This is not America

Exploiting shale gas will be different in Europe, according to Shell

Developing shale gas in Europe in the way it happened in North America would be like trying to jam a square peg into a round hole, says Glynn Ellis, Director, New Ventures at Shell.

In describing Shell’s approach to European exploitation of shale gas, he offered the company’s current internal perspective on unconventional gas, and discussed some of the key solutions.

Ellis contended that all the right parameters existed to make shale gas a success in Europe.

Addressing delegates at Shale Gas World 2010 in Warsaw, Ellis first spoke about unconventional systems. “They’re more than just about the resource itself, but how’s it’s extracted from the ground. It’s a fairly intensive form of business that does affect communities, the land, etc.”

He said that a key part of Shell’s thinking regarding shale gas, was to extract the resource in a sustainable way.

“It’s different than how thing are done with conventionals.”

Ellis noted the expectations of how much gas was available in the world, and said there were various interpretations. “We see potentially 200 years available of both unconventionals and conventionals,” he said of Shell’s perspective.

Natural gas being used for reducing carbon footprints was also a topic he touched upon, but moreover emphasized the advantages of a supermajor like Shell.

“We are a large company,” explained Ellis, “and have diverse exposure across the world. Our many different operating environments helps us to leverage our expertise, which we can rely on to find solutions to some of the challenges for unconventionals in Europe.”

He said the company had a diverse global footprint as well that it was definitely growing. In Europe, Ellis named shale gas explorations in Sweden, Ukraine and said Shell was looking for additional exposures.

“Since the 1950s we’ve been dealing with this technology as part of our ‘tight gas portfolio.’ Shell is Advancing the technology –these will continue to play a critical role.

Shell is also exposed in all key shale gas plays in North America, according to Mr. Ellis.

“They’re all different, and the analogs are not always alike. Not only the subsurface varies but how you approach them with different drilling techniques. In Europe it’s also likely to look different as well,” he opined.

The ability to operate within different fiscal environments would also be critical, said Ellis.

“Europe does have some challenges,” he explained. “The geology is different from North America, China, and other places. You have a complex geological environment. We don’t know whether that’s going to help or be a hindrance.”

The lack of data set was a challenge, said Ellis. ”The key data in Europe are very old and they haven’t paid attention to the shales. Russian data is difficult to interpret.”

“There’s going to be failure, and where it’s going to be successful is unsure,” he said of Europe, adding it would be 2-3 years of exploration and then a few years of pilot activity, making it some time before it would have an impact on European gas demand.

“The demand for Europe is quite attractive,” he said. “Until 2030 we have several hundred TCM that needs to be fulfilled. The rate of unconventional gas is unlikely to meet that, so LNG and other sources and supplies will still be necessary.”

Conventional activity still needed to be pursued, according to him.

Ellis also touched on the price of natural gas and investment incentives and their implications for shale gas development in Europe.

“The EU oversight and the OECD gives us a level of business transparency. Governments should maintain their financial support to allow us to continue to accept that exposure in our business.”

”Market access and transparency are challenges as well as pipeline access,” he explained. “Moving gas molecules from border to border is challenging.”

In terms of population density, Ellis was frank: “The American approach is not going to work for Europe.”

He touched upon environmental permitting in Europe, how communities are engaged, and how they can benefit. “It’s important for people to directly see the benefit.”

Well density, and water management in particular, were giant hurdles for Europe, said Ellis, not to mention the 100% recycling of fracking fluids and eventual disposal of those fluids.

“Since 2008 we’ve seen most of Europe leased up,” he said. “We at Shell believe that competitor activity is going to help us all to see where the resource may be viable.”

Ellis described the typical execution of an unconventional resource.

“It requires a lot of real well data that that can cost several hundred million dollars, so the competitor activity removes some of that exposure. If you are in the wrong area, you don’t want to continue drilling there.”

As for its potential impact shale gas could have on Europe, he said, “There’s a lot of de-risking that has to be pursued in the future. We’re not expecting to see a real impact in gas delivery until 2020. It’s going to take time, money and support from EU governments.”

Contractor capability was yet another topic touched upon.

“In North America we have 1800 to 2000 rigs and they’ve been able to drill 100,000 wells. The ability to build those rigs in Europe is going to take time.”

Ellis said he didn’t see well costs as a challenge because he believed the contractor community was willing to meet it. “There’s an expectation across most of the industry,” he contended.

But could shale gas development truly be achieved in Europe? He said some things had to be changed for that to happen.

“There’s an impact that local communities can have on the success of conventional & unconventional,” explained Mr Ellis. “You have to engage and operate sustainably. It requires effort and understanding.”

He said engaging civil organizations was key.

“Here in Poland there are 2,500 groups that really have an impact. They operate in quite a connected way and can move things forward in a positive way.”

Ellis said companies could offer improvements and advances in technology which could address a lot of the challenges, like for the environment, and for the community, particularly regarding well density.

“Even as an explorationist having to drill too many wells is something I don’t find attractive. We are executing 20-30 horizontal wells from a padded location. You have the ability to co-locate your facilities for hydraulic fluid fracking, modulizing the facilities. People are doing this now in the US, we’re doing it and it’s at the forefront of technology.”

“Once you’ve got Christmas trees on location,” he added, “then you can do things to hide those. The overall impact on the community can be quite acceptable.”

In terms of hydraulic fracturing technologies, Ellis said community engagement was very significant, to find out how local communities expect companies to operate in their environment. “It’s valuable for us to reflect on these comments,” he said.

Ellis said at three of Shell’s wells in Sweden, the company had strong community support and got everything done in a very acceptable way. “There’s no footprint.”

It was also important, he contended, to maintain a positive fiscal climate.

“There is going to be continual risk, continual exposure on the industry. We’d like our governments to reflect on these policies.”

“It’s an exciting phase of European shale gas development,” Mr. Ellis summed up. “Conoco-Phillips and Lane Energy have drilled, and with all those permits they’re exposed. There’s going to be quite a lot of data that’s coming into that's coming into the industry."