A European Shale Gas Market
It is stated that European service and products suppliers should aim into the wind and Solar power development in Europe – but it might be proven shale gas development could be far more interesting for them.
This revolution or evolution of the alternative energy development market is already developing, and the service and product provider industry is already benefitting from this. However, it is not too late to participate and to get a share into this large market potential developing in Europe.
Global Shale Gas Potential (blue numbers are TCF)
What is happening now is that many European countries and major oil companies have started a completely different revolution that is about shale gas. The potential of this energy source is tremendous, and nearly untapped at the moment and differ massively from the alternative energy market potential in several aspects which i will cover here.
Shale Gas in the U.S.
There is an ongoing evolution of the shale gas exploitation in the U.S.. There has been a huge growth in investment of exploration and production of Shale Gas because of two important technological breakthrough the last decade. The first revolution was the capability of performing Horizontal Drilling and secondly the development of methodology and technology needed to fractionation the new type of reservoirs. The gas has traditionally been considered as trapped in porous material such as sand or limestones that could produce over a long period of time without too much of stimulation. Only during the last two decades the fractionation technology has enabled to extract gas from almost non-porous reservoirs such as shales and produce over more than about 10% recovery of it over many years, it now flows quickly and in large quantities into the U.S. market with production levels that now can get over 50% recovery.
Cheap gas to Europe
This has meant that the prospect of importing LNG (natural liquefied gas) to the U.S. has been greatly scaled down, and most believe that the U.S. is on track to become self-sufficient on gas. That in turn has led to the LNG will be redirected to Europe where it is sold cheaply. The entire gas market is so strong that even under pressure, Gazprom has had to agree to deliver some of the gas to Europe at spot prices. Naturally, this creates challenges for traditional European gas. Many see this only with troubled eyes. But this evolution within the gas market also means huge opportunities both for existing as well as new players.
The oil companies are betting on gas
The technological development has meant that the major oil companies are now looking at shale gas throughout the world as the great new venue for profitable energy production. Presence of resources of shale gas is probably far greater than the present resources of conventional gas. If recovery of gas from these new reservoirs can be high, shale gas could overwhelm the conventional gas in recoverable volumes so that the world’s gas resources may be doubled.
Therefore, the larger International Oil and Gas Companies (IOC’s) are now racing to secure the rights of shale gas, not only in the U.S. but also in Europe, China, South Africa and elsewhere. The first stage we see is acquisition of exploration and development rights of sub-soil resources around Europe and especially in Poland at the moment in Europe.
Shale Gas technology is new and still has a large part of the learning curve ahead of it. When the IOC’s now enter with full force within this area with its technological capabilities and economic powers it will produce results in the medium to long term perspective, no doubt about this.
Much of the impetus is that the IOC’s have seen their actions to be limited because of national protectionist resource strategies in many oil and gas producing countries. Hence they have long been searching for new oil and gas opportunities, not least in the Arctic, the vast seas, and oil sands. Work in these areas will continue, but significant resources will be re-directed to shale gas resources, and thus away from traditional oil ad gas, as long as these traditional resources are less accessible and more difficult (read costly) to find and produce in existing and new areas.
Peak Oil and Gas Scenario
The Shale gas Revolution puts a damper on the “Peak Oil and Gas” doctrine, which always has devalued the potential of unconventional resources. Gas will now appear as a relatively inexpensive and very plentiful energy source for this century and beyond.
This will of course have an impact on the oil and gas market, especially the gas market where one effect will be that it will speed up the technology to convert natural gas into fuel. Gas is therefore a most welcome alternative to biofuels, which has been greatly discredited because of threats to food production and the violent area the need to displace forest and results in greater greenhouse gas emissions. Most experts now believe that it is only the second generation of biofuels based on waste production and sustainable forestry as it is safe to bet on, and the supply of these commodities would be severely limited.
Climate Policies and its effect upon renewables
The focus on renewable energy in both the U.S. and Europe is officially justified in climate policy, but behind this are two other strong political motivations: The belief that the oil age is ending, and the need for security of supply. Eg. Al Gore used both of these elements as page argument when he recently visited Norway.
