and Wessex basins of Liassic shales and Kimmeridge clay (Figure 2.4) (EIA, 2011;DECC, 2011). Further opportunities lie in the deeper Dinantian shales in the Pennine basin, and the upper Cambrian on the Midland Microcraton, although these pose a higher risk for extraction due to unknown tectonic configurations (DECC, 2011). All potential locations can be identified in 11

the North to South geoseismic cross section in Figure 2.5. In addition, many strata continue offshore but at present are not being explored due economic feasibility and drilling technology (Section 4) (DECC, 2012). Therefore, this report will focus on the NPS and SPS as these will be the primary areas of interest for future shale gas extraction in terms of potential geological viability.

Fig. 2.3: Potential shale gas plays in Europe. Source: Boyer et al., 2011

Fig. 2.4: Location of UK shale gas plays. Source :DECC ,2011

2.4 Potential estimates of UK shale gas resources Whilst worldwide shale gas resources are estimated by the IEA as 456 Tcm, Europe’s share is just 16Tcm (Rogers, 2011). The UK’s share is said to be anything from 20 Tcf (0.6 Tcm) nationally (EIA, 2011), to variations of 4.7 Tcf (0.14 Tcm) (DECC,2011), 19 Tcf (0.57 Tcm) and 200 Tcf (6 Tcm) in just the Bowland Shale region estimated by Cuadrilla Resources (Boyer et al., 2011). Evidently, huge variations in estimates exist, and inconsistencies and unknowns must be further investigated to obtain an accurate number for the volume of technically recoverable shale gas. The majority of this data can only be obtained by explorative drilling, fracturing and testing (Rogers, 2011; DECC, 2011), although some information will arise from an upcoming DECC report due March 2013 (HM GOV, 2012), in addition to some ability of estimates to be drawn from comparative US shale gas plays.

In general compared to US shale reserves, European reserves are smaller, tectonically and structurally more complex with more compartmentalised geological units (Geny, 2010). Much of the shale has experienced higher temperatures and pressures, often with a higher clay content (DECC, 2011), which could limit the feasibility of UK shale reserves position in the gas window. Further comparison to US shale plays will be made throughout the sections, particularly in Section 7.

2.5 Key criteria for viable shale gas extraction Several criteria have been identified by DECC (2011) research on US shale gas plays as conducive to geologically feasible shale gas extraction: 

At least 2% Total Organic Carbon (TOC)



Thicknesses of >40m, sub surface depths to shale from 1000-3,500m



A high percentage of non-clay minerals



Thermal maturity of the shale should be within the gas window (vitrinite reflectance Ro %)



Resource area >100 km2, away from towns.

Rogers (2011) additionally states that for shale to be a successful resource, it requires sufficient methane content and have a suitable fracturing stress for hydraulic fracturing.

Fig. 2.5: Geoseismic cross section of the UK .Source: DECC, 2011

Table 2.1: ‘Shale Gas Reservoir Properties and Resources of Western Europe’. Source: EIA, 2011

2.5.1 Northern petroleum system (NPS) The NPS (Figure 2.3) consists of Carboniferous Namurian shales in various basins across the Midlands, with the Bowland-Hodder unit as the main area of interest (Harvey & Andrews, 2012). Whilst estimates for recoverable gas are uncertain, the most commonly cited is 19Tcf (0.57Tcm) (EIA, 2011), although with technological development, a larger volume of the total estimated resource of 95 Tcf (2.85 Tcm)may be accessed (Boyer et al., 2011).

The shale is identified by Spears & Amin (1981) as viable resource due to >4% TOC, and unit thicknesses of up to 1900m in places, although there is much uncertainty across the Cheshire basin. Further uncertainties occur due to a lack of deep geologic assessment, with many drilled boreholes failing to reach the early Carboniferous sections (Harvey & Andrews, 2012). On a more positive note, the top of the unit is at great depths of up to 4750m below the surface (Harvey & Andrews, 2012) with average depths of 1700-3100m (The Royal Society, 2012) (see Figures 2.6 and 2.7) therefore sitting within the shale gas window depths of 1500-3000m as defined by (Boyer et al., 2006), thus ascertaining the good geological feasibility of the NPS for shale gas extraction in the UK.

Fig. 2.6: Depth to Bowland shale. Source: Harvey & Andrews, 2012

Fig. 2.7: Thickness of Bowland shale .Source: Harvey & Andrews, 2012

What may hinder the viability of shale gas extraction is the high percentage of clay minerals in the source rock, as the Bowland shale contains 59% clay minerals to the 27% found in the equivalent US Barnett shale (Spears & Amin, 1981). High clay content results in deformation rather than shattering (EIA, 2011), thus reducing the recoverable gas volume from the source rock. However, the DECC (2011) states that this very low clay content is not typical of most US shale gas plays, and therefore may not apply to UK viability. Furthermore, the high percentage of quartz and carbonate found in the Bowland shale, 45% and 10% respectively (DECC, 2011), creates the brittleness required for hydraulic fracturing and thus reduces limitations created by high clay content. But again, the viability of particular areas cannot be confirmed without explorative drilling.

2.5.2 Southern Petroleum system (SPS) The SPS consists of Jurassic strata, mainly Liassic shales (Figure 2.8) and Kimmeridge clays (Figure 2.9) in the Wessex and Weald basins (Figure 2.5). Primarily biogenic origin, the SPS lacks the thermal maturity and size of the NPS (DECC 2011), but still provides some potential future resource of 1Tcf (0.03 Tcm)(Boyer et al., 2011).

The Kimmeridge clay is a higher prospective resource than the Lias which has a low TOC content and low thermal maturity (DECC, 2012). Kimmeridge clay has background TOC levels up to 10% (DECC, 2011) indicating biogenic gas generation but very close to the oil maturity window. The Kimmeridge clay has in the past been unsuitable for oil/gas drilling due to thin beds (DECC, 2012; EIA, 2011), but new horizontal fracturing techniques could open up this resource, in particular as it has a slightly lower clay content than the NPS (Table 2.1).

As previously mentioned, there are many uncertainties over shale gas potentials within the UK and particularly as unconventional sources are located in basins, new well test sites within these basins are needed, rather than extrapolation of conventional well sites (DECC, 2011). Further limitations on feasibility include the processes of hydraulic fracturing and drilling.

Fig. 2.8: Thickness of the Lias Clay. Source: DECC, 2011

Fig. 2.9: Thickness of the Kimmeridge Clay. Source: DECC, 2011.

2.6 Processes of extraction Hydraulic fracturing consists of three stages: exploration, production and abandonment (The Royal Society, 2012). Essentially, hydraulic fracturing is utilised to increase the permeability of shale reservoirs for gas extraction. Exploration involves initial drilling and seismic recording, including the injection of concrete to form the well casing. Once the casing is complete, a fluid is pumped down at pressure to force open existing fractures or creating new fractures, which are then held open by a sand â&#x20AC;&#x2DC;proppantâ&#x20AC;&#x2122; (Figure 2.10). This allows the natural gas to flow back up the well (DECC, 2011; The Royal Society, 2012; Howarth et al., 2011). Other materials are added to the fracking fluid to improve fluidity and remove friction (HM GOV, 2012b), thereby improving the efficiency of the process.

Fig.2.10: The Fracking Process. Source: Howarth et al., 2011

The reasons for the current boom in shale gas exploration are due to new horizontal fracturing techniques that have been employed in the US for the last ten years, allowing access to a greater volume of rock and improved seismic mapping to identify sweet spots (Selley, 2012). This makes it a very attractive resource worth further investigation, increasing the feasibility of extraction.

2.6.1 Practical problems of extraction As a relatively new method of resource extraction, there are social, economic and technological impacts on extraction, including the distance of the resource to existing infrastructure (HOC, 2011), environmental impacts of the ‘flowback’ and ‘formation’ waters associated with hydraulic

fracturing (The Royal Society, 2012) and the use of large volumes of water.

The fluid used for fracking is a mixture of 99% water and 1% fracking fluid (HOC, 2012) (Figure 2.11) but the volume of water used by fracturing sites is up to 13,000 cubic metres (HOC, 2012), thus resulting in a high demand for water, which may have environmental and economic impacts, discussed in sections 2 and 3.

Fig. 2.11: â&#x20AC;&#x2DC;Typical composition of fracking fluidâ&#x20AC;&#x2122;. Source: The Royal Society, 2012

2.6.2 Propagating fractures There is some worry from the public about fractures propagating into aquifer zones and contaminating drinking water. As aquifer depths rarely extend past 2000m depths, and fractures from shale gas extraction very rarely extend past 1000m (The Royal Society, 2012), with a 1% likelihood of vertical extension beyond 350m (Davies et al., 2011) it is thus unlikely that hydraulic fracturing will interfere with aquifer or groundwater systems, if structural integrity of the well is maintained and regulated, as fracking wells pose no more risk than conventional wells (HOC, 2012).

2.6.3 Induced seismicity Hydraulic fracturing for shale gas within the UK began in 2010 by Cuadrilla Resources at Preese Hall, Lancashire. However, the following year saw the halting of exploration after the occurrence of two small earthquakes in the vicinity of the drill sites, at 1.5 (27 May 2011) and 2.3 (1 April

2011) magnitudes (DECC, 2011). The events were found to be related to the injection of fluid near to a pre-stressed fault (Green et al., 2012). Further research by The Royal Society (2011) highlighted the impact of the volume of injected fluid and the rate of injection has on the likelihood of a seismic event, although these are generally minor events.

