Gearing up for the shale revolution

31st October 2014


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Nicola Ball

Like it or not, fracking for gas and oil will go ahead in the UK, but is it environmentally sensible and economically viable?

Earlier this year, the prime minister David Cameron announced that the government is “going all out for shale”, arguing that the industry “means more jobs and opportunities for people, and economic security for our country”. All the main political parties support shale gas extraction through hydraulic fracturing technology, commonly known as “fracking”.

The prospect of a fracking bonanza has, however, raised criticism over the government’s failure to engage local communities in a balanced debate about the risks and benefits of exploiting sources of unconventional gas and oil. Geoff Maitland, president of the Institution of Chemical Engineers, argues that the fracking debate has been poorly presented: “There are many valid concerns and a huge amount of potential to be gained from exploiting shale gas. For the government, in particular, it’s important that it presents a clear roadmap of what shale gas means to the country’s future, and how it is going to address legitimate concerns.”

Much of that concern focuses on the amount of recoverable reserves and the environmental damage that its extraction could wreak. Is the exploration and extraction of gas and oil in shale rock viable in the UK in both economic and environmental terms?

Adding up the figures

Surveys by the British Geological Survey (BGS) indicate that the UK has significant gas and oil resources buried deep in underlying shale rock, which could be exploited using hydraulic fracturing technology. The Bowland shale, for example, which stretches across much of northern England, has an estimated 37.6 trillion m3 (tm3) of gas trapped within shale rock – known as “gas in place”. In Scotland, the amount of gas in place in the Midland Valley, which runs from Edinburgh and Glasgow, is estimated at 2.27 tm3.

And, while the Weald Basin is unlikely to contain much shale gas, the BGS estimates that around 4.4 billion barrels of shale oil could be located in the area, which stretches from Wiltshire to Kent, and could be exploited using similar fracking technology to that used for shale gas. The BGS estimates also suggest the Midland Valley in Scotland could contain around

6 billion barrels of exploitable shale oil. Further shale gas resources are also thought to be present in parts of Wales, although further studies are needed.

The UK data is based on shale gas and oil resources and not on proven reserves, which the BGS says cannot be reliably estimated without substantive data from drilling and production rates. Commenting on the data, professor Jim Watson, research director at the UK Energy Research Centre (UKERC), says: “Large resource figures such as those reported by the BGS do not necessarily mean that shale gas will have a big impact on UK energy supplies. It remains to be seen whether it will make economic sense to develop these resources – and how much can be extracted cost effectively.”

The US shale industry has expanded greatly over the past decade or so, and economic data from north America suggests there is little agreement on the energy returned on energy invested (EROEI) for unconventional gas and oil. A study published in the US Journal of Industrial Ecology reports a mean EROEI of approximately 85:1 for the gas-rich Marcellus shale play, which extends through northern Appalachia, primarily in Pennsylvania, West Virginia, New York and Ohio. Researchers claim an EROEI ratio of 85:1 is at least as favourable as coal.

J David Hughes, a geoscientist, formerly with the Geological Survey of Canada, says that production forecasts are invariably overestimated. In his book, Drill, baby, drill, Hughes argues that shale gas and tight oil fields have a very high rate of decline in productivity and that the EROEI is much lower over time as the costs of extracting these reserves rises.

Similarly, in a paper for resilience.org, Richard Vodra, president of Worldview Two Planning, estimates the EROEI for fracking in the region of between 10:1 to 20:1, which makes the economic viability of the industry more challenging. Earlier this year, finance publishers Bloomberg reported that some drilling companies in the US are struggling to keep pace with the rising costs. It reported that the amount of debt posted by 61 US shale companies had almost doubled over the past four years, while revenue had increased by just 5.6%.

The commercial viability of an emerging UK fracking industry will be unknown until production gets underway, although Cuadrilla Resources, which is planning shale operations in Lancashire and west Sussex, calculates that tax revenues from its operations could amount to at least £5 billion over the 30-year lifespan of a project. And, in a bid to encourage investment, George Osborne has halved the tax to be levied on oil and gas companies, saying this would help create more jobs and lower energy bills. “The country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy like shale gas because it’s all too difficult,” he told MPs in his autumn statement.

