The UK’s ongoing – if somewhat uneasy – flirtation with fracking has grabbed a good deal of media attention over recent months, but even against that backdrop of coverage, few would have foreseen February’s announcement of potential shale gas extraction from beneath the Irish Sea.
In an interview with the BBC, Cuadrilla founder Dr Chris Cornelius – whose new company, Nebula Resources, received three licences from the Department of Energy and Climate Change (DECC) in January – spoke of creating, what he hopes, will be the first commercial offshore shale gas project in the world.
Offshore fracking has definite appeal
Nebula’s licences cover a sizeable area of Morecambe Bay to the west of Blackpool, where Cuadrilla’s activities onshore have already generated significant local resistance, and extend towards the coast of Ireland, which is itself gripped by an intensifying campaign to keep the country frack-free. With onshore hydraulic fracturing beset with protests and objections, there seems to be an obvious appeal, at least from an operator’s perspective, to going offshore – if it is technically possible.
Clearly, fracking shale gas from the sea bed avoids the need for the sort of difficult discussions with landowners and communities that onshore projects involve, and although there will inevitably be environmental impacts, they will be different – and, some say, possibly less damaging. They are, for instance, unlikely to include the risk of contaminating groundwater, which is a major issue for onshore.
Author, Sir Ian Wood, discusses the 28th oil and gas licensing round.
From a practical point of view, new advances in logging-while-drilling technology, which allow directional drill operators to ‘geo-steer’ course corrections into the evolving well bore, have come as a timely boost to the viability of this kind of operation, and the potential gains themselves could be huge. Estimates from the British Geological Survey (BGS) suggest that the UK’s total offshore shale gas resource could be some five to 10 times greater than the onshore equivalent, but as BGS’ own Seismic/Basin Analyst, Nigel Smith, explains, the challenges for extraction are immense.
Substantial challenges for offshore fracking
"Assuming the exploration will be exclusively offshore, rather than drilling from the onshore, then the cost of drilling is much higher. In Europe drilling costs are already higher than the US. A lot of complicated drilling is needed, though perhaps with multiple completions our thicker source rocks could be made to work with fewer wells."
Smith says that the productivity of US shale wells is relatively low compared with their conventional counterparts, and this might be an additional hurdle for anyone contemplating embarking on an offshore fracking venture as a stand-alone project. He suggests that rather than small companies attempting to travel such an innovative, but intrinsically risky, path on their own, some kind of tie up with existing offshore fields and operators might be beneficial – but concedes that the idea might not appeal to offshore companies, given the current reputation of fracking.
With it all adding up to what Smith describes as "quite substantial obstacles", he says that drilling from onshore to offshore would seem a more realistic option, at least in the beginning. If Nebula were indeed ever to consider that approach, Cuadrilla is already encamped on the Fylde shore; could that raise the possibility of a Nebula/Cuadrilla co-operation?
The commercial viability of ocean fracking
Long before an answer is likely to be needed for that, however, there is a far more important and fundamental matter to be resolved – something that has been called "the billion dollar question." Can any of the estimated 250 trillion cubic feet of gas reserves thought to be located in Nebula’s licence concessions actually be exploited?
Cornelius himself admits that it may be many years before that will be known, and in any case, as leading international law firm, Ashurst, pointed out in its March 2014 briefing report ‘New year, new breakthroughs for the shale gas industry in the UK?’ the commercial viability of offshore fracking remains to be seen. Like Smith, the report raises concerns over the current high cost of drilling rigs in Europe, and warns that "due to the low recovery rates experienced in shale gas operations, it is necessary to undertake continuous drilling to have a viable project" – and that, clearly, goes straight to the bottom line.
Is offshore frackign simply uneconomical?
"You need to do continuous drilling and at the moment in the North Sea and the UKCS generally the drilling rig rates are ridiculously high, they’re booked a year, or a year-and-a-half, in advance, and unless you’re one of the Big Boys, you have to pay 90% up-front. To have continuous drilling would be completely uneconomical in the current context," says Ashurst’s Denva Poyntz.
"Also, there’s a really steep decline rate with shale gas, so you need not only to continue to drill, but also you need to drill new wells all the time, because they come off so quickly."
According to geologist, David Hughes, Fellow of the Post Carbon Institute at Santa Rosa, California, experience onshore has shown that production rates can drop by as much as 85% in the first year and fall to 95% within three. With that sort of prognosis on top of the huge costs and logistics challenges to begin offshore fracking in the first place, the whole prospect seems increasingly unlikely. It might possibly be an option, Poyntz says, at some time in the future when conventional oil and gas has finished in the UKCS, and all the drilling rigs were redeployed, but even then, the amount of capital required means that it would still probably be unlikely to be commercial.
Local councils in the UK that authorise shale gas exploration in their areas will be given funds generated from the business rate tax by the government.
She says that with only Abu Dhabi actually doing offshore fracking – as a long-term hedge against the time when their conventional reserves run out, not a commercial operation – the widespread consensus amongst her industry contacts seems to be that, at least for now, the economics just do not stack up.
That may, of course, change in the future and offshore fracking might well burgeon into a major industry, but for the moment, it seems that when it comes to exploiting small, hard-to-reach gas reserves, there are other kinds that offer better and more immediate prospects than shale. So where does that leave Dr Cornelius and his desire to see the world’s first commercial offshore shale gas wells in UK waters?
"He’s obviously a smart guy, but I just don’t know where he would get the capital to do it, because drilling rigs are just so expensive," Poyntz says – and that could well be the deciding factor. Nebula Resources’ licences are provisional on the company being able to demonstrate that it has the necessary financial resources before it can commence any exploratory drilling – and the exclusive rights they convey over designated sectors of the Irish Sea run for a period of two years.
The clock is ticking.