Editorial
BREXIT And The Shale Bonanza
By Dr. Gary K. Busch 31/3/18
Apr 1, 2018 - 9:49:17 AM

As the U.K. celebrates its final year as part of the European Union it is standing on the brink of a major boost to its economy and prosperity as it awaits the first economic benefit from production from its rich oil and gas shales. Quadrilla and others have fought a long battle to begin drilling in earnest for the extraction of shale oil and gas in the UK. British shale reserves are extensive and rich in gas and oil trapped in sedimentary basins in several parts of the nation, but especially in Lancashire and Yorkshire. The British Geological Survey estimates that the Bowland basin holds 1,300 trillion cubic feet (tcf) of gas. Almost seventy wells have already begun. The reserves are enormous. [i] �If a tenth can be extracted � and US frackers can do better than that � it would cover Britain�s entire gas needs for half a century. Current use is 2.5tcf a year.�[ii] The same article quotes the Quadrilla�s chief executive ��We�ve just drilled the rocks and they are the best results we�ve ever seen. It is a huge resource. This could last us through to 2050. The various layers may be as much as 6,000 feet thick, compared to an average of 300-400 feet in the US. This allows for multiple lateral bores from the same drilling pad and vastly extends the life of a shale well. 3-D seismic imaging executes this with extreme precision.�

Britain used to be an energy exporter. Britain was a net exporter of energy until 2003, when the balance was reversed by the policies of the government of Tony Blair and sustained by the ignorant opposition of the Greens, worshipping their patron saint, Pinocchio.

This inability to deal with British energy supplies has produced a costly and threatening energy posture until recently, when the UK government gave the go-ahead to start drilling. The energy industry has shrunk from around 10% of GDP in the late 1980s to the current percentage of around 2%. In the interim, Britain has become a net importer of energy supplies and has been paying for energy supplies on the price terms of the international market.

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Since that decline, Britain�s energy supplies and trade have been in imbalance. Britain began to import energy at a period when supplies were decreasing and the prices high. In a key study conducted by the UK Department of Business, Energy and Industrial Strategy in July 2017, �UK ENERGY IN BRIEF 2017� the researchers pointed out that the UK was a net importer of energy.

The reaction to the constraints on the energy supply were also the result of European policy diktats. Britain has been held back in its development of its vast fracking reserves by the politics of the European Union as well as by its Greens. EU policy has allowed the EU to become dangerously dependent on supplies from Russia and has only recently sought to diversify its supply elsewhere. The diversity included allowing for import terminals to be built in Lithuania and elsewhere to import LNG into Europe, but it has not included the EU allowing for fracking to be pursued by drilling within the region.

One of the major advantages of the UK leaving the European Union will be its embrace of the energy resources which will enter the market from fracking and the immense collateral advantages of having a large domestic supply of energy at an inexpensive price and the millions of jobs this energy supply will require in drilling, transport, and storing the oil and gas as well as creating a burgeoning market for steel pipelines, storage tanks, chemical processing of the feedstocks of oil and gas production and an export industry of energy to the EU, among others. There will be a need for the new generation of marine vessels to be built which are now entering the marine industry run on LNG or compressed gas; a bunkering facility for these vessels when they reach European and UK ports; a market for the large quantities of ethane which provides the feedstock for the European chemical, fertiliser and pharmaceutical industries. A whole generation of technical and professional jobs will be created in which UK students can find employment. The coal-fired electrical plants can be phased out and reconstructed using gas as a feedstock. Recent studies have show that replacing coal as a feedstock by gas reduces emissions by more than two-thirds. The environmental advantages include stopping the spread of nuclear energy and augmenting the gas production by using Britain�s expanding offshore-wind energy supplies.

The trend towards using gas as an energy source has already changed the European energy market; however, with largely imported supplies.

Britain already has one of the most valuable infrastructures needed to make fracking pay; a large domestic pipeline system. There are already 21,000 miles of gas pipeline already in place.