Many believe these reasons, investment in renewable energy a “No Regrets” strategy in climate policy.
There is probably no imminent end to oil resources, but it does not matter anymore, apart from its geopolitical power/conflicts it potentially generates. “Peak Gas” it is certainly not in any near future. In addition to the untraditional gas resource in shale gas, there are as enormous amounts of untraditional gas resources in coal (Coal Bed Methane) – CBM) and hydrates, both onshore and offshore, and shale gas breakthrough makes it likely that these will eventually be utilized. If necessary it can replace all gas-oil products. Thus, there is not anything left of the negative arguments for the Shale Gas, apart from potential negative environmental impact of Shale Gas and CBM during exploration and production of these resources.
Energy Supply Security
Security of supply has undoubtedly been a far more important consideration in both the U.S. and Europe – perhaps even more important than climate. How much of a problem this really is debatable, but politically it is a very heavy consideration. In the U.S. concern for security of supply is now gone for gas. It will still last a while for oil, but now it is far more interesting to look at the gas into fuel as a way to solve it.
In Europe, the supply of oil is not a big issue. Here we are talking about most concerns about disruptions in gas exports from Russia and a general desire for diversification.
Everyone knows that the EU has generally been very concerned about how to protect energy production within the EU’s – so far that EU also have protected the coal production. It has allowed gas eating into cohorts of environmental and climate concerns, but it’s never been any great speed on the phasing out of the EU’s own coal resource usage up till now at least.
Shale Gas in Europe
Now it turns out, however, that Europe also has significant amounts of shale gas. U.S. Geological Survey (USGSC) estimates total recoverable untraditional gas reserves (Shale Gas and CBM) could be as much as 400 TCF . The activity around the shale gas in Europe can therefore be bigger than the traditional gas development and production taking part in Europe today. (1 Trillion Cubic Feet (TCF) is 28.32 billion cubic meters (bcd)).
A JP Morgan study speculates that the total shale resource potential for Europe is about 510 TCF. Extensive petrophysical analysis based on log data and core samples is required for a more accurate assessment of potential and producible shale resources. Shale resource assessment and preliminary exploration efforts are underway throughout Europe. Whereas the initial shale activity in the US was carried out almost entirely by small independents, several international oil companies are active in Europe, hoping perhaps not to lose out on lower lease concession costs possible through early entry. Rapid progress in shale production in Europe may be hampered, however,
by lack of oilfield service infrastructure to supply drilling rigs for horizontal drilling and completion equipment for multistage hydraulic fracturing.
Ukraine has the potential to extract 20 billion cubic meters of shale gas a year over ten years, Kommersant-Ukraine reported, citing Mykhail Korchemkin, the head of East European Gas Analysis.
A recent report made by Stig-Arne Kristoffersen, estimates that the 12 basins within Ukraine could hold as much as 1800 TCF in place and with a 20% recovery this equates to around 350 TCF of Shale Gas resource potential within Ukraine alone.
There is still uncertainty about the quality of the European shale gas, but it has not prevented the major oil companies to pounce on opportunities. Shell is currently drilling for shale gas in Skåne, and says that the resources which can make Sweden self-sufficient for ten years. ExxonMobil has acquired land in Germany, Hungary, and in Poland. ConocoPhillips and Chevron are already active in Poland, and OMV tests it in Austria.