UK Onshore Oil and Gas (UKOOG), which represents firms exploiting unconventional oil and gas, commissioned a report by professional services business EY. It concluded that the development of shale gas in the UK could trigger £33 billion worth of investment and create 64,500 skilled and semi-skilled jobs across a wide range of industry sectors. “We are building an industry in this country which will not only potentially give the UK energy security and make a big contribution in tax revenues, but will also bring immense benefits to other industries and create sustainable, well-paid jobs,” says UKOOG chief executive Ken Cronin.

Proven process?

Fracking involves pumping water, sand and chemicals down a vertical well at pressure to create fissures in the rock, allowing gas or oil to flow more freely into the well. The process has been standard practice in the US for conventional oil and gas wells for over 60 years and has been used in the UK’s North Sea oil and gas fields since the 1970s. Around 200 British onshore conventional oil and gas wells have used fracking since the early 1980s. However, it was the introduction of horizontal drilling technology in the 1980s that, combined with fracking, opened up hydrocarbon-rich shale prospects and unlocked vast new reserves of unconventional shale oil and natural gas.

Fracking has revolutionised the US oil and gas industries. Over 80,000 fracking wells have been drilled since 2005, according to a report by advocacy group Environment America, and the industry now accounts for 40% of US domestic gas production and 30% of oil production. But with thousands of horizontal wells operating across the US, fracking has its problems; groundwater contamination, methane migration and earthquakes have all been linked to fracking activities, with potential risks also to the natural environment and human health.

Defending the US record on fracking, Gina McCarthy, administrator at the Environmental Protection Agency (EPA), argues these issues are manageable through regulations and sound practices. “There’s nothing inherently dangerous in fracking that sound engineering practices can’t overcome,” she says. However, a recent report from the US federal office for government accountability criticises the agency for not doing enough to protect drinking water from risks posed by oil and gas.

The main political parties in the UK have welcomed the new job opportunities and economic growth that the shale industry will potentially provide. Public confidence in fracking is dwindling, however. According to surveys by the University of Nottingham, support fell from 58% in July 2013 to less than 50% in May 2014. Professor Sarah O’Hara, who led the Nottingham research, believes there is increasing unease among the UK public about the environmental and health implications of fracking. “While there is political support by all the main parties for shale gas extraction, it is clear voters have a very different view,” she says.

Regulations governing fracking in the UK are different, and in some ways are more stringent, than those in the US. Unlike in the UK, for example, fracking in the US is largely exempt from regulations to protect drinking water; while the reinjection of fracking wastewater is permitted in the US, but is outlawed in the UK. The UK’s regulatory framework for conventional and unconventional onshore exploration is basically the same, with additional rules for hydraulic fracturing.

Drilling consents are subject to planning permission from the relevant minerals planning authority and Decc issues drilling licences to explore and produce oil and gas. Permits and authorisations for water resource protection, the treatment and disposal of extractive wastewater, and emissions to air are required from environmental regulators such as the Environment Agency, with additional requirements for site-based monitoring and reporting. The Health and Safety Executive (HSE) regulates engineering issues, such as well casings and design safety, with risk management monitoring required throughout the lifecycle of each well.

Yet despite the reassurances of a robust regulatory framework, doubts still remain over whether the industry can be effectively regulated. The Chartered Institute of Environmental Health (CIEH) has questioned the government’s rejection of mandatory environmental impact assessment (EIA), which is something that has been proposed by the Royal Academy of Engineering, and says the risks posed by fracking are not properly regulated.

Graham Jukes, CIEH chief executive, said the institute had consistently made the case for a full, independent EIA to be carried out on all shale gas extraction proposals before permission to drill is given. “Despite central government encouragement for the process, local authorities should resist allowing shale gas extraction in their areas until they are satisfied on that point,” says Jukes. “The CIEH believes that there is currently insufficient evidence to provide such assurance for proposals in the UK and the precautionary principle should apply.”

In its latest report, Shale gas and fracking, the CIEH highlights major shortcomings in regulatory oversight concerning health risks and says budget cuts and skill shortages could also affect the ability of the Environment Agency and the HSE to regulate the industry effectively.

Local dilemmas

To encourage a positive response from local authorities, the government has announced that councils in England can keep 100% of business rates raised from fracking sites in their area, which will generate millions of pounds of extra revenue for local services. Decc has also announced a new payment of about £20,000 to local communities for each lateral well at fracking sites.

