The Path to Successful Development of Shale Gas in Europe

Stig-Arne Kristoffersen looks at the parallels to North America and the challenges unique to Europe

Europe faces many of the same challenges that US shale gas exploitation efforts faced when it started up. However, as there are similarities, there are also many differences, which make the hunt for shale gas in Europe a different challenge.

Successful exploration and production of any potential European shale gas plays depends on solving these challenges and European government(s) and the oil and gas industry have to be focused at this stage.

It is important to state that European shale gas potential and its exploitation strategy can not follow a blue print of what is done or being done at the present in the US or Canada. 
 Shale gas or, unconventional resources in general– do not behave that uniformly. The only certainty is that the evolution going to be different from the US and Canada,

I will address the key issues and what I believe Europe should focus on at this moment.

Policy Issues

European Union as the policy maker versus Europe consisting of 27 countries and Europe consist of 45 countries including those shared with the Asian continent.

In order words, Europe is not one unit: every country has its unique setting as seen from a political and regulatory setting. Hence, it is challenging for EU to have one common energy policy, uniformly followed all over Europe.  Go forward issues to be dealt with include:

- Environmental regulations and laws and how they interact with other legislator bodies in a country – are there clearly defined in legislation what role and responsibility environmental unit in a country has and how industry should work with them to ensure development of unconventional plays?

- Legislative design – as environmental, fiscal, industrial energy laws and land laws interact, clear guidelines have to be developed in order for a player to minimize its risk in a unconventional project.

- Regulatory bodies – creation of a one shop stop for players to work towards – as they work on in Poland to mimic North American model

- Infrastructure – houses, roads, industrial plots etc. and also given gas pipeline infrastructure

- Taxation regulation on capex and opex costs versus income

Given the above, 

I believe there is a need in Europe for a body that will have its mission to 

“To facilitate the factual and collaborative exchange of unconventional gas knowledge and challenges among government, regulators, industry and public stakeholders for the exploration and production of the resource in an environmentally sensitive and economical manner.”

Environmental Issues

Here we will have a synergy between legislation variations between European countries and how well developed infrastructure is, hence urban development and preservation of nature and concerns what effect its exploitation will have on needed resources such as ground water or use of water in water management when exploiting these resources (availability, amount and management of contaminants)

There is a significant difference between Austria’s very strict regulations and France need to think nature preservation of vital tourist interest areas, and Poland’s more relaxed attitude towards these issues.

The shale gas drilling process requires up to 2.3 million litres of water, plus hydraulic fracturing–or “fracking” – which takes another 17 million litres per well. Up to 1% of these fluids are chemical to stimulate drilling process or to perform frac in the potential producing units. That means that 170.000 litres of chemical are used in the frac process and 23.000 litres of chemicals in the drilling process.  So around 200.000 litres of chemicals are used per well if it’s going to production.

How these chemicals are acting together with the sub-surface and potential leak into ground water, is still not 100% understood.

Our experience is fairly limited and monitoring of these chemical have not been done in real cases yet. Tracers applied to these chemicals would be one way to go, and to drill monitoring wells around a shale gas field to see if migration of these chemicals constitutes any environmental danger.

Also there will be a need to have proper water/waste water management of used drilling/frac water coming back to the surface. It requires on-site management, but also post-drill management and waste procedures/treatment of this water. 

Water is fairly readily available in the U.S. European countries will face bigger difficulties transporting large volumes and sticking with environmental guidelines on disposal.

Communication

There is a need for transparency and the dissemination of trustworthy information to the public. These is one of the key issues and has to be addressed so that the European public  understands what is the environmental impact is from these activities and what is being done to ensure that there is no imminent danger to the public.

It is not enough just to state there is no concern; industry has to prove to public that efforts are being undertaken to ensure the environment will not be hampered by it's activities. 

Industry together with the government, will have to clearly lay out the various programs it initiates, its reconstruction programs, and how it manages its water during exploration and production, etc.

Technology

Research and development of unconventional resource exploitation is essentially non-existent in Europe at the moment.  The majority of research when it comes to unconventional resource exploration and exploitation is based on other continents. Though there are European companies involved in shale gas potential in other continents and can leverage on their experience to some extent, little or nothing is done in Europe.  The application of North American experience will be applied on a trial and error basis. This may work very well in some places, others it may not.

The need for a collaborative effort of exchange of knowledge from existing exploration and production on other continents has to be stronger and technological research based in and on Europe, needs to be promoted. Government level collaboration has to be established to facilitate the dialogue on how to address energy supply, cost and demand issues, and together with the industry look at options in a transparent and regulated manner.

Technology solutions will, from experience, come to a high degree from smaller start-up companies with background from academic institutions. 

EU needs to look into options on how to stimulate technologists to bring ideas from the academic world into the commercial world as quickly and effectively as possible.

Geotechnical Understanding

Although North American shale gas has been developed over the past a decade or so now, it still remains to understand vital factors from a geological standpoint of view. There is nothing such as a uniform shale property, which can extrapolated to projects around the world.

Geological properties of shales, combined with various geological settings and development histories, makes shale gas exploration and production a highly complicated matter. Even within the Marcellus shale, operators experience a tremendous variation in producability of the shale, as its geological/geotechnical properties change.

To understand shales, there is a need for a large amount of raw data for the geoscientists and physicists to evaluate in order to be able to predict and elude the better production areas from the worse ones. 