The risk posed by hydraulic fracturing on seismicity and risk is said to be very low, with natural seismicity in the UK on average 4ML every 3-4 years (Green et al., 2012). Furthermore, induced seismicity from coal mining is commonplace, and induced seismicity from hydraulic fracturing to be even less, at 3ML max (Green et al., 2012). A 3 ML event is defined by the Mercalli scale as similar to the vibrations of a passing lorry and felt ‘quite noticeably’ by people indoors’, although often not recognized as an earthquake (U.S. Geological Survey, 2013). Thus the 1.5 ML and 2.3 ML earthquakes occurring at the Preese Hall were unlikely to have been felt by the general public. Public perception affecting feasibility will be discussed further in Section 3.

With the government once again allowing exploration into shale gas reserves as of January 2012 (HM GOV, 2013) research into the triggering foci of seismic events related to fracking needs to occur, in addition to regional mapping, seismic monitoring prior and post fracking (HOC, 2012).

2.7 Conclusion The discovery of both biogenic and thermogenic shale gases has increased the potential volume of shale gas resources in the UK. The two primary locations currently being investigated are the NPS and SPS, of which the NPS is more explored and has a higher potential economically recoverable resource estimate. Limitations are evident for the SPS as shale beds are shallower and at the moment constitute a vastly smaller resource than the NPS.

Whilst US techniques can be used on UK shales, the difference in depth, complex tectonics and clay content of UK shale plays may cause extraction problems, in addition to a more basincentred geology. Pre-stressed fractures may result in small tectonic events, although the likelihood of fractures propagating aquifers is extremely low.

Overall, there is potential geological feasibility for shale gas fracturing in the UK, although more mapping and explorative drilling is needed to identify deep zones and sweet spots for viable extraction, and only then would geological feasibility for fracking in the UK be confirmed. WORD COUNT: 2,528

3. Barriers to Public Acceptability of Shale Gas Extraction 4854829 3.1 Introduction Exploration for shale gas has received considerable media attention over the last year, negative media spillover from the US, environmental groups such as Greenpeace and Frack off and films such as Gasland have increased public awareness about this issue. With UK energy prices increasing regularly and concerns about fuel security, it seems inevitable that the decision was made to explore the UK’s potential for shale gas extraction.

Current fuel concerns in the UK puts pressure upon policymakers, politicians and planners to provide an appropriate solution to bridge the energy supply gap and ensure the energy which is provided is affordable, readily available and publically acceptable. Following on from section 2, this looks at the geology and process of extraction that influences social perceptions of fracking, this section will focus on barriers to public acceptability. These perceptions are based on the findings from the DECC 2012 seismic enquiry and the outcome of the ThinkBritain survey commissioned by Cuadrilla in 2011. The aim is to establish how public perceptions could affect the future of shale gas extraction in the UK, with the premise that if opposition was large enough that this could hinder economic feasibility (section 4).

3.1.1 Public perception It is recognised that public perception is an important factor when trying to implement any new scheme. Lack of public support and engagement can often lead to delays which can last several years,with public opposition leading to increased financial development.

Improved

cost of schemes like shale gas

individual environmental awareness

means that people are often

sceptical about energy which is not seen as environmentally beneficial, despite green energy still facing opposition people are more likely to see it as acceptable when faced with alternatives such as nuclear, coal and shale (Pidgeon, 2012). Recent work for the UK energy research centre which explored public attitutes to future energy systems found; “People are very negative about hydrocarbons and they view them as a polluting finite resource, and yesterday's technology” (ESRC, 2012).

As fracking is relatively new to the UK and is in its exploritary stage, the public have very little information to gauge their opinions on, that which is available to the public tends to be negative and is often based on US public experiences.

3.1.2 Public engagement There is no doubt that public engagement and support is key to the success of shale gas development within the UK, but with lack of trust in government and large organisations, communities which will be affected by the industries development are likely to voice their concerns. Concerns, such as threats to public health and environmental issues have led to a moratorium being issued in New South Wales, some American states, Bulgaria, Netherlands and Austria (Droge & Messer, 2011; FOE, 2012) (section 7.4, figure 7.2). France, who possess the second largest shale reserve in Europe has become the first nation to officially ban shale gas extraction, (The Economist, 2013). Exploration was vetoed in France after a public outcry stemming from a grass roots organisation forced the French Parliament to vote for a motion that bans hydraulic fracturing (Patel, 2011). In order to involve stakeholders and gain their support it is important to understand public perceptions and try engaging them in the development process by providing answers and transparency which should act to increase the legitimacy of the decision (Thompsett, 2013).

3.2 Expressed Public Concerns about shale gas exploration within the UK Momentum against the development of shale gas is growing within the UK, and the recent earth tremors near Blackpool in April and May 2011 which were triggered by shale gas exploration by Cuadrilla have stirred public, media and Government interest even further. As a result of this Cuadrilla commissioned a public survey to gauge public opinion, this was closely followed by a consultation by DECC which looked at responses to its report on mitigation of seismic risk. 3.2.1 Cuadrillaâ&#x20AC;&#x2122;s Public Survey Cuadrilla Resources commissioned BritainThinks to conduct a survey targeting three local authority areas, West Lancashire, Blackpool and Fylde; these were areas that were located near to their drilling site. 1001 individuals were surveyed on 11th â&#x20AC;&#x201C; 16th October 2011. Their findings revealed that 48% of respondents knew nothing or very little about the shale gas extraction 25

process, 55% of respondents were unable to think of any potential benefits which could be gained from fracking and 23% said they would strongly oppose continued exploration in their area. Concerns which were identified by respondents were; risk of gas leaks, risk of water pollution, environmental damage, negative impact on climate change and risk of earth tremors caused by the fracking procedure (figure 3.1).

Fig 3.1: Top five responses based on Cuadrilla’s public survey on shale gas fracking. Source: ThinkBritain: Attitudes to Natural Gas from Shale

3.2.2 DECC’s public consultation DECC also looked at the public perceptions surrounding shale gas development. Information were taken from a public consultation in May 2012 which was held after DECC published its report “Preese Hall Shale Gas Fracturing: Review and Recommendations for Induced Seismic Mitigation”, which led to 2000 responses (figure 3.1). The outcome of this consultation indicated that some of the major concerns expressed were primarily water contamination (90%), water usage (53%), local impact (55%), green house gas emissions (GHG) (35%), fracking chemical toxicity (35%), impact on health (35%) and earth tremors. Despite showing that concerns were similar to that found by Cuadrilla, earth tremors were not a primary concern, this may be because the public felt confident based on the nature of the report that the procedure which was put in place to prevent this reoccurring was satisfactory. Although the consultation does not indicate where the responses came from, one can assume that they were probably geographically spread out, unlike the Cuadrilla report which focused on the area where the fracking had occurred.

Fig.3.2 Main public concerns about shale gas exploration. Source: DECC Seismicity Report 2011

3.3 Addressing issues of public perception of Shale gas extraction Based on the responses for both reports the following sections will focus on areas where the public expressed concern; water use, water pollution, fracking fluid toxicity, effects on local communities and the risk of earth tremors.(GHG emissions will be discussed further in section 5). The focus will be to establish whether public perception of these concerns could be overcome or if they are likely to affect any proposed development 3.3.1 Water use According to the Royal Society report (2011) it is estimated that 13,000 cubic metres of water are used in the fracking process, this is the equivalent to five Olympic size swimming pools and over the period of a year this is likely to quadruple to twenty. UK concern may not be primarily the quantity of water used, but rather the availability of suitable water sources in the shale drilling sites and whether this will put pressure on local supplies. Looking at prospective plays in the UK which are discussed in section two (figure 2.4),one can see that many locations which have been cited for potential development are in areas where water shortages are not an issue, areas such as the north west of England, Scotland and Wales. However if exploration was to commence in the SPS which does suffer from water shortages and could experience further droughts as a consequence of climate change this could be controversial. At present 74% of all water use in the South of the UK is taken from groundwater sources, any extra pressure on this could result in a serious reduction of the water table (figure 3.2). However at present a water resources strategy, produced by the Environments agency ensures that there is enough water available and it is a 27

statutory requirement for water companies to produce a three year drought plan (HM.GOV, 2012) which should ensure that the publicâ&#x20AC;&#x2122;s water needs are put first. Also technologies for offshore developments which currently use seawater are being developed for use onshore which would eliminate any concerns surrounding water shortages (The Royal Society, 2011).

Fig 3.3: Source: Environment Agency, "Underground, Under Threatâ&#x20AC;&#x201D;The State of Ground Water in England and Wales", 2006, p 11

3.3.2 Chemical Toxicity There has been considerable concern surrounding fracking fluid, which although predominately is sand and water it can also contain a number of chemicals (Section 2, figure 2.11). In the UK, legislation under the Water Resources Act 1991 and Environmental Permitting Regulations 2010 require companies to disclose which chemicals are used. Currently in the UK, fluid used in fracking does not contain any harmful chemicals, and consists of water, sand and slick. A concern relating to the chemicals which may be used is they could contaminate local water supplies, by leaching into aquifers and groundwater sources, despite there being no evidence that fracking chemicals contaminate drinking water it was mentioned in both reports as a perceived threat. It has received considerable media attention in the US, although it has been suggested that faulty cementing in US wells could have provided a migration pathway for some fluids or flow back ( (Rogers, 2011) Strict regulation by Health and Safety Executive with in the UK ensuring well integrity is maintained mean that this would be an unlikely occurrence (section 6.2 & 6.3).

