Scottish Shale Gas Remains a Question Mark, Despite New BGS Report
British press has labelled Scottish shale gas reserves as ‘modest’ and ‘pale,’ after the British Geological Survey released a report on Monday on the Carboniferous shales of the Midland Valley of Scotland. The analysis carried out by BGS in association with the UK Department of Energy and Climate Change found that the central estimate for the resource is 80.3 trillion cubic feet, compared to 1,329 tcf in the Bowland formation. Will this be a blow for the on-going negotiations for farm-out agreements? Will it further decrease the enthusiasm for shale gas in Scotland? As usual, the reality is quite complex.
GOOD NEWS: RESERVES ARE SIGNIFICANT
If analysts expected higher reserves in the area between Edinburgh and Glasgow, it is equally true that 80 tcf is not insignificant. BGS’ statistics clearly state that the Bowland formation is the most promising area. At the same time, the Carboniferous shales of the Midland Valley of Scotland is more appealing than the third area researched by the BGS (Weald Basin). A study released in May does indicate that no significant gas resource is recognised in the Jurassic Shale of the Weald Basin. In this sense, the area in Scotland is worse than Bowland and better than the Weald Basin. It is more than nothing and less than a lot.
The reserves seem not irrelevant also using another yardstick. According to Bloomberg, North Sea gas reserves do indeed amount to 4.3 tcf. As such, Scottish shale gas could have a role in maintaining Scottish gas production on the current levels.
Another reason to be optimistic about Scottish shale reserves stems from the fact that the Basin holds significant shale oil resources.
‘The range of shale oil in place is estimated to be between 3.2 and 11.2 billion barrels (bbl), with the central estimate for the resource being 6.0 bbl,’ reads the report.
In this sense, numbers seem to indicate that Scottish shale formations are attractive. In the event of independence, the Scottish budget will probably depend also on these resources: 80 tcf of gas and 6 bbl of oil could turn out to be extremely useful. They could be a manna from heaven for the brave Scottish plans in case of independence.
BAD NEWS: UNCERTAINTIES
On the other hand, the report indicates that numbers are not everything. Investments require certainties and this does not seem to be the case for shale gas reserves in this area of Scotland.
‘The estimate is in the form of a range to reflect geological uncertainty. The range of shale gas in place is estimated to be between 49.4 and 134.6 trillion cubic feet (tcf), with the central estimate for the resource being 80.3 tcf. The range of shale oil in place is estimated to be between 3.2 and 11.2 billion barrels (bbl), with the central estimate for the resource being 6.0 bbl.’
As if that were not enough, there is also little knowledge of the area - data is scarce and of low quality. Against this backdrop, it is worth noting that it is extremely difficult to assess how much of these resources would be commercially viable.
‘The relatively complex geology and limited amount of good quality constraining data (seismic reflection and borehole) result in a higher degree of uncertainty to the Midland Valley of Scotland shale gas and shale oil resource estimation than the previous Bowland-Hodder and Weald Basin studies. The prospective shale intervals occur within a stacked rock sequence; individually shales are thinner than in many unconventional gas and oil systems worldwide.’
Will these uncertainties scare investors ahead of the referendum vote or will the next 79 days witness agreements of existing companies with major oil and gas companies as happened in England? Investments are indeed necessary to move on with exploration and production.
REFERENDUM AND INVESTMENTS: REACH COAL SEAM DOES NOT SEE ANY DIFFERENCE
As previously mentioned, the Scottish government recognises the importance of its oil and gas resources, especially in the event of independence.
‘We believe strongly that an oil fund will help raise sustainable growth in Scotland, provide greater macroeconomic stability, and support our transition to a low carbon economy,’ the Government led by Alex Salmond wrote on its website.
The UK Continental Shelf has already provided 39 billion barrels of oil equivalent (boe), with 24 billion boe still to be extracted, according to the Scottish government.
“The Oil & Gas industry is a large part of the Scottish economy and so the Scottish Government is always striving to attract oil and gas companies to Scotland,” Graham Dean, director of Reach Coal Seam Ltd., confirmed in an e-mail to Natural Gas Europe.
According to Dean, an eventual independence would make “little or no difference to investors’ appetite.”
In this context, Dean’s company continues to look for new partners to develop unconventional gas reserves in Scotland. Given that more data is needed, heavyweights are necessary to fund exploration campaigns.
“We are in farm-out discussions with several companies who can help us develop the resource,” he said, adding that Reach Coal Seam is planning to drill three geological boreholes and acquire some 3D seismic in the next five years.
OPTIMISM OR PESSIMISM: REPORT OFFERS SOMETHING FOR BOTH SIDES
The intention of major companies to invest is indeed the only aspect that could change the cards on the table. If shale oil and shale gas seem to be there in Scotland, data released by the BGS don’t mean much without further exploration.
In this sense, prospects for unconventional hydrocarbons in Scotland did not change in the last hours after the release of the report: 80.3 trillion cubic feet of gas and 6.0 bbl of oil support both optimism and pessimism.
To put it simply, the glass is there: you can call it half full or half empty, but it is clearly not full nor empty. At the same time, the glass is not ‘modest’ nor ‘pale,’ but it is our understanding of the glass to be both modest and pale. Nobody really knows how much shale oil and shale gas is commercially viable, but we know that some resources are there. In this sense, the Scottish area remains difficult to assess, more than any other British Basin. The Midland Valley of Scotland is not the gas-rich Bowland Basin nor the gas-empty Weald Basin.
But again, reality is even more complex than this. Despite the clear need to investigate these resources to come up with a balanced opinion, it is not the right time to focus on these numbers. It is far more intelligent to shift the focus on the referendum and on the political campaigns.
Numbers will be instrumentally used and confusion will continue. That is a certainty. In the next 79 days it will be even more difficult to see through the glass. Half full or half empty - doesn't make any difference.
Sergio Matalucci