French company Total confirmed in January that it had become the first global oil and gas major to invest in the burgeoning UK shale-gas industry.This is a huge early milestone, but, according to commentary by Evaluate Energy, it will still be a long time before even the possibility of onshore gas production in the UK becomes a reality.

Total will invest $46.5 million in two exploration wells and pad construction to earn 40% in two onshore licenses, joining Dart Energy, IGas and others in the quest to prove the commerciality of shale-gas exploitation at these sites.Total has an option to exit after the first vertical well, but its partners will need Total to stick around if the well costs in the US are anything to go by.

The short history of shale-gas exploration has shown that it takes plays many years of production before costs fall into line with those of more conventional plays.The Utica play in Ohio is a good point of reference.Last year, Gulfport Energy budgeted for a cost of $9.2 million per well, Halcón Resources budgeted for $9.5 million, and Consol Energy's costs were just under $15 million.This is approximately two years into the exploration stage of the play, and the average monthly rig count has been above 20 since May 2012, according to data from the EIA.

Assuming one well per month is being drilled by each rig, it would come to hundreds of wells being drilled in the play in slightly more than 18 months, according to Evaluate Energy.So the UK still has a long way to go before costs come down and the need for the presence of an oil and gas major in the sector ends.

The next step will be to increase production to the point where it fulfills the government's promises over the past few months.Evaluate Energy points to a September speech by Ed Davey, the UK Secretary of State for Energy and Climate Change.Davey said the UK is expecting to need to import 70% of its gas requirements by 2025.He suggested the UK will eventually want to get back to its net exporter status of 2003, and that shale gas is the answer.

In 2012, the UK's natural gas consumption was 7,554 million cubic feet per day (MMcf/d), according to BP.Assuming consumption was to remain constant until 2025, shale gas would need to provide at least 5,288 MMcf/d

of natural gas.Another look at EIA data for the US shows that the gigantic Marcellus play (200 times bigger than the UK's play, according to Davey) in the Appalachian Basin took about four or five years of widespread exploration and development work to reach this level of production in mid-2011, and the average rig count was more than 100 for 2010 and 2011.

This level of activity is something that is currently unimaginable in the UK, according to Evaluate Energy.The government will allow local authorities to recoup 100% of the business rates of these operations instead of the usual 50%.But this will do nothing to stop the environmental activism juggernaut that has plagued fracing operations across Europe so far.

The UK's only real fracing operation to date was carried out by private company Cuadrilla Resources, which began its own exploration work with one rig to drill one well in Balcombe, Lancashire, in mid-2013.Its initial work at the site about a year earlier caused a minor earthquake and sounded alarm bells for environmental activists across the country.

When the company tried to begin fresh work on the site last year, it was met with angry protests that lasted for the duration of its stay.The company had to postpone its work for a few days on the health and safety advice of police due to the nature of the protests, and (according to commentators) made little effort to assuage the concerns of the protestors at the site.Publicly listed companies like the ones Total has invested with are expected to make more of an effort to engage with the public.

The desire to import 70% of British gas needs in 2025 is a large financial burden, but shale gas could or should play a part in alleviating the pressure, and the involvement of an experienced, world-renowned and wealthy company is necessary for any of this to happen, according to Evaluate Energy.While the deal with Total is a big step, the UK government and the companies involved have at least two more even bigger steps to take before UK shale gas can be successful.

Comments