3.3.3 Flow back disposal A more prominent concern is the disposal of flow back water after the fracking process has taken place; this was indicated as a concern in both Surveys. During the fracking process 15-80% of water which is injected into the wells returns to the surface, and then needs to be disposed of (The Royal Society, 2012). Present legislation prevents water used within the fracking process from being reused; this is a measure which covers all waste water from mining processes (The Environments Agency, 2010)(see section 6.3). Options available within the UK are likely to include; on-site water treatment, with re-use of water and remaining fluid sent to a suitable waste treatment site disposal facility or disposal of sewage to a waste water utility company

( The

Royal Society, 2012). If a waste water processing site was located near to prospective extraction sites, this would reduce the amount of heavy Lorries which need to access the site to supply and remove water; which is currently the procedure in place by Cuadrilla at the Lancashire drilling site, it involves water stored in tanks being taken to a specialised water treatment plant in Manchester for disposal (Cuadrilla, 2013). 3.3.4 Gas leaks An issue highly publicised in the 2010 â&#x20AC;&#x153;Gaslandâ&#x20AC;? documentary where a man was seen lighting methane in his tap water is the concern surrounding methane leaking into water supplies. There have been several other reports of this occurring, a study of private drinking wells in Pennsylvania and New York found that methane contamination rose significantly with proximity to fracking sites, suggestions were made to indicate it that this could be a result of poor gas well construction or design (Osborn et al., 2011). Private drinking wells in the UK are rarely used for domestic water consumption, due to strict regulations put in place by Defra in 1991 and amended in 2010. The Environments Agency has regulations for drilling which is sited in areas located near surface aquifers. Risks of any type of water contamination are low provided that extraction takes place at depths of several hundred metres or several kilometres, based on geological evidence UK shale oil is in excess of these depths (section 2.5.1) ( The Royal Society, 2012). 3.3.5 Local Impact Whilst there is legislation which deals with most of the concerns which the public have expressed (section 6), it still remains to tackle the impact that shale gas extraction could have on the local communities living near to the development sites. This is not an issue which is solely attributed 29

to the shale gas industry but one which is relevant for any type of development located near to communities. Unlike the US many areas within the UK have a high population density, which makes the likelihood of any development affecting local communities realistic. Concerns which have been expressed about the pressures on local infrastructure from the influx of workers and increased heavy works traffic. This would result in local communities being subjected to several large trucks entering and exiting sites which for many smaller communities could be especially disruptive, inconvenient and possibly dangerous.

Local

residents near to the Barnett

development in the US complained of damage to existing local environments and aesthetics, again this is not inherent just to this type of development, but all large scale developments which seek to change the existing landscape (Wynveen, 2011). 3.3.6 Risk of further earth tremors Although earth tremors was perceived in both reports as being a reason why Shale gas extraction was seen as negative, the seismic events which occurred in Lancashire has led to the implementation of seismic procedures, every drill rig has to install earthquake monitoring equipment, with a traffic light system which requires that all drilling has to stop if earthquakes of 0.5 or over are recorded, further drilling is not permitted until further investigation has taken place. (HM.GOV, 2012). (section 6). Although the threat of earth tremors in the UK may be seen by some as a reason why fracking should not take place, the level of seismic activity was so low it would have been unlikely anyone would of felt it and it was not a level which could cause structural damage (section 2.6.3). 3.7 Nimbyism Many developers have termed negative public perception to local developments as just being an example of a Nimby, not in my back yard, response; however for many individuals this type of development could cause psychological, financial and social damage. Although little research has been conducted, it has been suggested that house prices of those living within two miles of a shale gas well are likely to be affected, a concern such as this would be enough for local opposition to manifest (Mcghie, 2012). The process of drilling the well heads in place, horizontal drilling and fracking process can take several weeks, a report by the Tyndall centre in Manchester suggests for a six well multi-well pad could take between 500-1,500 days .The drilling process could take up to 4 weeks and this consists of around the clock drilling and light pollution, with a 30

minimum of a further yearsâ&#x20AC;&#x2122; work, transporting the necessary equipment, water and waste water on and off site. This type of public disruption will be difficult to overcome if planned drilling is near to communities (Rogers, 2011). 3.8 Conclusion The power of public opposition should not be under estimated and is the reason that shale gas exploration was vetoed in France. Clearly any shale gas development is going to stir negative attention, but to prevent negativity from escalating further it is important to ensure that public engagement is encouraged. It is also necessary to reassure the public that adequate procedures are being implemented to ensure that environmental and health problems which have occurred in the US do not happen here. Public acceptance is likely to be influenced by the proximity to any proposed drilling location to areas of population density and could be influenced further by other European countries perspectives of shale gas exploration. Local acceptance could be achieved using financial incentives, such as providing a new community centre or road. Primarily perceptions which are negative can be resolved by providing the public with clear information as given in this report on what measures are being put in place to ensure that shale gas exploration poses no risk, by doing this public acceptance should be easier to achieve, negative perception is unlikely to exacerbate further provided that development companies adhere to all the regulations which are being put in place and offer transparency to all concerned. It is important not to compare the UK with the US as resources and geology is very different, as are our regulations which govern development. Instead our insight into the US public barriers should be seen as a learning curve and should be used to our advantage as an aid to increase positive perceptions of shale gas development. WORD COUNT: 2,596

4. Economic viability of shale gas extraction 4361229 4.1 Introduction The extraction of natural gas from unconventional reserves has resulted in the potential to increase the world’s natural gas supply by at least 125 years (IEA, 2009); if current rates of consumption is maintained. Shale gas is found from an ‘unconventional’ source making the process of extraction from shale basins raise in cost (DECC, 2011) (Section 2.2). The relatively new process of ‘fracking’ was first used in 2005 in the Barnett shale; and the process is presently limited to the United States who are the forerunners in this extraction method. ‘Fracking’ consists of two drilling techniques, horizontal drilling and hydraulic fracturing (Geny, 2011) (Section 2.6). Due to the complexity of the process, as highlighted in chapter 2.6, a wide gap in shale gas production can be seen between the US and other countries in which large shale gas reserves are expected to be found. Within the UK however, the economic feasibility will be highly dependent on the geological practicality, i.e. the depth of the reserves and the productivity of the shale wells, as well as the successful transferring of the techniques used in the US to geological reserves within the UK (DECC, 2012). The key question is whether the success seen in shale gas extraction in the US can be transferred to the UK in an economically viable manner that produces gas that is below the European Gas Market Price (IEA, 2011).

The US is the world leader in extraction of unconventional gas and will be used as a case study to help identify the key issues to be addressed in making shale gas extraction economically feasible within the UK. The uncertainty in the environmental risk and risk to public health through water basin contamination and treatment of fracking fluid (Figure 3.1) has caused the public to take a negative stance in domestic shale gas exploitation. This is the case in France which has the second largest shale gas reserve in Europe, where public opposition has resulted in the official banning of shale gas development (The Economist, 2013) (Section 3.3.1; Figure 7.2). The negative press and view of the public has resulted in development of shale gas extraction to drastically slow within European countries (Mainwaring, 2013); and may be the biggest factor affecting the economic feasibility of shale gas extraction in the UK.

However, the demand for energy security and the potential for cheaper energy may result in development of shale gas extraction to become socially and economically feasible. The prospect of local job creation within rural areas may cause the benefits of implementing shale gas to outweigh the risks associated with the extraction processes.

This is the case in Europe, in

particular Poland, Germany and the UK, which have large shale gas reserves but are highly dependant on imported natural gas (EIA, 2011a). The countries with large production potential may resort to shale gas to reduce dependence on natural gas supplied by Russia; who will come to dictate the market price of natural gas as remaining reserves are increasingly more depleted (Johnson & Boersma, 2013). The argument put forth that makes the exploitation of unconventional gas feasible that its role in energy demand will be to address the issues of energy security, decarbonisation and being a transition fuel to cleaner energy.

4.2 National benefits The domestic production of shale gas within the UK is expected to be beneficial at a national stage through providing cheaper gas that is below the imported European Gas Market Price (IEA, 2009). It has the potential to decrease the UKâ&#x20AC;&#x2122;s reliance on imported natural gas, providing temporary energy security of the depleting fuel source. The argument put forth that makes the exploitation of unconventional gas feasible will be that its role in energy demand will be to address the issues of energy security, decarbonisation and being a transition fuel to cleaner energy.

4.2.1. Energy security A benefit of producing domestic shale gas is the reduction in dependence on the gas exports from Russia to the UK. The market price of natural gas will only increase in the future, with more competition for gas and increase doubt in energy security; emphasized through the long-term strife in transportation of liquid natural gas between Russia and the Ukraine (IEA, 2011). Rogers (2010) estimated that 65% of Europeâ&#x20AC;&#x2122;s natural gas will be imported from Russia and the Middle East by 2020. However, the extraction of natural gas from unconventional reserves, i.e. shale basins, has changed the expected global natural gas reserves; increasing the amount of natural gas and diversifying the exporters of natural gas. Two scenarios can therefore be identified:

The remaining global conventional gas reserves, that have been proven to be economically extractable with existing technology, equal a total of 400 tcm (volume of gas); of which half is found within three countries: Russia, Iran and Qatar (IEA, 2009). In this scenario, there is a risk in the security of gas supply, with the domination of the global gas market by a few key exporters (Johnson & Boersma, 2013). Therefore, it will be beneficial to encourage development of shale gas extraction within the UK.

The estimated potential of shale gas basins is considered to be of equal volume as that of conventional sources; therefore the estimated global natural gas reserves is at ~800 tcm; and has the potential to last 250 years at current gas exploitation rates (IEA, 2011). In this scenario, the dominance of the world gas market by a few key players will not occur. Instead the UK will be able to import natural gas from a variety of suppliers, resulting in a steady gas market price.