The recently made available US Department of Energy report revealed that as seen today, the largest reserves of shale gas in Europe are in Poland. The authors of the report calculate that Poland has reserves of about 22,43 billion cubic meters of shale gas, of which 5,29 billion m3 is immediately available for extracting. Most of the shale gas is in Baltic Sea basin about 3,65 billion m3, about 1,25 billon m3 within the region of Lublin Voivodeship, or Lublin Province, and next 0,4 billion m3 in Podlaskie Voivodeship. The companies such as BNK Petroleum, Talisman Energy, Marathon Oil, Chevron and Exxon-Mobil are actively drilling to find the potential new gas well sites. The most potent region in shale gas in Poland is the Baltic Basin already awarded leases to participating in the venture oil companies. The most active in Baltic basin region entrepreneurs are 3Legs Resources, subsidiary of Lane Energy Poland in a joint venture with ConocoPhilips. The results of first borings were not publicly disclosed. Lublin Voivodeship is the basin encircled from the north by Grójec from the west trans european cliff, from the east by Polesie Lubelskie and from the south Ukrainian border. The most active in this region is Halliburton, which in September 2010 made the first drillings for the polish consortium PGNiG. The results are kept secret and confidential. Six other firms acquired concessions in that region including: Exxon-Mobil, Chevron and Marathon Oil. The last region rich in shale gas is Podlaski basin. In that region the drillings have not yet been initialized. The concession for this region acquired Exxon-Mobil.
A feature of the shale gas is that it is very short way from exploration to production. When production first started coming in one place, the licensees will soon continue on the next location nearby. The development is therefore likely to go fast.
Creates its own market
This is obviously enormously good news for Europe and the EU. Only the effects of the U.S. shale gas has reduced Europe’s gas bill and provided European customers a stronger negotiating position with Russia and other major gas supplier countries in Europe. Negotiating position will become stronger the more Europe expects its gas production to increase. It will take a decade or two before there can be large volumes of it, but there are prospects for this scenario to happen.
This makes it easier for Europe to use gas instead of coal to a greater extent than today. With improved technology for gas-to-fuel developed by the major oil companies will also eventually get a new delivery potential and secure fuel source.
The underlying growth in demand for gas in Europe is already high, and more than enough to take care of lost export opportunities to the U.S.. When one adds the new growth opportunities, there are good prospects that shale gas is largely “creates its own market”, therefore there is still plenty of room for imports from Norway and Russia.
We will either underestimate or overestimate the threat from the shale gas to traditional gas supplier countries. Both Russian and Norwegian gas is nevertheless highly competitive in Europe. It is not that all shale gas is cheaper than traditional gas, or vice versa. There will be a new competitor in Shale Gas and it must addressed with more creativity from the traditional gas suppliers.
Supplier Industry opportunities
But for the European supplier industry is the development of an American shale gas market, and even more the development of a European market, very good news. Some of the technology needed (fractionation) is located outside the European industry expertise, but very much within. United States, and of course Europe, has an underdeveloped tradition of horizontal drilling on land. Rig market in the U.S. is already growing rapidly, and the same will be in Europe, and both places with demand for new technology of exactly the kind we are very good at in Norway. Add to this advanced 3D and 4D seismic, reservoir interpretation, remote control, monitoring, ICT in general, and much else – including the capture and storage of CO2 from power plants (CCS), if we alter the strategy to something that really works.
2700 billion USD, an illusion?
It is not possible with today’s knowledge to estimate the market potential within Shale Gas And CBM, but we understand its got large potential. The staggering amount of 2700 billion USD from wind turbines could be an illusion, even if we correct for the nuclear part, because most of this will be subsidized by government funds or from consumers. Just like conventional biofuels will wind get to meet the wall long before it is scaled up as far as many imagine.
It is not only because of the huge subsidy needs, but also because the wind will always have to be limited by the availability of other power that can meet the need when there is no wind. In Europe, it means that you generally must have available coal or gas power equivalent to the gross production capacity and can be turned up and down. Most of the time it will either produced from thermal power or wind power, and then there will be no net contribution to the permanent energy supply. It is only when demand peaks coincides with the blows that it can be produced from both. A little extra power can be obtained by utilizing the Norwegian hydro power production potential, but it makes only a difference small in the big European context, especially if we use up much of this opportunity on their own windmills.
There is also doubt about that at all there is some climate benefits of wind power when you take into consideration the increased fuel consumption when coal or gas power plants have to run in emergency and in powering up and down periods.
Because the wind is so popular and politically correct, and so far has emerged as a seemingly good climate solution, the politicians have largely supplanted the problems of backup capacity and efficiency. There is good reason to believe that much of the cause of displacement is a much stronger underlying reality of supply. After all, wind power is an EU source with a strong EU industry. Although there would be no climate gain, windmills displacing at least a small portion of gas imports.
