The key lesson of the past 15 years for energy was how the sleepy, if vitally important, field of energy economics was disrupted so thoroughly and so quickly. Comparisons have been made between shale and the internet. Both are often described as ‘paradigm shifts’, ‘disruptors’ or simply as inflection points. The internet, in only twenty or so years has changed everything. It made entire industries irrelevant and killed off some entirely. The Kodak moment for shale was slow in coming but it’s finally here. Almost no one, apart from Peter Strachan in OilVoice recently, still can’t get how the industry of today makes expertise of yesterday increasingly irrelevant.

After a career in retail and wholesale natural gas markets, I first stumbled upon shale in 2008. It’s hard today to realise how disruptive shale was to all energy players. The average Henry Hub price for US natural gas in June 2008 was $12.69 MMBTU. ‘Conventional’ oil was the first victim. Then coal, then nuclear. It was only natural that some renewable projects that depended on high price economics (or subsidies) felt threatened and the industry missed a trick in not allaying those fears. Fears, which as we see in the US today, were as much without foundation as many others. In March 2016 US gas reached $1.73 and has since recovered to $2.99 in September.

A recent interview with Dr Stephen Holditch of Texas A&M University in EP magazine was part of a section called ‘Shales: A Look Back’. It’s well worth a look. Only by seeing where we’ve been can we gain a perspective going forward.

‘E&P: Will this unconventional drive eventually spread globally? Despite much talk of it in recent years, the activity internationally has been disappointingly sparse.Holditch: There is no doubt in my mind that unconventional reservoirs containing enormous volumes of oil and gas exist in every oil and gas basin in the world. When a basin has produced a lot of oil and gas, it must have source rocks to have generated the oil and gas now trapped in the conventional rocks. In the U.S. we are essentially producing oil and gas from what we have always considered source rocks. So every oil and gas basin in the world has source rocks that can be produced in the future. Obviously, the key will be demand, price and infrastructure. The largest obstacle so far has been infrastructure. One has to have the markets, the legal structure, the pipelines/transportation, the rigs, the fracturing equipment and the people who know what they are doing for the successful development of an unconventional reservoir, even after the productivity of the reservoir has been established’

Which leads me to my favourite Aha! moment of 2008. When the Pennsylvania Marcellus shale was revealed as a world class gas reservoir not too far away from Qatar, Saudi or Russian standards, I immediately thought if not there, why not anywhere? Pennsylvania produced 5BCM of ‘conventional’ gas in 2006. That’s less than the same German production of today. This year, Pennsylvania is going to produce over 230 BCM, the combined volume of the largest EU suppliers, off-shore Norway and Russian exports. (Russia produces 573 BCM but uses most of it at home).

The idea that ‘conventional’ gas was somehow different has been disrupted ‘unconventional’ shale is almost 70% of US gas production and over 55% of US oil.

The story of shale surrounds how low production gas and oil areas considered either inconsequential or depleted signified a the source rock, far deeper could be made to produce. In short some brave and smart people disbelieved everything every expert ever told them: Shale wouldn’t flow. Shale used too much water. Shale poisoned water. Shale cost too much. Shale used too much space. Shale would deplete rapidly.

Did I forget anything? Ah yes, shale would kill renewables, but someone forgot to tell that to Texas and Oklahoma wind, which produces double the amount of wind on the UK grid.

In short, shale wasn’t about thinking outside the box. It was all about ignoring the box.

Returning to Stephen Holditch, why aren’t we seeing European shale?

We have the infrastructure already in place. There are 284,000 kms of pipeline in the UK connecting over 23 million homes. We have a gas price of over $6. UK gas will be more expensive, at first. But if people are making money, if begrudgingly, at $1 in Pennsylvania where gas is often stranded, then $6 – or $4 is worth a chance in the UK.

The rigs and the people will come to the UK, and many are already here. That issue was overstated in 2008 and led to some early adopters getting ready for UK shale only to find trucks, rigs, and worst of all people, rusting away.

We don’t need a Marcellus size success in Europe, although if we did, replacing German coal and EU diesel buses and trucks gives a market outside of the heat demand which takes up 60% of production but for only 6 months of a year.

We do need regulation in Europe, and it was too long coming. But now it’s finally showing up. The average time even in Texas from permit to production is still 355 days. Once the UK finally gets moving, we won’t be too far off those time scales.

Finally, unlike frontier areas elsewhere, there are roads and hotels and transportation links already built in. Sometimes, the aboriginal population in English rural areas appears hostile. Yet the oil and gas industry has operated in far more problematic environments and converted resources to reserves in far longer time scales.

Some investors I know have worked in Libya, Kurdistan, Iraq and Equatorial Guinea. How could Lancashire hold horrors for them?

Finally back to the reservoirs and here is Professor Holditch from these pages in 2009:

Stephen Holditch, Department, Head of Petroleum Geology at Texas A&M University said at the Groningen (Netherlands) Gas Conference in June 2009 that transferring the technology currently used in the United States would increase worldwide available gas reserves 9 times.

Based on the US experience and other studies, he estimated total world shale reserves as being over 16000 TCF (trillion cubic feet). The distribution included 509 in Western Europe, 627 in the FSU, 2547 in the Middle East and 3526 in China. Total OECD annual gas use is 50TCF, of which the UK has 2.5 TCF.

Dr Holditch made specific references to the Southern Permian Basin, which includes both on shore and offshore UK areas stretching eastwards from Central England, under the North Sea and extending to Poland in the East.

It’s worth noting that during the conference, anonymous voting revealed that in the specific case of the Southern Permian, 56% of the audience agreed with Dr Holditch’s assessment of a nine fold increase in reserve availability.

The future is out there. Absent the UK earthquake fiasco of 2011, we would be producing shale gas in the UK today. We’re not, but the market is still there, the costs are lower and today’s technology makes 2008 look like the iPhone 1. We’ll get there. It’s just a question of inevitable is when exactly?

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