With the second scenario being more likely, the scarcity of natural gas will not be an issue. Energy security may therefore, be of less importance. Within Europe, the two largest technically recoverable reserves of shale gas can be found in Poland who has an estimated potential of producing 187 tcf and France at 180 tcf (EIA, 2011). The UK has a technically recoverable reserve of a mere 20 tcf (The Royal Society, 2011). In the grander scheme of things, Europeâ&#x20AC;&#x2122;s reserves are too small to be considered a potential global gas exporter. With natural gas producing giants such as the US having conventional reserves estimated at 862 tcf and for China at 1,275 tcf (EIA, 2011b); this is without consideration taken for unconventional gas reserves. This conclusion was also identified, by The House of Commons Energy and Climate Change Committee, who stated the potential of domestic shale resources in the UK for reducing natural gas imports but it will have limited impact on energy security with the dominant supply of gas in the future coming from exporting countries (HOC, 2012).

However, the quantity of shale gas produced within the UK may just be adequate enough to reduce the percentage of gas imported (Jaffe, 2010). The UK generates 28.2% of its energy from natural gas (Figure 5.2), with 94% of this natural gas being imported (Rogers, 2011). The domestic production of gas has the potential to lower the price of gas. The benefits the UK can gain from domestic shale gas extraction is therefore two fold; a boost to regional economies, 34

through job creation, as well a national lowering of gas prices.

4.2.2. Lower cost of natural gas The most direct national benefit to be experienced by the public would be the lowering of natural gas prices. The average natural gas price in Europe and the UK is $320 per 1000m 3 (Albrycht, 2012). This is the import price, set by Russia. The benefit of domestic shale gas production can clearly be seen in the US, as visible differences are present in the price of gas price between the UK and US. The cost of 1000 m3 of natural gas in the US is $60-70 (Albrycht, 2012); due to domestic production of shale gas. The cost of shale gas production in the UK however, will not be as inexpensive as what is seen in the US (Section 2.4.). The process of shale gas extraction is more complicated in the UK, and therefore, more expensive. This will lower the economic gain but none the less, Cuadrilla (2011) still expects economic gain and a lower price of natural gas. The demand for gas in the UK is increasing within the household sector but also in the energy and chemical sectors (Rogers, 2011). Cheaper gas will translate into a boost in these sectors; translating into direct economic growth. The production of domestic shale gas will also result in the construction of gas power plants within rural areas of the UK, creating jobs at a regional level (Cuadrilla, 2011). With the requirement for less carbon intensive energy, shale gas may be the most cost effective means of lowering the UK’s carbon footprint to meet the international carbon reduction criteria. Shale gas would be a cheaper form of energy than the UK’s other viable option, nuclear energy, as the investment process is shorter and cheaper as well as public opposition being less stringent (Albrycht, 2012).

4.3. Regional benefits: job opportunity Cuadrilla (2011) projected a job market of up to 5,600 jobs in the UK, through the development of shale gas. Of the projected jobs, 1,700 of them will be established within Lancashire, creating a large economic ‘boom’ in the area. However, these estimations are potentially overly ambitious due to the Cuadrilla estimates of 200 tcf being available within the Bowland Shale reserve (Boyer et al., 2011). The estimates put forth by DECC (2011) of 4.7 tcf and the EIA (2011) of 20 tcf, both are national resource estimates for studies in the same year. There is no doubt that commencement of commercial shale gas production within the Northern petroleum system and Southern petroleum system will result in many jobs being created within the respective regions; 35

but the potential of jobs available will remain dependent on the cost of extracting the gas, play/well productivity and the total extent of gas availability.

The total extent of benefits is dependent on the total availability of gas in the UK as well as the physical extraction process. These two factors will affect both the potential for cheaper gas and the possibility of energy security.

4.4. Limitations of the UK shale gas reserves The UK has two main shale basins, from which shale plays can be developed. The first is the carboniferous Northern petroleum system (NPS) containing the Namurian Bowland Shale basin and the second is the smaller Southern petroleum system (SPS) (Section 2.4; Figure 2.3 and 2.4). These two basins are the most likely for future shale gas play development as they are the most geological viable; have the potential of high productivity wells to be developed. The actual reserves are undefined in terms of volume and potential productivity, with estimates for shale basins within the UK varying greatly; between 4.7 â&#x20AC;&#x201C; 20 tcf for the total national resource (EIA, 2011; DECC 2011). The true number can only be found through increase explorative drilling, fracturing and testing (Rogers, 2011; DECC, 2011). A truer prediction of the available reserves will provide a clearer indication to the extent of regional and national benefits shale gas will provide. Once the available reserves are defined, the economic viability of extracting the shale gas is dependent on the extraction costs and the productivity of each well.

4.4.1. Productivity of shale basins One of the key economic restraints of extracting gas from shale basins is that the wells have lower productivity rates than conventional gas wells (Rogers, 2011). In order to maintain the same productivity rates, as seen in conventional wells, more wells are required to be drilled (Geny, 2010); greatly affecting the economic viability of shale gas extraction. The extraction of gas from shale basins requires horizontal drilling and hydraulic fracturing, with the constant pumping of a fluid mixture consisting of sand in order to keep a high productivity rate; these two processes combined greatly increases the cost of each individual well compared to conventional wells (DECC, 2011; Howarth et al., 2011)(See section 2.6).

The exact cost of drilling a single well is dependant on the geographical strata and shale characteristics. The estimated cost of producing shale gas in the US is between $5 / MMBtu (Million British Thermal Units of energy) to $7 / MMBtu, taking into account the estimated costs of both the promoters and sceptics of shale gas production (Rogers, 2011). The European Natural Gas Import Price is between $10.36 / MMBtu in January, 2011 and $11.87 / MMBtu in January, 2013 respectively (World Bank, 2013). When comparing the cost of producing shale gas in the US to importing natural gas; it is clear that it is more economically feasible to produce domestic shale gas, rather than import natural gas. The flow rate of as or productivity of each well dictates the amount of wells needing to be drilled. In order to be economically viable, the wells need to have a high productivity to ensure that the final cost of gas produced is below the European Natural Gas Import Price. If this is found to be the case, then extracting shale gas from UK resources will be economic viable.

4.4.2. Extraction costs The reserves in the UK are on a smaller scale than that found in the US, consist of a much higher clay content, the reserves are more compartmentalised and isolated as well as being at much greater depth (Geny 2011; DECC, 2011)(Section 2.6). The UK’s largest shale gas reserve has been identified to consist of a mixture of limestone, siltstone and chert (Bernstein & Cleland, 2012); this array of rock types adds to the complexity of transferring the technical ‘know-how’ found in the US to the UK. The extraction process is much easier in the singular rock stratified geology of the US shale basins and has not been implemented in a geologically complex stratum like that of the UK (NPC, 2007). The poorer the quality of the reservoir, i.e. depth, geological composition etc., the more advanced the expertise and technology is required to develop each play; therefore the cost of developing a typical play within the UK will be a lot more expensive and labour intensive than shale plays within the US (Wynveen, 2011). These combined differences add great uncertainty to the actual cost of extracting shale gas in the UK, at least on a scale large enough to reduce international dependence and provide energy security.

4.5. Conclusion In conclusion, due to the difficulty in extracting gas from shale basins, at productive levels that would be economically acceptable; major investment will remain unlikely within the next 10 37

years until technology is advance enough to increase flow rates. With the current fracking process, extraction will only amount to supply Europe with 10% of its annual domestic gas requirements at the pinnacle production rates (IEA, 2009; DECC, 2011). Therefore, economic feasibility of shale gas extraction within the UK by 2020 is dependent on the application and alteration of the fracking process to the geologically unique strata of the UK (Figure 2.5). With the global demand for primary energy, i.e. fossil fuels, being predicted to rise annually by 1.5%, to be 27% higher by 2030 than it is today (IEA, 2009). The production of shale gas in the UK may therefore be economically feasible once the global natural gas price increases to be above the cost of shale gas production. The economic gain that domestic shale production in the UK is the lowering of natural gas prices, as well as the boosting of regional economies through job creation. These combined will determine the extent to which the utilisation of shale gas will be economically feasible within the UK. WORD COUNT: 2,580

5. Climate change due to emissions produced from shale 4744284

5.1 Introduction Anthropogenic climate change due to the burning of fossil fuels is becoming increasingly concerning. The 2008 Climate Change Act presents the governmentâ&#x20AC;&#x2122;s international and domestic energy strategy to respond to increasing climate change. The main aim of this paper in the UK is to reduce CO2 emissions by 60% by 2050. With shale gas being considered for potential extraction in the UK, will this ambitious target be met by reducing the reliance on other energy sources such as coal, which is suggested to be the largest contributor to global warming? There is a great amount of debate surrounding the potential relative emissions of shale gas. However there is limited data currently available to answer this question in much detail. Not only does shale gas produce CO2, but it also produces large amounts of methane emissions. Shale gas is being promoted as a safe, clean energy source that can help the UK in the transition to a low carbon economy however there has been a varied reaction to this opinion (Schrag 2012).

5.2 Carbon Dioxide Emissions It is generally assumed that combustion of natural gas produces the same amount of CO2 whether it come from shale or conventional sources. The main difference between the emissions produced from these sources is in the extraction and production processes (Howarth et al, 2011). The hydraulic fracturing phase is one of the main sources of additional emissions compared to conventional sources. These emissions are produced by diesel engines which are used to blend the fracking materials and are also used for the compression and injection of these materials into and out of the well (Wood et al, 2011). Another source of extra emission associated with shale is from transportation of the chemicals and water used for fracturing which are moved to and from the site. However these extra emissions due to the use of water and chemicals will depend on the water source and type of chemicals used, which are usually site-specific (Wood et al, 2011). Compared to the US the UK access to water is much less restricted, which may help reduce the emissions associated with the transport (Wang et al, 2011). After fracturing, the brine waste water from flow back needs to be transported to a wastewater treatment plant. It has been suggested by water UK (2006) that 0.406tonnes CO2/million litres is released into the atmosphere when 39

treating brine, producing further emissions when compared to conventional gas. However Wang et al (2011) suggest that these indirect CO2 emissions are relatively small and that the total CO2 emissions are predominantly from the direct emissions. This statement could suggest that there is very little difference between conventional and shale gas CO2 emissions if the indirect emissions are so low in comparison to the end use.

