Watching any television coverage or wider press regarding the activities of unconventional oil and gas investment, the word “fracking” has universally replaced all references to oil & gas exploration and development. Sadly, this is not a positive.
Yes, there are potential seismic consequences, massive usage of scarce water resource in addition to utilising chemicals and other additives in the process which raises environmental concerns.
Undoubtedly, these concerns need to be considered and monitored; however, a lack of balanced argument in the media is generating overwhelming negative perceptions which at best are delaying, if not threatening the development of this untapped resource across Europe.
If we stifle as a nation or continent the development of these resources the medium term impact will also be acutely felt by the consumer as energy prices increase as supply is reduced.
Evidence of cost reductions in wholesale gas prices in the US due to unconventional activity is well documented as prices have come down materially.
It’s ultimately in everyone’s interest to encourage the development of unconventionals, albeit in a monitored and controlled way which addresses the valid concerns of environmentalists and citizens.
While you may think otherwise, hydraulic fracturing is nothing new. It was first developed by Halliburton over 60 years ago when, in 1947, the first stimulation job was performed on the Hugton field in Kansas. Since then, the process has been used extensively worldwide to increase production from maturing oil and gas fields.
The global industry is constantly battling a decline curve of 4-6% per year . . . and that’s after well intervention and stimulation where applicable.
Without the use of such methods as hydraulic fracturing the energy markets would be in much worse shape. Supply would be a lot lower, so pushing up commodity prices and heightening the cost of energy to both industry and consumers worldwide.
Russia’s oil production increased from around 6million barrels in 1998 to over 10million in 2007. Hydraulic stimulation, as wells were worked-over two and even three times, played a huge part in this success story.
The additional supply to world markets at a time of economic boom and heightened demand saved consumers from $200-plus oil prices for sure.
Looking closer to home at the mature offshore industry in the UK, many wells are hydraulically stimulated each year.
Estimates are that around 20 wells per annum are treated in addition to similar levels of activity in Holland and Denmark. Norway is more active.
Collectively, the North Sea is stimulating around 160 wells per year with 5-8 stages each in what is a mature service industry.
Having inherited the negative perception of unconventional gas development from the US where the market is more mature, Cuadrilla Resources, as the most active unconventional explorer in the UK, has had a tough baptism in terms of trying to educate stakeholders on the unconventional opportunity.
Operating in a hostile environment of negative public relations and protest, Cuadrilla’s drilling activities on the Balcombe site have cost around £4million in policing alone.
While this is not a direct cost to the company or the industry, but the taxpayer, we assume that well site security would be significant.
If we assume similar levels of infrastructure will be required for the 400 wells Cuadrilla plan to develop as per its “base case” development scenario, in addition to considering wider European unconventional developments, the associated cost of security, stakeholder engagement, process and operational requirements over and above conventional development could reach over £1billion.
My point here is not if hydraulic stimulation is right or wrong, but to highlight that mass media positions unconventional oil and gas development as fracking and that this is a new and dangerous industry process which is not the case.
For a number of historical reasons the energy industry has on the whole taken the approach of trying to keep its head down, making only limited effort to change perceptions of being unclean, too powerful and exploitative.
The mantra of “not raising your head above the parapet thus it won’t be chopped off” is the general approach.
While there are a small group of exploration and production companies that have taken a more proactive approach to public relations and education, I fear their efforts will have limited impact alone.
Even collective voices of industry associations are diluted as they are generally country or sector focused and often dismissed as special interest groups or lobbyist functions eroding their collective influence and legitimacy.
We have to recognise that the energy industry is global, as are media channels and news.
We live in an instant information age which lacks analysis.
Neither is the impact of news stories in one part of the world isolated to that region or country.
We can see too that the headlines are also sensationalised to grab attention, not inform.
The huge media impact of the 2010 film Gasland depicting the dangers of unconventional gas development has had huge repercussions for the European industry in spite of the attempts of the Independent Petroleum Association of America’s rebuttal film TruthLand and other educational programmes to balance the argument.
A global industry quite simply needs a global association to collectively address the educational requirement and lead stakeholder engagement across the energy sector.
Today we have too many peripheral groups that lack impact on a national level let alone worldwide.
If you look to the organisations (NGOs especially) that the energy industry is competing against for influence they pull their global resources and unite in message and approach. It’s going to be very hard for the sector to be heard effectively if it doesn’t respond.
Andrew Reid is MD of analysts Douglas-Westwood.