Having such an extensive pipeline infrastructure will allow the easy distribution of the fracked gas throughout the nation. Most importantly, there are major international gas pipeline interconnectors which will allow the transfer of gas to the EU without the need for turning the produced gas to LNG or compressed gas. This will make UK-produced competitive with U.S. and Russian LNG.

The lessons learned in the production of fracked oil and gas in the U.S. were that in order to compete with OPEC�s desire to drive the U.S. industry to its knees it would lower the oil price to make fracking uncompetitive. Instead of folding up their hands the U.S. producers innovated new processes and introduced new technologies which drove down their costs. Now, OPEC cannot compete and is fighting a losing battle to drive out the U.S. frackers. The U.S. will be self-sufficient in energy by the late months of 2019. The British frackers can avoid the high costs and impediments of the first generation of fracking in the U.S. and use the new technology derived in the U.S. markets to build a very competitive and efficient UK energy business. Understanding the background to this technological revolution is important to understanding why the claims of the doomsayers and environmental self-abusers should be ignored.

The Technological Revolution

The fracking industry has gone through an amazing technological revolution since its inception. One of the principal problems for the development of the fracking industry in the UK is the staggering level of ignorance of what modern fracking techniques are. The initial model of the fracking process included drilling a hole in the ground and continuing the pipe at right angle below the ground to free up oil and gas trapped in the shale.

This technology failed to deal with several problems which were not envisioned at the outset. One of the major problems was the demands of fracking for high quantities of water. A typical US wellhead at that time required more than 3.5 million gallons of water per frack. Up to 60 percent of that water was returned from the well as wastewater, or �flowback�. Managing the flowback and overall water life-cycle was easily one of the costliest parts of the fracking equation and a source of some environmental concerns.

The high water demand was addressed by increasing the yield of each well by increasing the use of sand. Sand is a much greater tool in hydraulic fracking than drillers had understood it to be. The more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out. On a per-well basis, sand use has doubled since 2011, climbing to nearly 9 million pounds.

Sand is by no means new to the oil industry, but it�s taken on an importance in fracking that it never had in traditional vertical-well drilling. Because shale rock is so dense, drillers rely on large quantities of both sand and water to tease the oil out. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand then keeps the cracks open, elongates them and makes them more jagged. By increasing the amount of sand, drillers have found one increases the amount of fractures that stay open.

One of the key innovations was the development of �zipper fracking�. In 2012, professors at Texas Tech University developed a twist on fracking, called �zipper fracking.� This is when operators drill two wells side by side. Once both wells are completed, they�re fracked at the same time. The fractures form a zipper pattern that cracks the rocks more deeply and efficiently than in a single well. The process allows both wells to produce more oil and gas. In the Barnett Shale in Texas, the zipper-fracked wells doubled the volume of a typical well.

Another one of the largest cost-saving techniques came from the offshore oil industry. When you�re drilling wells offshore, it isn�t feasible to build a platform, or pad, for each well. So out on the ocean, they drill several wells from a single pad. They are like �chicken feet� with several horizontal wells being drilled around the base of the vertical shaft. In some cases, there are five to seven horizontal wells leading to a central well shaft. Onshore shale drillers quickly adopted that technique for themselves. Because shale is a uniform layer of rock, companies can drill the wells close to each other. Since the drillers don�t have to move the rigs too far between holes, the method saves time and money. The process of taking down and setting up a drill rig can take days and cost company hundreds of thousands of dollars.

In addition, many shale layers, like those in the Bakken and the Eagle Ford and Permian Basin in Texas, are stacked like pancakes. Companies can drill many wells into these layers, reaching many layers of stacked shale reefs; a single pad can have many �stacked laterals�. The trend has been to extend these laterals to over two miles in length. There are even �superlaterals� being introduced.

According to Laredo Petroleum, its 64 wells in four shale layers will recover 44 million barrels of oil. If it only targeted the top layer, it would recover just 12 million barrels of oil. The stacked laterals increase its production by nearly fourfold.