This increased availability of cheap natural gas in the US has helped replace coal in electricity generation. Coal consumption fell by 10% between 2007 and 2011, while natural gas production rose by 15% (Schrag, 2012). This is expected to help mitigate climate change because coal is suggested to have much higher CO2 emissions than gas and it also produces other pollutants such as mercury and sulphur (Schrag, 2012). Mark Lynas agrees that gas is a cleaner fuel than coal, but because coal is currently cheaper compared to gas, carbon emissions are higher than they need to be in the UK. He suggests that shale gas could help reduce these emissions, just like it has done in the US (Lynas & Santillo 2012). David Santillo, senior scientist at Greenpeace, does not agree with this statement and suggests that emissions produced by shale are worse than that of coal. Recent Modelling carried out by the Tyndall Centre helps strengthen Saltilloâ&#x20AC;&#x2122;s statement as it was found that burning just 20% of the gas Cuadrilla claims to have found in the Lancashire Bowland Shale would generate 14.5% of the UKâ&#x20AC;&#x2122;s total 2050 carbon emissions budget which is legally binding by the climate change act 2008 (Wood et al ,2011). However this value counts only the CO2 produced by burning the shale gas, no allowance is made for fugitive methane emissions (Friends of the earth, 2012).

5.3 Methane Emissions Natural gas is composed largely of methane and it is released into the atmosphere in the form of fugitive (unintentional escape) and vented (released to the atmosphere in a controlled manner) emissions which are mostly process related, such as during the hydraulic fracturing flowback stage (Broderick et al, 2011). Methane leaks are present in both the production of conventional and unconventional gas, and a great part of the debate is due to how large of a percentage of overall production those fugitive leaks are (Johnson & Boersma, 2013). Levels of these emissions are highly important because methane is more than 20 times stronger (in terms of its global warming potential (GWP) or radiative forcing) than CO2 as a GHG, even small leakages are 40

important (Alvarez et al, 2012). Research looking into the GHG emissions of shale gas has provided mixed results. A paper conducted by Howarth et al (2011) suggests that (3.6% to 7.9%) of methane from shale production escapes to the atmosphere due to venting and leakage over the life time of a single well. This estimate is far greater than that of a conventional gas well, (1.7% to 6.0%) clearly suggesting that shale gas has a much greater GWP than conventional gas. However Cathles III et al (2012) state that while Howarthâ&#x20AC;&#x2122;s and colleagues low end estimate of methane leakage (3.6%) is consistent with the Environmental Protection Agency (2011) methane leakage rate of

2.2 % and other previous studies estimates, their high end estimate of 7.9% is

unreasonably large.

Methane has a much shorter half life in the atmosphere than CO2 does, so its effect on global warming attenuates more rapidly (IPCC 2007). To be able to compare the GWP of methane and CO2 a specific time horizon is required (Howarth et al., 2011). Due to methaneâ&#x20AC;&#x2122;s shorter half life it appears much less concerning over the 100 year time horizon than CO2 does. However when a 20 year time horizon is used the footprint of shale gas is much more concerning. Howarth et al (2011) also look at the total GHG footprint for shale over both the 20 and 100 year time horizon. Methane dominates the GHG footprint for shale gas on the 20 year time horizon, contributing 1.4 to 3 timeâ&#x20AC;&#x2122;s more than direct CO2 emissions. Based on this time scale, the GHG footprint for shale gas is 22% to 43% larger than that for conventional gas. However when viewed at the 100 year time scale the effects of methane GHG footprint is reduced and at this time frame Howarth et al (2011) state that shale GHG emissions are between 14% to 19% greater than that for conventional gas, which is considerably lower. Howarth and colleagues use of the 20 year time horizon to help emphasise the GHG footprint of shale has been highly criticised. Schrag (2012) states that the climate system is relatively insensitive to short term emission changes, therefore any methane emissions associated with shale gas are not as important as Howarth and his colleagues portray. Cathles III et al (2012) also agrees that the use of the 20 year time scale is inappropriate as it does not capture the fact that methane only has a lifetime of a few decades in the atmosphere, unlike CO2 which is centuries.

5.4 Comparing Shale and Coal emissions The main argument for the climate benefits of shale depends heavily on a comparison between unconventional gas and coal. This argument is based around the fact that coal produces much greater CO2 emissions compared to natural gas. This can be reflected in the US due to their nation's carbon emissions reaching a 20-year low in 2012, which is attributed by a booming supply of low-carbon natural gas, of which the United States is the world's largest producer (Ekstrom, 2012). However it is also suggested that these lower GHG emissions are likely to only be short term, and will lead to increases in cumulative emissions by delaying development of near zero emission technologies in the long term (Wang et al, 2011).

Howarth and colleagues conclude in their study that shale gas has a larger GHG footprint when being compared with coal and suggest that when using the 20 year time horizon shale gas emissions are at least 20% greater than coal, perhaps even twice as great. However, when looking at the 100 year time horizon shale emissions are suggested to be comparable and perhaps even up to 18% lower than coal. Natural gas might have an advantage over coal when burned to create electricity because gas-fired power plants tend to be newer and far more efficient than older facilities, but considering that 70% of natural gas consumption is not used for electricity generation in the US it is not of much advantage. Which helps explain Howarth et al (2011) resultâ&#x20AC;&#x2122;s because the study takes this low electricity use into account and it did not explicitly compare emissions from coal- and gas-fired electricity generation on a per kilowatt-hour basis (Hughes, 2011). These estimates produced by Howarth and colleagues have been branded by some academics as exaggerated. Figure 5.1 helps display the comparison of the 20 and 100 year time horizon and how dramatic the difference is between these emission scenarios. A study conducted by the Department of Energyâ&#x20AC;&#x2122;s National Energy Technology Laboratory (NETL) challenges Howarth and colleagues findings concluding that using shale gas instead of coal results in 54% less lifecycle greenhouse gas emissions over the 100 year time horizon, which is a dramatically different result compared to Howarth and colleagues. They also state that even when using a 20 year time horizon the potential emission savings from substituting unconventional gas for coal are almost 50% (Levi, 2011). However this study does not consider the overall emissions from natural gas fired electricity generation, focusing instead on the more efficient base load combined cycle component (Hughes, 2011). These two studies clearly demonstrate highly 42

conflicting results, and both appear to have limitations due to including or excluding techniques and technologies which can manipulate the end result.

Fig 5.1.Comparison of Howarth et al (2011) estimates for shale gas, conventional gas, and coal in terms of carbon equivalent emissions per unit of heat versus GWP using estimates from the IPCC and Shindell et al (2009). Source: Hughes (2011).

5.5 Offsetting the GHG footprint of shale with the use of CCS and ‘green technologies’ Carbon capture storage (CCS) is the standard means for controlling CO2 emissions from fossil fuel fired power plants and is also a vital component of GHG reduction tactics. This is achieved by capturing the CO2 which is released from the burning of these fossil fuels and storing it underground, thereby mitigating climate change (Herzog & Golomb, 2004). EDF energy believes CCS is very important in reducing emissions produced by gas and they state that “while gas fired generation has lower CO2 emissions than old coal fired generation, without CCS it is still a significant source of carbon emissions in its own right”. Wang et al (2011) suggests that depleted shale reservoirs could be used for CCS thereby offsetting its GHG footprint. The depleted shale wells would otherwise be unused leaving a greater environmental footprint of shale gas development. Therefore combining CCS with shale gas would help lower both costs and the

environmental footprint of shale extraction. As previously mentioned the Tyndall Centre estimated that the Lancashire Bowland Shale would generate 14.5% of the UK’s total 2050 carbon emissions budget. However this estimate did not take into account the potential usage of CCS, which would dramatically curb this estimate. The EPA estimates that ‘green’ technologies can reduce gas industry methane emissions by 40% (GAO, 2012). A good example of this is at the San Juan basin where the use of smart automated plunger lifts reduced venting emissions by 99% (EPA, 2010). Fugitive emissions in theory could also be reduced up to 90% through the use of reduced emissions completion technologies (REC), but are not currently in wide use due to cost (EPA, 2010).

5.6 The impact of shale on renewables It has been concluded by some that the large scale usage of shale gas is not the way forward in the transition to low carbon energy, and instead suggest a combination of conservation, wind, solar, nuclear energy and possible CCS usage instead (Myhrvold & Caldeira, 2012). However if shale was to be commercially used in the UK it is suggested that this will deter investment in these renewable energy technologies. Professor Anderson points out that a gas fired plant costs up to £450 per KW to build, whereas wind generation and nuclear plants cost over £1000 per KW to build, making them economically less viable (Pool, 2011). The delayed investment in renewables may set us back more than the climate benefits achieved from a marginal reduction in US coal usage. If the goal is to eventually reach near zero emissions, renewable technologies must play a much greater role, even a dominant role in the world energy system (Schrag, 2011).