Data such as seismic data and well data are vital.  The highest end technology has to be applied in collecting and in analyzing data,in order to be able to give the best advise to how to exploit these unconventional resources.

Linked to this, there will have be efforts in mapping out ground water resources, and not limited to the traditional levels we have exploited so far, but to actually do a proper water exploration at the same efforts as we do the unconventional and conventional exploration.

European geology is more complex than the North American Geology and will require a smarter approach to identify and exploit commercial shale gas resources.  

A serious problem that can emerge for producers of high-BTU (British Thermal Unit), or “rich” gas in Europe is that before this gas can be delivered to pipelines for transportation to market, natural gas liquids (NGLs) must be extracted from the gas.

Therefore the understanding of hydrocarbon constitution is of importance as some regions might have a large content of ethane, and hence the need for extraction capacity at or near their production site. 

Therefore there will be a need to look at this geological driven aspect in an engineering and infrastructure perspective, as gas-processing infrastructure to extract all the NGLs from gas in the high-BTU gas regions has to be projected and assessed for.

Feasibility studies have to be performed for this scenario, and see if Europe is ready for this type of infrastructure and industry development. 

Is there a market for ethane in Europe – and in case it is – where is it – and does it coincide with where you will find it – or is there a need for further infrastructure to facilitate it (petrochemical industry)?

Therefore European government and industry should focus on development of applied Science Unconventional Resource planning and production is needed within EU and rest of Europe. 

This has to be linked with a body or organization consisting of industry and government including education that will address the present and future need for workforce within this area.

Engineering aspects

North America saw an evolution from the traditional vertical wells with simple fracturing technology in its infancy of exploiting unconventional resources.

In 

1981 the first well was drilled in the Barnett Shale, and an average of seven wells per year was drilled up to 1992 when the first horizontal well was drilled. The average number of wells then became around 40 per year, as in 1997 the 1st slickwater frac procedure was used, and we jumped to an average of 73 wells per year. The amount of vertical wells dropped on behalf of the horizontal ones, and in 2007,  2,500 wells were drilled.

Fayetteville was developed much later and its first well was drilled in 2004 and its first horizontal well was drilled in 2005 and in the same year slickwater frac was used. At the moment Fayetteville drills around 1,000 wells. 

The speed of implementing new technology is tremendously different, driven by experience from Barnett shale play.

Now, experience tells us that the solution is not only to drill horizontal wells, but to limits its reach, and to perform multi-stage fracs on them. 

However, technology has to adapt to geological variation and to changes due to production performed on it.

Decline rate on Shale Gas is a totally different chapter than seen in conventional resources, and how to cope with this together with how to prolong peak production and to create a higher production plateau are important engineering tasks ahead of us.

Both European industry and European government have much to lose and need to collaborate on R&D programs to enable these new technologies to be developed 

Development of these resources will require new technologies if exploration and production is to be undertaken in a cost effective and environmentally responsible manner. 

The driving force of R&D initiatives should be focused on lower F&D costs to ensure that produced natural gas will be competitive in the European marke.

Service Industry

A lack of land-based rigs and access to hydraulic rock-fracturing technology will put restraints on potential for profitable shale gas production in Europe.

While there are an estimated 1,500 land rigs available in the U.S., only 74 suitable rigs are accessible in Europe. Land rig capacity will need to rapidly increase,” to make these projects commercially viable 

Since European Union limits on imports on rigs and rig equipment, this issue will have to addressed locally, and ensure rig capacity and service capacity is built in Europe itself.

How do we go about this issue, without creating a large overhead cost on the exploration and production companies? 

There is a need to facilitate rig construction factory units around Europe, combined with on the demand driven frac unit constructions combined with training of local experts to perform both tasks, drilling and fracking. 

This will drive down the prices and costs of these elements in the medium to long run, but has to be balanced with the need to create a healthy business model for those set up for these activities.

In the EU, there is a need for collaboration between service industry and government to ensure a framework that will work for both parties and serve the operators at an optimal level.  In addition there is a need for the academic environment to build up applied science units to address Research and Development and to educate specialists within these areas.

Project Economics

Rapid increase in the development costs for unconventional gas drilling is a major concern for the industry at the moment.

Average costs for a typical well are between $7.5 million and $10 million, with additional operating costs of around $2.25 per thousand cubic feet of gas extracted, or mcf, this implies that for projects to remain profitable, gas prices would need to stay above $7.50 per mcf.  At the moment the gas is trading around $4-5 per mcf.

Another aspect of economy is how long time it takes to bring a project from idea to a commercial unit.

Let us take Poland as an example; 

Poland is still a mainly agricultural nation comprised of thousands of family smallholdings of an average 14 hectares. 

Planning a well head on land in Poland will require companies to negotiate with each family, which will inevitably delay processing. Time is money, and also it is difficulty to unitize a production unit, if many parties are involved in it, which complicate a project and puts an economic risk to it.

The Future

There will be a European need for Gas at least as far as into 2050 as we can see it, and most likely beyond this time as well. Prognosis states that Europe will have around 80% of its energy need covered by import if the existing energy provisions are kept.

Will shale gas be able to make this dependency less, or is the potential too small, and the cost to get it – too high? 

The politicians together with the industry needs to put their heads together and make some connections between the vision and missions of the EU energy policy document and the efforts needed to achieve them.

This article is based upon Success Exploitation of Shale Gas in Europe Depends On Solving Key Challenges by 

Stig-Arne Kristoffersen