Events dramatically affecting the dynamics of the upstream industry can occur rapidly—the Arab Spring in the Middle East, North America’s unconventional revolution or the Crimean crisis in the Ukraine, for example. At other times progress can appear to be little faster than continental drift as legislation, investor caution and environmental concerns run their course.

Britain and the wider Europe are currently caught somewhere between the two. The concerns over energy security create waves of urgency among political leaders and industry supporters who know that fossil fuels remain a vital part of the future energy mix.

But that initial surge is almost immediately dampened by a hard dose of reality, as most people acknowledge that what is taking place in the U.S. was enabled by a unique set of circumstances related to the size of reserves, the availability of infrastructure and a ready-made world-class supply and logistics network.

‘No silver bullet’

For the U.K. and Europe, the reality is that “there is no silver bullet,” according to U.K.-based consultant petrophysicist Andrew Foulds of Petrafiz Ltd.

Speaking at the Unconventional Gas event in Aberdeen, Scotland, earlier this year, he pointed out that “shale does not equal shale oil or shale gas” and urged caution regarding the estimated reserves figures put out within the past year by the British Geological Society (BGS). He flagged up the progress, or relative lack of it, in Poland as a relevant reference.

Foulds estimated that up to 300,000 wells may be required in Europe to “get the reserves out” and added that between 500 and 1,000 wells would need to be drilled to fully understand the shales there.

“Poland has 40 to 50 wells drilled so far. We need a lot more to fully understand it,” he commented, while adding that logistics for both the U.K. and Europe remain another separate major challenge.

His cautionary tone was echoed at the same event by Schlumberger Fellow Dr. Robert Kleinberg. “These shales are not like rocks we have done so far,” he commented. “They are as different as rocks on Mars. Historically we’ve been fracturing a long time, as it was first done in the late 1940s. But appropriate to shales there’s still a lot to learn. We are in the equivalent of the early 1900s in terms of understanding shale.”

However, being something of a technology guy (Kleinberg holds more than 30 U.S. patents with several commercialized geophysical instruments), he is optimistic: “Speaking as a technologist, we are never done.”

Optimism remains

That optimistic tone is one that remains prevalent for all those looking at the potential of European unconventionals. Connie Jump, senior technical director for Chevron Onshore Europe, is someone who stepped across from the energy revolution in the U.S. to work the Silurian Shale in Europe.

“We are still in the very early stages of exploration, and there is much more to learn about the geology in Europe,” she told delegates.

Just for comparison, the 40 or so wells drilled in Poland in total can be held up next to the figure of around 400,000 drilled in the U.S., she pointed out.

Again, the word used is “potential.” Poland possesses an estimated 1.8 Bbbl of shale oil and 4 Tcm (146 Tcf) of shale gas resources, according to the latest estimates. “The potential is still there for an increased domestic resource,” she said.

The U.S. major has drilled just four wells and has shot some new recent 3-D seismic. For Chevron and for the industry generally Europe is likely to remain in this nascent stage for some years to come despite geopolitical drivers such as events in the Ukraine adding pressure to move faster. However, with most players looking at the region within at least a 40-year time frame, no one is being rash with their investment dollars when so many rival opportunities to access new reserves around the world are still emerging.

It also will take time simply to formalize the regulatory framework within each European country, as well as European Union directives, along with a gradual buildup of the logistical and supply chains. “The permitting pace at present is not fast, with lengthy procedures,” Jump commented. “And in the U.S., of course, rig movements are no big deal. But from Romania to Lithuania? It’s very different.”

Long-term picture

The likely long-term future for European shale gas was backed up by Statoil’s chief executive, Helge Lund, at the recent Platts Energy Week event in Washington, D.C.

Unconventional gas from shale will not be developed in Europe anytime soon because of the region’s population density and a current lack of enough fiscal and popular support for its development. “You need efficient rocks. You need fiscal arrangements around these resources that make it investable,” he said, according to Platts. “You need public support.”

Statoil was of course an early investor in U.S. shale plays, so the company knows the benefits as well as the challenges. “It is more challenging to develop these resources in areas that are more densely populated,” he said. “We do not think that shale will play a part in the short- and medium-term in Europe.”