5.7 Current energy usage in the UK The Low Carbon Transition Plan launched by the British government in July 2009 aims at 30% of renewable and of 40% of low CO2 content fuels in electricity generation by 2020. Figure 5.2 displays a fairly current image of the UK energy production and consumption. In the third quarter in 2012 gas only accounted for 28.8% which is its lowest third quarter share for 14 years, which can be explained by the high price of gas. Coal accounted for 35.4% which was its highest third quarter share for 14 years (Eco Environments, 2013). A lot needs to change to meet the ambitious targets set in the Low Carbon Transition plan as we currently rely on coal the most for our energy supply. However it has been suggested that if shale gas is implemented in the UK it 44

will contribute considerably to the countries energy mix as we struggle to meet future energy needs (Mainwaring, 2013). Shale gas may be ideal in helping meet the 40% requirement of low content CO2 fuels, due to its suggested lower CO2 emissions than coal and allowing us to self fuel our country.

Fig 5.2 UK Energy mix third quarter 2012. Source: Eco-Environments Ltd. (2012)

5.8 Conclusion Overall itâ&#x20AC;&#x2122;s difficult to say with any certainty whether shale gas would be environmentally feasible in the UK. It is evident that coal produces more CO2 per (unit of heat) than shale gas which is reflected in the US with their drop in CO2 emissions due to their decreasing dependence on coal and increasing shale gas production. However it is also suggested that these lower GHG emissions are likely to only be short term, and end up leading to increased cumulative emissions. The greatest uncertainty regarding shale emissions lies within the methane emissions, especially in the form of fugitive emissions. These fugitive methane emissions have caused a great amount of debate, which is evident from the mixed results produced by the different studies. More extensive research needs to be carried out on the issue surrounding the emissions related to shale gas as there are currently only a few peer reviewed articles on this subject. Whether or not shale gas is good or bad for climate change mitigation will also heavily depend on what policies are put

in place to regulate it, including the use of â&#x20AC;&#x2DC;green technologiesâ&#x20AC;&#x2122; to curb methane emissions, and also whether or not shale reduces investment in renewable technologies. WORD COUNT: 2,600

6. Limitations of investing in the development of the United Kingdom Shale Gas industry 3994643 6.1 Introduction This chapter explores the process that must be taken by companies who are looking to obtain land rights and permissions to exploit UK shale gas reserves. In the UK, various different legislation and regulation acts are imposed and maintained by numerous governing bodies who oversee all mining operations. However, shale gas and the technology used to exploit reserves are relatively new to the UK meaning the current legislation and regulations are out dated. There is recognition for the need of a policy update to adapt for shale gas operations, only then can the potential of the shale gas industry be fully recognised. This chapter has the purpose of examining current legislation and regulation acts assessing the effect on the UK shale gas industry. The limitations of the current system and governing bodies regulating onshore mining operations will be highlighted as is the Department for Energy and Climate Change’s (DECC) ‘Oil and gas: petroleum licensing guidance’ (PEDL). Implications to the development of shale gas industry and its operation in the UK will be discussed further. Exploration of shale gas reserves and the extraction involving the use of hydraulic fracturing (fracking) technologies in the UK is relatively ‘new’. However, technologies and exploitation of shale gas reserves have been commercially active in the US for some time. The shift to shale gas extraction and the use of fracking technologies used to exploit the reserves in the US has been partly fuelled by the aim of increasing energy security and revitalising the economy. The exploitation of shale gas in the US has meant natural gas prices have significantly reduced and the US will likely become the greatest exporter of natural gas. In response, Chancellor George Osborne stated that Great Britain shouldn’t “be left behind as gas prices tumble on the other side of the Atlantic”. (MP Osborne , George;, 2012) Recent estimates show shale gas reserves in the UK as having potential to supply gas for a number of years. However, no official evidence exists that demonstrates whether any gas can be extracted from British shale gas reserves commercially (Parliment, 2013). Reports of earthquakes with evidence that they occurred as a direct result from onshore fracking operations instigated 47

DECC to suspend all operations pending investigation of the seismic activity. A later report published by the Royal Academy of Engineering stated that health, safety and environmental risks associated with fracking could be effectively managed if best practices are implemented and enforced through regulation. Shale gas exploration and fracking has now since been allowed to resume. A further crucial statement written to parliament and published by MP Edward Davey on the 13th December 2012 shown below, indicated that the future of shale gas is likely to be subjected to stringent regulations and permissions. “I am in principle prepared to consent to new fracking proposals for shale gas, where all other necessary permissions and consents are in place… I stress the importance of the other regulatory consents, and planning permission … necessary for these activities, and which must be in place before my Department will consider consent to individual operations.” (Davey, 2012). Further to point, with the additional controversial and negative media coverage and consequent public perceptions of shale gas and particularly fracking, industry investors must calculate the cost of obtaining and maintaining stringent regulations and permissions. See sections 4 which discuss economic feasibility and section 3 for more detail regarding public perceptions. Section 2 provides information about the risks involved in the fracking process including aquifer and water contamination, as well as induced seismic activity. 6.2 Existing UK legislation, regulations and licences for onshore exploration. In 1994 the EU issued strict rules that its member states must follow when issuing petroleum licences. Consequently the Hydrocarbons Licensing Directive Regulations were implemented in the UK in 1995. From which the Petroleum Act 1998 was established, enforcing all rights to the nation’s petroleum resources as belonging to the Crown in the UK. Petroleum is defined in the 1998 Act to include “any mineral oil or relative hydrocarbon and natural gas existing in its natural condition in strata” (Petroleum Act 1998: Section 1). A pivotal moment in legislation and onshore licensing occurred in 1996 which saw the introduction of the PEDL by DECC at the Eighth Licensing Round. Until 1996, a sequence of individual licences for each stage of an onshore field’s life was required. However these were reduced with the remaining licences now being effective under the PEDL. The intention of 48

combining individual licences and ‘red tape’ legislation into one was to reduce the bureaucratic burden of issuing a series of licences. In the UK, DECC control and issue the PEDL licences to companies looking to explore for and exploit hydrocarbon reserves. DECC issues licences through competitive licensing rounds; this is to encourage better quality bids. Licences are awarded to those companies that can demonstrate they are capable of optimising exploitation of reserves and not to those who make the highest bids. Furthermore companies applying for a PEDL must prove technical/environmental competence and financial capacity before an offer can be made. Licences for onshore exploration covers three terms of what is known as a ‘field’s life’. These are the initial term (gaining licences and planning permissions), a second term (the development phase) and a third term (the production phase). The length of time a field can live depends on its success in graduating through the three different terms and each term requires companies to obtain different licences and maintain regulations. The third term or production term can last up 20 years and be extended if reserves are not fully exploited. A PEDL only allows a company to engage in oil and gas activities only necessary drilling/development consents and planning permissions are obtained. There are currently 334 landward licences which are shown below in Figure 6.1.

Fig 6.1. Currrent UK Petroleum Exploration and Development Licences, conventional Oil and Gas Fields, locations of conventional well drilled, and the areas counsultaion currently which may be offered in the 14th onshore Oil and Gas Licensing Round (DECC, 2012).

6.3 Stakeholder regulations, drilling/development consents and planning permissions. The necessary drilling/development consents and planning permissions needed to obtain a PEDL are numerous. This can cause many difficulties, limitations and slow the development to any onshore mining operations. For the purpose of this report, only the implications of the most significant consents and permissions will be discussed that are essential to shale gas industries. The Royal Academy of Engineering report on fracking and shale gas outlined three key areas where legislation and regulation controls were needed to ensure effective management of the issuing of PEDLâ&#x20AC;&#x2122;s. These were that a company must show an awareness of environmental issues, prove technical competence and prove financial capacity. As MP Edward Davey has stated, above, only when these three areas can be demonstrated through gaining the necessary permissions and consents will DECC consider consent for individual operators to construct a well. Although this process involves different individual governing bodies who specialise and control issues each of the listed areas. Figure 6.1 highlights the individual governing bodies involved in the process of obtaining well construction consent and the most important permissions and consents required after a PEDL has been issued. The PEDL only grants operators exclusivity within a licence area, it does not give consent for drilling and exploration. Negotiations with land owners are required as is permission from the Department for Communities and Local Government (DCLG) who direct Minerals Planning Authority (MPA). MPA identify if a proposal requires an Environmental Impact Assessment. However, under the National Planning Policy Framework (NPPF), the health and environmental impacts of all developments must be assessed which includes aesthetic impacts. Furthermore, the recent introduction of the Localism Bill (2011) means local authorities have more power in the decision making and permitting phases of developments ( granting drilling and exploration permissions). This can lead to NIMBY (Not In My Back Yard) and NIMTOE (Not In My Term of Office) attitudes being formed by local stakeholders (see section 3). Simply, if the local stakeholders dislike the aesthetic look of a proposed development, or in this case shale gas drilling/production site, then permissions to proceed with operations are less likely to be granted and face more opposition. The high population density of the UK means these attitudes can have a significant effect on shale gas exploration, with more stakeholders opposing the development of the shale gas industry. Consequently, operators must maintain constant engagement with local 51

communities throughout the process to obtain well construction consents which costs money. However the consent to construct a well may be refused because a local stakeholder opposes the development and believe the aesthetics impacts will be negative. The risk of operators being denied well construction consents by local authorities is therefore high and open to bias as well as individual agendas.

