Analysts see challenges in accessing European Shale Gas potential
A lack of land-based rigs and access to hydraulic rock-fracturing technology will cap any potential for shale gas production to be profitable in Europe, analysts said Tuesday.
"Land rig capacity will need to rapidly increase," to make these projects commercially viable, said Oswald Clint, analyst at Sanford C. Bernstein speaking at The Unconventional Gas conference in London, organized by Finding Petroleum. While there are an estimated 1,500 land rigs available in the U.S, only 74 suitable rigs are accessible in Europe, he said.
"Restrictions on bringing in rigs from outside Europe is causing a bottleneck," he said, referring to European Union limits on imports on rigs and rig equipment.
David Bamford, analyst at consultancy Neweyes Exploration, agreed highlighting soaring development costs for unconventional gas drilling. The shale gas drilling process requires up to 600,000 gallons of water, plus hydraulic fracturing--or "fracking" as its known in the industry--which takes another 4.5 million gallons per well, Bamford said.
Average costs for a typical well are between $7.5 million and $10 million, he said, with additional operating costs of around $2.25 per thousand cubic feet of gas extracted, or mcf, meaning in order for projects to remain profitable, U.S. Henry Hub gas prices would need to stay above $7.50 per mcf. They are trading around $4 per mcf.
Sanford C. Bernstein's Clint also said population density and a lack of available space present huge hurdles to making European shale gas plays attainable.
Efforts in Europe are currently focused on Poland--although there are basins that could be developed in Switzerland and the U.K.--which is still a mainly agricultural nation comprised of thousands of family smallholdings of an average 14 hectares. Planning a well head on land in Poland will require companies to negotiate with each family, which will inevitably delay processing, Clint said
Water reserves are also a major concern; while water is fairly readily available in the U.S, European countries will face bigger difficulties transporting large volumes and sticking with environmental guidelines on disposal.
Shale gas growth in the U.S. was driven initially by gas price increases but sustained and accelerated through technological advances, said Novas Consulting analyst Stuart Fordyce. It now makes up 10% of total gas production and 2.1% of total U.S. energy supply.
Fordyce thinks while the U.S. is blessed with considerable shale resources thanks to a coincidence of geological and operational factors, commercial viability remains patchy.
"Learnings from the U.S. industry can be directly applied to Europe," Fordyce said. "European geology is more complex and will require a smarter approach to identify and exploit commercial shale gas resources."
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Source: Dow Jones