freshhh2012 Creative Round

Is non-conventional gas just one bad well away from a political backlash? Review European situation (opportunities and restrictions) and design a stakeholder engagement strategy in response.
Authors:
Boi David, univ. bacc. ing. comp osi Marin, univ. bacc. ing. el Daki Danijel, univ. bacc. ing. el

April, 2012.

An unconventional gas reservoir refers to a low permeability reservoir in which is dry natural gas produced. Generally, there are three basic types of unconventional gas: o Coal bed Methane (CBM) this term refers to methane that trapped inside of a solid matrix of coal. It is mostly fund inside underground coalmines. o Shale gas this is a gas mixture called syngas, which is made due to pyrolysis. o Tight gas found surrounded by rock and sand. Hydraulic fracturing and directional drilling is necessary to produce the well. Today there are two techniques, used for extracting unconventional gas - directional drilling and hydraulic fracturing. Directional drilling involves drilling without the need to drill only beneath the drill rig. With this method, it is possible to steer the drill motor in a complex route. The idea behind the hydraulic fracturing is to use liquids and pump them under high pressure in order to pierce trough soil. Liquids used for that purpose are waterbased, oil-based or acid-based depending on the type of soil. U.S. has become unconventional gas producer in last five years and estimates to become exporter in next decade or two. Therefore, the question is is it at least partially realistic scenario for Europe? Estimated recoverable reserves in Europe amount to between 33-38 tcm, of which 12 tcm are tight gas, 15 tcm shale gas, and 8tcm coalbed methane. If we compare that to 2.42 tcm of conventional gas reserves, European gas demand could be cover for another 60 years with unconventional gas. Therefore, there is a lot of gas beneath us! In next few pages, we will address issues for unconventional gas production in Europe and give some solutions and ideas. Let us start with most significant and universal environment. U.S. scenario tells us that environmental impacts of shale development are challenging but manageable. From research by U.S. EPA (Environmental Protection Agency), it seems clear now that water wells have been contaminated by shale gas excavations, and some drinking water became flammable due to methane migrating from drilling wells to a water aquifer. It is unlikely however, says EUCERS, that the sources of contamination are the shale fractures, which lie much deeper than the aquifers that contain drinking waters. There are two more likely sources of contamination. First, poorly maintained storage pits for fracturing water/chemicals, and second, poor cementation of the vertical well casing (because change of
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pressure and high pressure creates fractures on it) that pass through the aquifer on the way to the gas reservoir. These leak paths can be prevented by good oil field practices, fracture monitoring and better cementation techniques. Although only a 1.5-2% of the fluids are chemicals the rest is pure water, there are many who believe that even that amount of chemicals is enough to pollute the earth and the groundwater. Here is important to mention that 70% of fracturing water could be reused. An oil company has made it even further. In cooperation with the Austrian University of Leoben, they had made a fluid that is without any chemicals. Instead, they use water, bauxite sand and starch. This method is less economical and it is still in testing but it shows promising results. There have been limited incidents where fracturing fluid and flow backwater have been release on the surface due to wellbore integrity and surface facility water handling issues that were not relate to the hydraulic fracturing process itself. As we mentioned earlier probably major cause of contamination of drinking water is flow-back water storage and disposal. However, there are few geographically convenient sites available. So the flow-back water often has to be trucked considerable distances for disposal with significant costs and environmental and social impact. Another potential environmental problem is the large volumes of water that are need to unlock shale gas from rock formations in which it occurs. In early 2010 scientist believed that shale gas was better for the environment regarding the Greenhouse effect than ordinary gas. Researches where conducted in late 2010 that had shown that shale gas did emit more Greenhouse gas (GHG) than ordinary gas, however it is still far less that ordinary fossil fuels. Unconventional gas drilling and stimulation uses large amounts of water in approximate 20year lifespan, but it is the most water efficient! Which means that energy produced is far more than other primary energy resources that use water in process of excavation. Ultimately, it is obvious that water management will be a great challenge. Is seems that U.S. represents a model for gas independence, but Europe is not U.S. and reverse. Now let us review some main differences between Europe and U.S. that can be issues for the gas independence model. We can start with density of population in Europe, which is three times more than in US. Here is education of local communities and public acceptance for excavation of gas the key for a solution. Another important difference is the allocation of property rights. In the US, the owner of the land is in most cases also the owner of everything found under the ground e.g. gas. If the landowner receives, for example, 10% of the revenues, he can easily expect a reward of $15,000 per hectare. This is important incentive for landowners to allow gas production on their land. The arrangements in Europe