Fig 6.2 Example process once PEDL is obtained (Thompsett, 2013)

When well construction consents are permitted and become operational companies must abide to strict regulations and maintain standard level of operation which is monitored by different governing bodies. The Environmental Permitting Regulations (EPA) works in conjunction with the Health and Safety Executive (HSE) by inspecting and assessing fracking operations at every stage of development, on a regular basis. This is added pressure on companies looking to operate in fracking activities and increases paper work and number of employees needed to operate a facility. These factors can be very time consuming and costly. 52

The Department for Environment, food and Agriculture (DEFRA) are responsible for regulations implemented by the Environmental Agency (EA). These include the Environmental Permitting Regulations (EPA) 2010 which was designed to encompass water discharge and groundwater activities, radioactive substances and provision for a number of directives, and includes the Mining Waste Directive (Environment Agency , 2013). The EPA is a combination of the Pollution Prevention and Control (PPC) and Waste Management Licensing (WML) regulations. Fracking involves the use of water and a mixture of chemicals (see sections 2), which is regulated under the EPA. Chemicals used in the process, in the UK, must not be harmful to the environment and water used cannot be recycled as it is considered to be a product of mining waste. However, developments in technologies have meant that the chemicals used are not damaging in the UK and water, if managed effectively, can be reused in the fracking process as the composition of the water waste produced is not to dissimilar to water initially used. This regulation is being looked into and will possibly change to meet the requirements of the shale gas industry (Thompsett, 2013). If there is no change in this regulation, then the consequence may mean shale gas operations become less economically attractive, reducing investment and development of the industry in the UK. The HSE works closely with the EA and DECC to regulate and monitor fracking operations. The HSE primarily monitorâ&#x20AC;&#x2122;s shale gas operations from well integrity and site safety perspectives, overseeing safe working practices that are required by the Health and Safety at Work Act Etc (HSWAE) 1974. With regards to fracking operations, the HSWAE regulation requires that the HSE monitor well integrity under the Borehole Site and Operations Regulations (BSOR) 1995. Wells must be well maintained, as it is the well integrity during the fracking process that poses greatest risk to environmental damage such as water and aquifer contamination. As with any petroleum operation there are always risks involved in operations, especially to the environmental well being. In the UK current media attention of shale gas has been negative and provoked by fracking and the related seismic activity (see section 3). Any failures in well integrity could result in water contamination and cause more negative media coverage, thus creating greater concern in public perceptions increasing pressure for even more stringent regulations for shale gas extraction. Moreover, there is no actual evidence detailing the amount of shale gas reserves there are in the UK (see section 4). Risk to operators from negative media coverage may reduce interest.

Exploration for reserves might reduce as a result of pressures from the media and the rewards from operating might be very little. Associated seismic activity had a profound effect on fracking operations, bringing them to a complete halt in the UK. DECC enforced a limit to the amount of seismic activity allowed to be produced by introducing a ‘traffic light system’ to monitor and prevent seismic activity reaching high magnitudes, shown in Table 6.1. Green. Injection proceeds as planned.

Magnitude smaller than 0 ML. Regular operations.

Amber. Injection proceeds with caution,

Magnitude between 0 and 1.7 ML.

possibly at reduced rates. Monitoring is

Continue monitoring after injection for at

intensified.

least two days until the seismicity rate falls below one event per day.

Red. Injection is suspended immediately.

Magnitude greater than 1.7 ML. Stop injection and employ flowback, while continuing monitoring.

Table 6.1 ‘Traffic Light System’ applied for monitoring seismic activity induced by fracking.

Employing this technique to monitor operations from which fracking activities have already been stopped and restarted in the UK may reduce investment in shale gas exploration. The magnitude of 1.7 is low, meaning the likelihood of operations being stopped is high. If operations are delayed then production cannot continue which further increases costs and time. Obtaining consents and planning permissions is a process that takes a relatively long time, subject to periods of public consultation. Furthermore, consents and permissions are also continuously changing and adapting to meet the present needs and requirements of stakeholders, lobbyists and governmental/authorial agendas. Time means money, costing companies wanting to invest in shale gas development, potentially turning the industry into an unattractive investment opportunity. Nonetheless stringent regulations are essential to maintaining health, safety and environmental awareness throughout operations. However the current governance system is complex and involves many overlaps that between different governing bodies. For example the 54

DCLG or MPAs, regulations and legislations are similar to DEFRA and controls issued under the EA and EPA. An overview of the different governing bodies that control the issuing of specific licenses and regulate operations is shown in figure 6.3 below.

Fig 6.3 Understanding responsibilities (Thompsett, 2013)

6.4. Conclusion In conclusion, the current amount of legislation and regulations involved with onshore petroleum exploration means investment in shale gas could be very time consuming and costly for potential operators. Furthermore, uncertainties and variations in the estimations of shale gas in the UK make investment and exploration unfeasible. Stringent regulations provide barriers to the exploration of shale gas. Consequently estimating the potential and concluding a figure to the current amount of shale gas in the UK is more difficult if not near impossible. Policies are 55

beginning to apply pressures to governing bodies to relax, or at least reduce the bureaucratic burden of issuing regulation and licenses for shale gas operations by combining legislation and governing body controls where overlaps are be found. There is a need to generate more exploration and investment into shale gas to fully understand its potential as a resource to provide energy for the UK into the future. There is an underlying concern that the UK may miss its opportunity to maximise its potential benefits from shale gas exploration due to the time constraints imposed by current regulation. In summary, for regulations and legislation to be relaxed and shale gas potential to be realised, more knowledge of shale gas reserves is needed from more exploration. However, exploration is being delayed by current consents and permissions needed from different governing bodies who are subsequently limiting investment opportunities in the UK shale gas industry. WORD COUNT: 2,585

7. International Politics of Shale Gas 4706625 7.1 Introduction Previous sections in this report have illustrated many facets of the viability of shale gas in the UK as a potential energy source, such as public perception (Section 3) and possible environmental issues (Section 5). Yet the influences that international policies and other countries have on the feasibility of shale gas within the UK have not been discussed. This segment outlines and discusses the impacts of procedures by such entities as the US, the EU and other countries have in relation to shale gas practicality in the UK. Recently, shale gas has been touted by numerous publications as a world altering energy source. Exemplary articles by the BBC (2013) have claimed that shale gas in the UK “could be worth billions” and that Cuadrilla Resources chief executive Francis Egan has stated that it has “huge economic potential”. The Energy secretary of the UK government, Ed Davey, has said that “Shale gas represents a promising new potential energy resource for the UK.”; “It could contribute significantly to our energy security, reducing our reliance on imported gas, as we move to a low-carbon economy” (Lynas and Santillo, 2012). Apropos they are newspapers with a certain amount of bias and collective perception; they are however commended newspapers with a strong sense of journalistic ideals. Journals produced by governments and organisations, whilst presenting differing arguments often have come to the conclusion that shale gas could significantly impact energy markets in the UK and in other countries (KPMG, 2011). Naturally there are also plentiful articles that debate the potential success of shale gas as an energy source. BP’s chief economist, Christof Rühl, has decried shale gas as a “game-changer” for the UK and that the other factors which have been previously discussed in this report seriously affect the profitability of shale gas (Gosden, 2013). Of significant point is that the recent surge of interest and speculation arises from the impacts that US shale has had on the US energy mix and the global energy market.

7.2 The Development of US Shale Gas Currently the United States has been the only country to extensively explore shale gas and profitably exploit this natural resource (Rogers, 2011). Since the 1970s research has taken place relating to shale gas and in the early 1980s practical applications were achieved (King 2010; US Department of Energy 2011; EIA, 1993). Technically recoverable US shale gas resources are estimated at 24.4 tcm, according to EIA’s (Energy Information Administration) Annual Energy Outlook 2011 and is projected to account for 46% of US natural gas production by 2035 (EIA, 2011a). Shale gas production has increased exponentially from 11 bcm in 2000 to 0.138 tcm in 2010. This is an increase of 12.3 times in the last 10 years and now compromising of 23% of total US gas production and has resulted in a reduction of 19% regarding US’s total gas import - thus increasing North American energy security (Zelenovskaya 2012). Current recoverable shale gas resources are estimated to provide enough natural gas to supply the US for the next 41 to 82 years (some estimates claim more than a 100 years) (Lior, 2011). However it is only in recent years that shale gas has become significantly important for US energy supply (Stevens, 2010). This major thrust to develop shale gas as a resource emanates from a variety of reasons. Technological advances concerning geology and extraction processes have been and will continue to rapidly improve. Even within a small period of time improvements are being made to the related techniques (EIA, 2011b). The expanding amount of information concerning shale could be very beneficial to companies that have and will invest in UK shale; as an effect of globalisation is that there’s a greater exchange of data, information and technology (Goldberg and Pavcnik, 2007). This increases the potential feasibility for shale gas development in the UK. The Crude Oil Windfall Profit Tax Act (1980) incentivised the production of US unconventional gas, including shale gas. The enforced tax of 53 cents per thousand cubic feet under the Section 29 Credits of the Act encouraged increased development and investment in US shale gas (BP, 2010). This credit which remained until 2002 stimulated the initial growth of the shale gas industry (Stevens, 2010). In the UK the Windfall tax is levied only on privatised utility companies (Thorndike, 2005). However George Osborne, Chancellor of the Exchequer, has announced that there would be a “generous tax regime” for the emerging shale gas industry (Carrington and Harvey, 2012). These hinted at policies have not yet been revealed so it cannot be said whether they will be effective. 58

A reason that unconventional gas operations in the US have been relatively successful is that this industry has been free of restrictive regulations at federal or state levels (Stevens, 2010). This is largely due to the fact that the techniques associated with shale gas are not part of existing regulations, or in some cases, exclusions could be entered without attracting much attention by legislators. For example, the Energy Policy Act of 2005 exempted hydraulic fracturing from the Safe Drinking Water Act. However, new regulations may be introduced that impede upon shale gas extraction processes (Kefferputz, 2010). This is very much unlikely to be the case in the UK as there’s a very different regulatory system and many other different factors which have been discussed previously in this report. In Section 6.3 this point shall be expanded upon. These factors have allowed US shale gas to develop and be considered a financial success as under the Obama administration, shale gas has been promoted (White House, 2009). This is also in part due to the debated issue of how comparatively “green” shale gas is (as discussed in Section 5). The US shale gas revolution has started debates over the potential for shale gas in other countries. 7.3 Global Shale Gas Resources Global estimates of shale gas vary widely and whilst the scale of recoverable unconventional resources worldwide are thought to be very large, they’re currently poorly quantified and mapped (IEA, 2009; Rogers, 2011). The EIA (2011a) produced the figure of about 190 tcm for recoverable shale gas whereas the IEA stated 380 tcm (2009). This variability is due to a range of reasons such as the early exploratory nature of the assessments and the differing methodology (McGlade et al., 2012). As shale gas is a new resource: the production experience, technology and geological information are relatively restricted. These factors are rapidly changing and improving leading to significant uncertainty over the potential size of recoverable resources – even in regions with relatively advanced production (JRC, 2012). Also, a standard method to estimating resources for regions, especially, outside North America is by applying new assumptions to older studies. This is prevalent in desk-based studies. For example, Rogners (1997) study was similarly based conjecture. However, what is clear is that many countries across

the globe do have access to shale gas at varying degrees (see Figure 6.1).