The drillers have added to their tools the use of smart drill-bits with computer chips which can seek out cracks in the rock and adjust the drilling accordingly. Several companies have developed and introduced dissolvable plugs. Schlumberger has introduced their Infinity* dissolvable plug-and-perf system. This unique solution uses fully degradable fracture balls and fully degradable seats instead of plugs to isolate zones during well stimulation. The first-ever full bore interventionless plug-and-perf system eliminates the need for milling operations and leaves nothing behind in the wellbore. As a result, no plug debris is produced to surface where it can potentially interfere with surface equipment. The technique eliminates lateral length restrictions, which maximizes reservoir contact and estimated ultimate recovery, and it greatly reduces intervention-related risks and costs. It is what has permitted the superlaterals. This can save almost $300,000 each well.

Another system is the �KickStart� dissolvable system whose rupture disc valve eliminates the need for coiled tubing� or tubing-conveyed perforating in the first stage of multistage stimulation operations. It thus offers a faster and more cost-effective method of starting the fracturing process, especially in horizontal and highly deviated wells. The valve is run to the toe of the well as part of the casing string. After the casing has been cemented and tested, pressure is increased to burst the rupture disc, shifting a sliding sleeve and opening the valve, thereby exposing the formation to the fracturing fluid so that stimulation operations can begin.

There have been many developments as well in drilling processes, especially expandable tubulars, more cost-effective rotary steerable systems, and intelligent drill pipe for high-rate bottomhole data telemetry. An exciting development has been the expandable tubulars because they offer the potential for a "monoborehole" and drilling to depths no longer limited by initial hole diameter. As a result, the focus on tubulars has concentrated on expandable casing.

Perhaps the most exciting of the new technologies is the introduction of microwave fracking, the most environmentally favourable method of all. It eliminates the problem of the disposal of wastewater that some fear could contaminate groundwater in these communities where fracking operations are located. The use of microwave fracking is of value in the extraction of oil shale. Conventional rigs are able to effectively retrieve shale oil but they�re not as effective when it comes to oil shale. Oil shale is a solid organic material accumulation of shale rocks. To get oil out of oil shale, the solid rock must be crushed and then heated to liquefy the oil or by injecting steam into the rock. These methods aren�t particularly effective, but microwave fracking could be the answer. Microwaves can heat the rock more effectively and efficiently than steam which is ideal if an oil company wants to produce economically justifiable oil from oil shale. A single one of these microwave oil operations could�produce around 800,000 barrels of oil[iii].

All these techniques and adaptations have dramatically lowered the cost of shale oil and gas drilling as well as increasing the yields from each well. This has allowed the shale providers to maintain their economic viability in a market with decreasing prices. It has also dramatically reduced the environmental impact of the fracking installation.

Brexit and Fracking

The UK is standing on the brink of an industry which will dramatically revive its fortunes outside the EU. The EU has been an anchor on British productivity and opportunity and the faster it gets out from under this cloud the better. By the time of the British exit of the EU and its �implementation� period the fracking industry will have begun to produce real returns for the country. The EU will find that it needs the UK far more than the UK neds the EU. More importantly, the British Government has set up a scheme to reward the local communities in which the drilling takes place and a proposed Shale Wealth Fund to make sure that local communities benefit directly from the fracking in their neighbourhoods. The U.S. found that the level of serendipity of fracking included many local jobs in shops and retail establishments, decentralisation of major investments in factories and refineries towards the areas of energy production; and even the laying of fibre-optic cables along with the new pipelines which provided a broad network of rural internet connections.

There is also a geopolitical aspect of this fracking, As Europe tries to free itself from dependence on Russian oil the UK energy supply can play a major political factor in providing a reliable, interconnected, alternative source to the Russian oil. This fracking bonanza will be a benefit for all the UK citizens and local communities. It is only a pity it has taken this long to achieve.