Water consumption and potential contamination linked to fracking are key considerations for local authority planners and regulators. The latest mapping study from the BGS and the Environment Agency reveals that oil and gas-bearing shales underlie almost half the main drinking water aquifers in England and Wales. Dr John Bloomfield at the BGS says the maps serve as a guide for regulators and planners: “We’ve identified areas where aquifers are in relatively close proximity to shale units and any developments would have to be looked at particularly carefully.”

The distance between the shale rocks and groundwater supplies will be a critical factor for the agency in deciding whether to give companies permission to inject chemicals under pressure to fracture the shale and release gas. “We have strong regulatory controls in place to protect groundwater, and will not permit activity that threatens groundwater and drinking water supplies,” says Dr Alwyn Hart, head of the air, land and water research team at the agency.

The water industry body, Water UK, says there are inherent risks to water quality, water quantity and wastewater associated with shale activities. Pamela Taylor, chief executive at Water UK, says: “Our members are determined to ensure any potential risks of shale gas extraction are minimised.” Water UK has signed a memorandum of understanding (MoU) with UKOOG to assess the risks and impacts of onshore oil and gas development on the quality and quantity of local water resources. “The MoU gives water companies a crucial extra layer of safeguards on top of the existing regulations to help ensure water supplies and the environment is protected,” reports Taylor.

In its latest move to fast track fracking in the UK, the government has confirmed its intention to change trespass laws to allow companies to drill under buildings and land without the permission of the owners. The crown owns all subsurface minerals but, under current access laws, drilling companies still have to apply to landowners for access. This is problematic for fracking companies, because horizontal drilling under private land would require multi-access permissions.

The UK has a relatively high population density and, given that horizontal fracking can extend several miles from the wellhead, drilling under private property is inevitable. The government maintains that its proposals “would simplify procedures which are costly, time-consuming and disproportionate for new methods of underground drilling”.

In return, the shale gas and oil industry is offering an additional package of financial incentives for local communities, including a lump sum of £100,000 to be paid when a test site is fracked, plus 1% of the revenues raised from the site. Meanwhile, the chemical company, Ineos, which has purchased the rights to explore shale gas in about 329 km2 of the Midland Valley near its Grangemouth site, has unveiled a plan to pay 4% of future revenues to landowners and a further 2% to local communities, which could be worth a total of £2.5 billion.

The government is determined to press ahead with fracking, as it sees shale oil and gas as integral to the UK’s energy security and a boost for local jobs and the economy. The proposed tax breaks aim to encourage more investment in the industry and the regulatory framework is deemed sufficient to effectively regulate environmental impacts and planning issues. Despite these reassurances, opposition to fracking continues to gather momentum, even with the cash inducements on offer. The government has yet to win the argument that regulation and sound practices will be enough to mitigate the social and environmental risks involved.


Assessing the impacts

In 2013, Cuadrilla Resources, the first company to explore reserves of shale gas in the UK, engaged Arup to carry out environmental impact assessments (EIA) to support its planning applications for sites where the company planned to drill, hydraulically fracture and test the flow of gas. One of the proposed sites is off the Preston New Road (A583) between Blackpool and Kirkham. Arup produced a 21-chapter environmental statement (ES) – looking at a range of issues, including air quality, lighting, noise, transport, water and visual impact – to accompany Cuadrilla’s planning application to Lancashire county council.

The non-technical summary of the ES contains information on the likely significant effects of the site. It concludes, for example, that the project will not result in a significant effect on air quality. It does, nonetheless, recommend that dust control measures are installed to manage potential sources of dust during site construction. Greenhouse-gas emissions from exploration works at the site are calculated at between 118,435 and 124,386 tonnes of carbon equivalent, with the higher level around 0.002% of the UK’s current carbon budget.

Up to 70% of the project’s carbon footprint will be from burning the gas in the flare during the temporary (maximum 90 days per well) initial flow-testing phase. Arup says the location of the site, which is currently used to graze cattle, was chosen so that it avoided direct loss of valuable or sensitive habitats. However, without any mitigation measures there is potential for a significant effect on bat activity, as well as loss of habitat for nesting birds and disturbance and displacement of migratory species of birds. Overall, Arup concludes that the only aspects of the project that cannot be mitigated are the visual effects from the tall equipment that has to be used during exploration, the contribution towards “skyglow” and reflected light from exploration equipment, and the capacity to treat flowback fluid waste.

The non-technical summary produced by Arup is available here and the full environmental statement here.


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