With the prospect of a European production of gas will change. The EU will be more interested in CCS. As this technology evolves, CCS emerge as a much more attractive treatment measures for gas (and coal) than wind power. In Germany, the “clean” wind power less than 20% of production from the corresponding gas-fired power plants by displacing gas to the extent that the wind blows, while the CCS can take up to 90%.
With both strong arguments for subsidizing renewable are gone, biofuels and wind power must stand on its own in relation to climate policy, and they are not very solid. Within a sustainable future borders will also have space for many types of renewable energy, but not in very large volumes relative to total demand.
When all effects included, to turn the gas for both biofuels and today’s windmills climate.
When the reality will kick in for Europe, and when there are prospects for shale gas could be a major European value creator, Europe’s politicians will proclaim gas to this century’s energy source.
Shale gas is more interesting than the wind
Europe’s focus is going to be changed from the wind to shale gas over the next decade. It’s obviously not a time for politics works so that old programs and old prestigious areas ground long after the reality has changed. One will hardly change the plans and directives before the industry has verified the shale gas potential in Europe, but this can happen faster than we think.
Meanwhile, it certainly invested in new wind power, and to some limited degree, wind power probably also have an entitlement to long term. It’s just to wish good luck to the industry to get commission from such investments.
However, if it is to invest heavily and position themselves for a term of 5, 10 and 20 years, I would be far more cautious. Then it is not to be “the last to get with us what is about to happen.” When Shell already drilling for shale gas in Sweden, and it is shale gas all the major oil companies now align themselves against, we must realize that there really is something new that “is about to happen.”
Moreover, this is something that has a far more exciting technology potential than wind power, which seems far better suited for the European supplier industry expertise.
Innovation and Competition hand in hand
Innovation Theory says that it is where there is a technological paradigm shift that it is possible to take new leadership positions, because there are some that are already established with leading technology. Maybe it could be such a paradigm shift of wind at sea, but I guess is more forward than the shale gas, if it really ever come as it seems not very likely that offshore wind can free themselves from the subsidy need when land wind has not done it for so many decade. Wind power on land and shallow water is a mature technology with established suppliers.
But for shale gas the supply industry is immature, even in the United States. In Europe, there are none.
Moreover, this will become a profitable industry without the need for large subsidies, and it is of great importance for the assessment of political risk.
Problems with contaminated ground water and gas leaks has been the boom of shale gas production in the United States into disrepute. But analysts believes it will be much more to stop the further development of shale gas. The companies do not make changes until they get the knife on his throat, and i believe that the overwhelming focus on environmental problems related to shale gas in the United States will cause companies to learn from their mistakes and improve their technology.
The world must cut their CO2 emissions and one does not come off the gas to cut global emissions of greenhouse gases.
To shift to renewable energy will take a long time, meanwhile, gas contribute to a more environmentally friendly energy production. It is a bridge builder.
It is unrealistic to believe that renewable energy like wind power will be able to solve emission problems in the short term and we can look at wind farms in Denmark which must have backup from coal power plants when the wind plant is out of order. It believed that gas and shale gas could be a better solution in the short to medium term.
The EU has ambitious plans to reduce its greenhouse gas emissions by 2020. In addition, EU member states a desire to get the most secure and stable energy supply. There is also a market for gas and shale gas also.
Poland and Ukraine are both believed to have large reserves of shale gas, and they are close to the major markets in Europe
New technology has reduced production costs so that shale gas is now more competitive with oil and coal than it was only a few years ago. Shale gas is still more expensive to produce than regular gas, but not natural gas from deepwater areas and other marginal fields, as in the Arctic.
Most of China’s energy comes from burning coal. China has ambitious plans to increase its share of gas from four percent to eight percent of the energy mix by 2015. Shale gas could play an important role in contributing to these targets. Chinese companies are in the U.S. now to learn techniques about shale gas production. A focus on shale gas can happen fast in China as when China first turn, so they turn quickly.