Earning the “Social License to Operate”
Developing shale gas is all about earning the “social license to operate,” according to Andrew Gunning, Partner, RSKW Ltd., who spoke of the risks and opportunities of developing shale gas in Europe at the Romania Oil & Gas conference in Bucharest, Romania.
“Socially, there's health and environmental concerns around shale oil and gas development, and that particularly is an objective that developers need to get to, which is achieving a social license to operate,” he said, explaining that the social license was a term coined by the World Energy Association.
“It very nicely sums up some of the challenges in terms of social acceptance,” noted Mr. Gunning.
RSKW, which he explained, is comprised of civil engineers and geologists, has performed two studies in this regard: one covering the unconventional gas scene in the UK and one which covers Europe. Focusing on how to achieve success, the research considered political, economical, environmental, and legal aspects of the opportunities and the risks.
Naming the declining indigenous production in the UK, he said it was now geared towards renewables and dependent upon gas imports. With that in mind, Mr. Gunning described the country's main shale plays in the Midland Valley, the Bowland-Hodder basins and the Weald basin.
While he admitted there is still the potential for legal challenges to development in the UK, he contended that the regulation is adequate.
RSKW calculated scenarios for high, medium and low rates of shale oil and gas development.
He offered that in the medium and high rates, “There needs to be adequate funding from the private sector to drill these exploration and appraisal wells.”
According to him, the political environment in the UK is quite supportive of unconventional oil and gas, but that could change given a pending election in 2015. Still, he said that a high rate of development can only occur if no significant health or safety incidents occur. “If one of those happens, it would be a significant obstacle to development.”
Achieving the social license to operate, he explained, involved the general public, non governmental organizations and the political sphere. He said, “A high risk approach is where you've got pretty strong public opposition; in terms of a low risk to development, that public opposition largely evaporates.”
The NGO opposition, he added, is not likely to ever go away. “If the sector can mitigate the public opposition, then that facilitates further development of shale oil and gas,” he explained.
In the “high rate of development” scenario for the UK, Mr. Gunning said that 1,600 wells could be drilled on the country's 40 license blocks. Also, local water services could serve a decade-long water supply without a problem.
In the high case, he added, PR issues would be fairly negligible. “The high case would occur where there's some pressing reason, either through high energy prices or security of supply issues, which would mean that public opposition effectively was strongly mitigated,” he explained.
In RSKW's European study looked at the geology in key basins in Poland, the UK, Romania, Hungary, Ukraine, and determined that countries that need further analysis are Poland, Romania, Ukraine, France, the Netherlands and Denmark.
Each country, he said, was analyzed in terms of political will, the social license to operate, size of the opportunity and recent activity. Romania, he offered, has significant resources, but political sentiment about development is mixed. While France has a moratorium on hydraulic fracturing, Mr. Gunning said that the size of the resource there made it worth monitoring, especially if there is a shift in the political winds there.
Presenting a timeline of the US shale revolution and its development, he said that the EU was a bit behind and will need 10 years before it sees any significant production, but perhaps it will eventually see production profiles like America's – and the price of gas could even decline.
Mr. Gunning pointed out the big price differential between what prices are in the US - $3-4Mmbtu – and the $12 paid in Europe. He commented, “So there's a significant price advantage in the EU which will partly offset the higher costs one can expect in the EU.”
The supply chain for unconventionals, he said, is beginning to develop and will need more sophisticated drilling and hydraulic fracturing equipment, as well as pipelines and processing facilities.
“A whole new industry will need to be established and to achieve that obtaining a social license to operate where communities and states are reasonably comfortable that the industry can carry out these things in a safe and environmentally responsible manner,” he explained.
Of the UK, he reported, “I think we're starting to see that there are signs in the UK, now that the initial concerns have started to dissipate, that there's broad public acceptance that we have a fledgling industry here which can make a significant contribution to wealth and energy security of the European Union.”
Proper regulatory regimes exist, said Mr. Gunning, but it is a matter of member states being able to properly enforce them.
He added, “Development is likely to be a patchwork; it's not going to be a common phenomenon across the EU, but it will be developed in several different areas initially and, as those areas succeed, then other countries will follow along.”
Poland, the UK and the Netherlands are likely to lead the way, according to RSKW's Andrew Gunning.
Offering some shale gas perspectives from Poland was Cezary Filipowicz, Vice President – Business Development, United Oilfield Services, who said that Poland is by far the most advanced country in Europe for shale gas exploration and has attained social acceptance.
This is partly due to an energy security issue: Poland receiving 95% of its crude oil and 70% of its natural gas from Russia. Russian dependence, he said, is a bigger threat than the potential risks of shale gas exploitation, according to him. “We're trying to do our best to change the situation,” he commented.
Showing a map of the numerous – 109 - shale gas concessions in Poland a few years ago, Mr. Filipowicz spoke of the country's Ordovician, Silurian and Carboniferous shales. He reported that 64 wells have been drilled since then and an additional three were to be drilled before the new year.
Now, he admitted, there were only 70 concessions in Poland at present.
“Many investors have quite Poland,” he remarked. “The big players like ExxonMobil, Talisman, Marathon, have left.”
ConocoPhillips, he said, has remained in Poland, and one of its operations is jointly with the Polish Oil & Gas Company, but its junior partner 3Legs has recently packed up.
The most promising prospects, he said, are in the Baltic Basin: “The good quality of the shale is also in the Lublin area, but the tectonics are very complicated which creates problems for hydraulic fracturing, because of the many faults.”
Of the 64 wells drilled, Mr. Filipowicz said that there was oil and gas in nearly all of them. He reported, “Forty-eight of them were vertical wells, 12 horizontal and 23 were fractured vertically and four horizontally.
“All of the four had a stable flow of gas for 90 days each; however, there wasn't enough quantity of this gas to call them commercial. The pressure was also unstable, requiring the pumping of nitrogen and some stimulation to maintain production.”
Each shale is different, he said, but “practice makes perfect.” Still, he said Europe shouldn't spend 20 years developing it as it had been done in North America.
Population density issues are an obstacle in Europe, he admitted. “Europe is one huge village – everywhere there are people, less space to operate than in Texas or North Dakota.”
One way that United Oilfield Services has addressed such problems is by designing a drilling rig especially for the European market. Mr. Filipowicz explained that it is self rising – not requiring a 200 ton crane – and walks in two directions.
“This is a crucial advantage for shale gas production,” he said, “because when you achieve the stage of production wells you'll have to drill from six to 12 wells from one pad. The walking system allows you to move a rig without moving 200-400 meters to a second location and it saves time and money," said United Oilfield Services' Cezary Filipowicz.
-Drew Leifheit