Figure 7.1: Map of 48 major shale gas basins in 32 countries. Source: EIA (2009)

The shale gas revolution in the US has already had a significant impact on LNG (liquefied natural gas) capacity utilisation. The increased production of shale gas caused a surge in LNG export and import capacity and caused the development of over-capacity not only in the US, but worldwide (Stevens, 2010; Hulbert, 2010). There was a general reduction in global gas demand by 70.4 bcm (BP, 2010) as the result of the recession, causing a significant over-supply of LNG capacity and supply. The IEA (2009) estimates that there will be an underutilization of interregional gas pipelines and LNG capacity amounting to 200 bcm between 2012 and 2015 â&#x20AC;&#x201C; in comparison to 60 bcm in 2007. The potential for other countries to develop shale gas would exacerbate this issue. The current situation of LNG has caused gas prices to generally fall quite steeply. This is in part caused by gas surpluses and the contractual linkage with oil and transportation prices. Gas prices in the US, EU and UK fell 56%, 26% and 55% respectively (BP, 2010). Crompton (2010) argued that this could undermine investment in new producing capacity. As more countries look to invest in shale gas, there have been claims that shale gas costs are falling and in some cases in the US are below those for conventional gas (Jaffe, 2010). However as shale gas becomes more widespread, there looks to be greater regulation and government intervention. 60

7.4 Shale Gas in the EU According to the US EIA, Europe’s reserves are around 18 tcm compared to the US’s reserves of about 24 tcm (EIA, 2011a). Shale gas has been acknowledged as an energy source that could potentially decrease the EU’s import dependence and play an important part in the energy mix (EU, 2011). The successful exploitation of shale gas would improve energy security through reduced reliance on imports, yet EC energy policy is more motivated by renewables to meet 2020 CO2 targets (Rogers, 2011). There is much uncertainty and no general consensus within the EU as to what the future of shale gas is (see Figure 7.2).

Figure 7.2: Stances on shale gas in the EU. Source: IEA (2009)

The lack of an agenda that the EU has concerning shale gas is detrimental to its progress. If the EU had a more positive or proactive role in encouraging shale gas the UK would benefit as there would be an increase in supply and reduction in price (Stevens, 2010). The potential for shale gas in Western Europe and the UK seems to be heavily influenced by the other variables which have been previously discussed in other sections of this report. For example in England, the population density is 383 per km2 whereas in the US it is only 27. US shale gas has been relatively successful due to the lack of regulation and the comparatively cheap licensing or purchase of land 61

rights. As formerly discussed (Section 5), environmental legislation especially at a local level is much more stringent and a lot more explicit than in the US (Stevens, 2010). Substantial quantities of shale gas have been reported in the UK, the Netherlands, Germany, France, Scandinavia and Norway. Exploration is occurring, primarily through joint ventures to share risk and knowledge. But due to a wide range of economic, environmental and regulatory obstacles, the prospect of large-scale shale gas production remains doubtful (KPMG, 2011). Whether or not these countries pursue shale gas as a viable energy resource is more down to the energy needs, socio-economic factors and public perceptions of each country (as discussed in Section 3.1,2). 7.5 Conclusion In conclusion it can be stated that there is much debate and uncertainty apropos the feasibility of shale gas. There have been many claims about the potential of shale gas but they often have a basis in conjecture â&#x20AC;&#x201C; as the US has been the only country to profitably exploit it as an energy resource (Rogers, 2011). Estimates of shale gas reserves even within the US, where extensive drilling has occurred, cannot be considered very accurate or reliable due to limited exploration. Increased growth in shale gas has many impacts on the global market as well as within a country (Stevens, 2010). The hope that the UK could emulate the success that the US has had is very much optimistic and in contention (KPMG, 2011). There are a myriad of factors that make the UK very different to the US, in relation to shale gas, such as the regulatory system and the amount of drilling experience. WORD COUNT: 2,477

8. Conclusion

The US has been the only country in the world to profit from shale gas production. The benefits from shale gas being profitable in a competitive market has increased the USâ&#x20AC;&#x2122;s energy security and improved its current economic climate. There is an opportunity for the EU to invest in shale gas and mirror the benefits seen in the US, playing an important part in the energy mix (EU, 2011). Furthermore, shale gas reserves across the world are offering new opportunities for nations to profit, consequently a shift in the location of the global economic â&#x20AC;&#x2DC;powerhousesâ&#x20AC;&#x2122; could occur. Nonetheless, the geological and economic feasibility and limitations that are associated with shale gas are specific to the locations of individual shale gas reserves.

In the UK the shale resources are based mainly in two areas, the Northern Petroleum System (NPS) and the Southern Petroleum System (SPS). Geological understanding of these areas is highly important as it is the basis for viable extraction. This is particularly fundamental because shale gas is an unconventional resource and therefore requires different extraction techniques relating to the difficulty of extracting the gas from the resource rock. There are many potential issues with geological feasibility of these areas, for example propagating fractures have been said to have the potential to interfere with aquifers and induced seismicity is also a potential issue.

These issues can impact social perceptions of shale gas in a negative way. The earth tremors caused by fracking in Lancashire is a good example of this, as it received a lot of negative media coverage. Other perceived negative results from fracking include the water use, water pollution, fracking fluid toxicity and effects in local communities. However this negative stigma surrounding shale extraction will not eliminate the potential feasibility of extraction in the UK considering there is always some level of opposition to any large-scale development, although public opposition may cause delays. This issue could be overcome by the implementation of UK regulations, which will help reassure the public that the above issues are unlikely to pose any personal threat. Nonetheless, existing stringent regulations in the UK provide barriers to the exploration of shale gas.

Currently companies looking to invest in the industry must apply for various different licences and adhere to strict legislation that involves governance from numerous authorities on local and national scales. Only when all necessary licences, consents and permissions are granted can exploration and drilling for shale gas begin. Until this is achieved, estimating and understanding how much shale gas is stored in UK reserves will be unknown. Conversely, only when estimations and understanding of shale gas stored in reserves in the UK will encourage investment and growth in extraction industries. One way to overcome current regulatory and legislative pressures to shale gas operations is for development of fields to be away from areas that are highly populated. However this may be challenging considering that the location of the SPS basin is largely populated and their economy is partly dependent on tourism which may be financially be affected by this type of development, further making implementation of shale extraction on a large scale in the UK challenging.

Another important issue when considering the potential feasibility of shale in the UK is the actual emissions associated with extraction and combustion of the gas. It is evident that without mapping and exploratory drilling in the UK, the feasibility of shale extraction will remain unknown, but looking into what will happen once extraction has begun is also a huge contributing factor to overall feasibility. There is a great amount of uncertainty surrounding the overall emissions produced by shale gas. The greatest uncertainty lies within the fugitive methane emissions that escape from leakages during the flow back period, which has caused a great amount of debate. It is a known fact that coal is much more carbon rich producing far greater CO2 emissions than natural gas. Therefore when looking at emissions produced from combustion shale appears to be much more advantageous, especially when you look at the US which has reached a 20 year low in their carbon emissions, suggested being due to their booming supply of low-carbon natural gas. However it is also suggested that these lower GHG emissions are likely to only be short term, and will lead to increases in cumulative emissions by delaying development of near zero emission technologies in the long term.

In summary, the likelihood shale gas will be exploited as a resource to power the UK is at present non-existent. Simply more exploration is needed to understand reserves that can only be achieved when public perceptions are changed and governing bodies reduce legislative and 64

regulatory controls. The UK risks missing its opportunity to invest in the shale gas industry benefiting from potential economic profits.

9. Recommendations Based on the findings from this report, the following recommendations are advised in order for shale gas exploration to become feasible in the UK: 

The most important recommendation is to improve mapping of shale gas basins, by increasing exploratory drilling in order to establish the quantities and accessibility to existing reserves.



Increase public engagement in the development process and offer full transparency for all regulations and legislation relating to the proposed development



Economic viability requires that extraction costs are reduced and well productivity is increased, this could be achieved by investigating possible modifications to the fracking process



To ensure that shale gas allows the UK to meet emissions targets it is important that investment is not limited to shale gas and involves green technologies, with the long term goal of reducing emissions in line with global and national carbon targets.



Simplification of current regulations and legislation and increased access to these resources should allow the development process to be less arduous, therefore encourage more interest from prospective developers

Word Count Executive Summary 471 Introduction: 2,061 Conclusion: 795 Recommendations: 146 Total group section: 3480

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