Trying to make it a nearer term solution is the U.K. government, which has strongly backed industry efforts to study shale formations from north to south.

Development enabler

The Office of Unconventional Gas & Oil (OUGO) sits within the U.K. Department of Energy and Climate Change’s Energy Development Unit, which oversees the country’s energy development. Duarte Figueira, who heads up OUGO, stressed the need to “make the most of our natural resources and enable development.”

“Future gas demand projections we have are of 80 Bcm [2.8 Tcf] a year. In 2003 it was different; we were a net gas exporter. Now we are a gas importer with falling offshore gas production,” he said at the Unconventional Gas event in Aberdeen.

He mapped out the government’s desire for there to be between 20 and 40 wells drilled in the next few years in an initial exploration phase he believes stands a strong chance of proving sufficient reserves for a commercial phase. “We recognize that there are legitimate concerns about shale gas and that we must explain ourselves,” he said. “But gas is a bridge to a low-carbon future. The carbon footprint for shale gas is lower than for LNG projects and comparable to conventional resources. We’re hoping to take our next licensing round—the 14th—forward later this year, and we have been [putting] and continue to put in place tax and other incentives to support U.K. shale growth potential.”

House of Lords support

Figueira’s message has been more than backed by the U.K.’s influential House of Lords Economic Affairs Committee.

It expressed disappointment that exploratory drilling with hydraulic fracturing needed for shale gas development has hardly begun, commenting that “since the lifting of a moratorium on hydraulic fracturing in 2012, the Environment Agency has not received or approved a single application for the permits necessary for exploratory drilling.”

Lord MacGregor, Chairman of the House of Lords Economic Affairs Committee, said in a prepared statement, “The committee strongly supports the government’s decision to go ‘all out for shale.’ But here in the U.K. we have not yet left the starting gate. Developing a successful shale gas and oil industry in the U.K. must be an urgent national priority.
“Only exploratory drilling with hydraulic fracturing, then appraisal, can show how much of the U.K.’s shale resource can be developed economically. But there seems to be a regulatory logjam.”

Companies in the vanguard

In the U.K. it is relatively small companies such as Cuadrilla Resources, IGas, Dart Energy, Alkane and Egdon that are at the vanguard of early activity.

Most of the current onshore licenses are concentrated in areas such as the Bowland Basin in northern England and the Weald Basin in the south, which already produce conventional oil, gas and coal.

Cuadrilla is the largest and most prominent of these potential shale developers, with access to external finance from institutional investors via the private investment firm and main shareholder Riverstone.

However, others such as IGas Energy are stepping up their game. IGas reached a farm-out agreement earlier this year with Total, selling a 40% interest in two licenses to the French major. In exchange, Total committed to contribute at least $20 million and possibly nearly $50 million to help pay for the acquisition of 3-D seismic data; drill and test a vertical exploration well; and, conditional on the results from the first well, to drill and test a second horizontal appraisal well.

In May, IGas confirmed the takeover of Dart, which owns more than a dozen licenses in the Bowland Basin—including many adjacent to ones held by IGas. This makes it the company with the largest area in the U.K. under license of more than 1 million net acres, including major U.K. shale basins.

Fact or fiction?

The bottom line remains that no shale gas or oil has actually yet been produced in the U.K. Although last year’s BGS estimate put the Bowland-Hodder Shale Formation in northern England at more than 37 Tcm (1,300 Tcf) of natural gas in place, it is not known yet if it can be commercial.

The same is true in southern England, where the Jurassic shale of the Weald Basin has just been estimated by the BGS in a new report to have little chance of gas because the shale is thought not to have reached the geological maturity required. However, it has issued a range for shale oil in place of between 2.2 Bbbl and 8.6 Bbbl, with a central estimate of 4.4 Bbbl but also a “high degree of uncertainty.”

The Weald Basin already has 13 producing conventional oil and gas sites, so it is a proven province.

Later in 2014 the Carboniferous shales of the Midland Valley of Scotland will also be the subject of a further BGS report. But all involved acknowledge that what is needed is drilling and testing activity, and with up to 40 wells targeted by more than 10 companies within the next two years, it will soon be clear whether companies are witnessing the birth of a U.K. shale industry or a false dawn.

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