Unconventionals in Europe: More Like Canada
Indeed, Canada might be a better analogue than the US for the development of unconventionals in Europe, according to Paul Chernik, Business Development Manager with ERC Equipoise, who was attending the Unconventional Gas Forum in Barcelona, Spain.
A Canadian himself, he recalled: “The major shale play in Canada is the Horn River, which did not have a large level of local oil and gas infrastructure, before it was brought in to investigation by the exploration companies,” he explained. “As a result, they’ve had to invest capital with limited return on investment to date. They’ve been going through the challenges of building pipelines and facilities, trialing different drilling and completion strategies, identifying markets, considering LNG facilities, improving operational efficiencies, etc. These are similar challenges that Europe will face from a capital development point of view.
“In addition, in Canada most landowners do not have freehold rights for their acreage; as a result they do not receive direct royalties from the production of oil, gas or condensate on their land, which is a similar situation to most of Europe as far as I’m aware. This is unlike the States, where many landowners receive a direct payment, and are more inclined to allow oil and gas activities on their land as a result.”
“So the lessons learned from Canada in terms of the amount of money that has to be spent on the development of shale gas play and the challenges with getting local buy in are similar to what Europe will face going forward. Quebec and Nova Scotia going forward will be especially similar as neither has a strong history of onshore development. ”
Still, he said, Europe would have to leapfrog over some challenges.
“The major challenge is that a certain level of capital investment is needed to make the decisions as to whether the reservoirs are suitable or not. Right now the number of wells and the number of technologies trialed is insufficient to ascertain whether the current shales being targeted are suitable reservoirs for hydrocarbon production. More investment is required.
“In addition, there needs to be a greater focus on raising public awareness as to the benefits to local communities and the country as a whole of shale gas developments. Without the support of local communities, it will be difficult to implement economic shale development on the scales required.”
Chernik said that ERC Equipoise, a reservoir evaluation specialist group that performs seismic interpretation, static modeling, reservoir simulation, reserve auditing, acquisition and divestiture advisory work as well as commercial analysis, had worked with clients focused on shale gas in the UK and in Poland.
One driver for the development of unconventional gas in Europe appeared to be significantly stronger in the “new” Europe.
“I think that Eastern Europe will play a more prominent role in the near future, because of the issues with gas supply coming from Russia,” he explained, taking note of this year’s cold winter. “As the cold snap hit Eastern Europe, the gas prices went up and therefore I think interest in an alternative gas source will be greater in those parts.
“For Western Europe, it’s hard to say – the greater access to LNG and to diverse infrastructure means that the pressure to diversify supply isn’t quite so high.”
Despite this, Chernik said that unconventionals development in the UK, where ERC Equipoise is located, was obviously progressing with Cuadrilla Resources’ activities in the north.
“There’s also some discussions with other shale gas landowners in the United Kingdom. I can think of several companies – one that’s publicly talking about it, IGas Energy – and a couple of others that are looking into it on a confidential basis at this moment, and the result will be that after a period of study, they will have a sense of whether their shale has a potential for shale gas or shale oil development. It depends whether or not companies invest the money in the next 2-3 years to be able to make that decision.”
He said land access was the biggest issue for unconventionals in the UK.
“There needs to be a concerted effort by producers to get landowner buy in to this whole shale gas/shale oil development concept,” he explained. “Historically the UK has been quite wary of onshore developments and people seem to dislike visual reminders of oil and gas activity. An example is Wytch Farm, which is a very successful field, but where the operator had to take special care to limit visual and environmental impacts. So I think that shale gas producers have to look at how conventional producers have had to deal with the challenges of landowner access to figure out how they’re going to do it, and then adapt it to the more large-scale fracture operations that shale gas needs.
“It will be a tough challenge because the lack of royalties,” he added.