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are different. Here landowners do not profit from gas excavation on their land. So, for new business opportunities environmental legislations in EU need to be further analyzed. Next, we have depth of gas reservoirs, which are allegedly deeper in Europe than in U.S. That is maybe worth for average depth, but practical drilling shows that gas can be found from 1000m to 4000m in Europe. Here the problem varies from place to place. Deeper reservoir means that gas is less likely to affect aquifers, which are relatively shallow compared with this numbers. This is positive, but rises the cost of drilling. Another major public concern is chemical composition of fracturing fluids and storage or flow-back water. At first industry claimed commercial confidentiality, but with the rise of concern, compound is now often disclosed. This would not be an issue in Europe because of the European REACH regulations. Typically, it contains sand, chemicals residue, and trace amounts of radioactive elements that naturally occur in many geologic formations. It is important to mention, also that U.S. has ineffective regulatory system compared to robust EU regulations. This means that companies with good record of accomplishment in managing environmental impacts will develop unconventional gas more likely. After solving technical and legislation issues, it always breaks down on economics and politics. Is it profitable and whom? With its potential to break a market dominated by a few suppliers from Asia and Middle East, unconventional gas has large geopolitical implications. Local unconventional gas availability enables gas market competition and favorable market for buyers. If we add the fact that unconventional gas resources are larger than conventional ones, negotiating power on the market is shifting. From a global perspective, unconventional gas has far-reaching geopolitical implications. It has the potential to balance the EUs energy equation by breaking a market dominated by a few suppliers from EURASIA (e.g. Russia) and the Middle East, where the vast majority of the conventional gas reserves are concentrated. EU already imports 50% of its gas, and this will rise to 70% in the next 20 to 30 years. Expect energy prices to rise considerably in the coming decades, as traditional energy resources will become scarcer. It is obvious that if part of potential unconventional gas resources become available it will lower prices on Russian gas, offer EU domestic source, extend global overcapacity of gas (caused by recession) and improve energy supply security in EU for decades. There are few facts that need to be addressed. Shale gas has lower productivity and it production declines faster in first few years than conventional gas. This means that more wells are needed, which rises costs. Nevertheless, well production is an estimation that is counted in decades. In next five to ten years, low gas prices will ensure
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technological advancement that will increase efficiency and improve economics. Importing equipment will have to be obviously from North America or China. Equipment dependence will probably create issues because of European metric standards, import requirements and regulations. This can be overcome by time. With U.S.s experience and our excellent engineering skills, it is estimated that a rig with European specification can be build in 9-12 months. Part of the economics could be solved with special tax regulations for unconventional gas. This will put gas in category that will draw attention to potential business. One of the obstacles is long-term import contracts for new gas to break on market. Unconventional gas is expected to lower on spot prices and give more flexibility in trading. Deutsche Bank predicts that buyers will use long-term contracts at least for a decade because it is unlikely that shale gas will give stable supply until then. They believe it will be around 1% of European consumption. Some experts claim that drilling and completion is main factor for high shale gas prices. This issue will not be solved in near future because it is geological. Because unconventional gas is new resource on the market, it is necessary for oil companies to take places in that market. First, one that buys land and license costs will benefit more than later players on the market will do. They will have to pay entry premium and of course, foreign investments are something that cannot be neglected. It is important to mention that regardless of sustainability in Europe, unconventional gas is changing gas market worldwide including Europes. Population density may be an issue, but it can be a positive side. For example, there is no need for long pipelines. Benefits for discovering gas in any part of Europe for that region are enormous. EU has in last decade spent a lot of money on Microgrid that relay on cleaner energy including gas and micro turbines. Goal is to give more stability to electric grid and improving power quality with lower gas emission. Therefore, a gas excavation site can create industries, power plants on spot with cogeneration, jobs, education and regional advance.

LITERATURE [1] Medium-Term, Oil & gas markets, 2010, International Energy Agency [2] World energy council 2011, Survey of energy resources: Shale gas Whats new [3] World energy outlook, Are we entering a golden age of gas special report, 2011, International Energy Agency [4] National petroleum council, unconventional gas subgroup of the technology task group of the NPC committee on global oil and gas, team leader: Stephen A. Holditch, Department of Petroleum Engineering Texas A&M University [5] The rise of unconventional gas, The energy education experts, 2007 [6] Shale Gas: Applying Technology to Solve Americas Energy Challenges [7] Unconventional gas shales: Development, Technology, and Policy Issues, Anthony Andrews, Peter Folger, Marc Humphries, Claudia Copeland, Mary Tiemann, Robert Meltz, Cynthia Brougher, 2009 [8] Trends in unconventional gas, Oil and gas journal, 2007 [9] Final Report: Water Management Technologies Used by Marcellus Shale Gas Producers, John A. Veil, Oil & Natural Gas Technology, 2010 [10] Final report on unconventional gas in Europe, Philippe & Partners, 2011