Latest economic statistics from the United States demonstrate the immense positive impact of the country’s shale revolution.
Producing £100bn of new business investment last year alone, it has so far created one million jobs, is expected to create almost two million more by 2020, and has put an extra $1,200 (£750) in the pocket of every household.
Shale production has slashed energy bills by over two-thirds and will make the US energy independent by 2018, reducing its balance of payments deficit and attracting industries wanting to take advantage of its cheap energy.
Next month delegates to the NOF Energy Conference on Tyneside will hear first-hand of the growth and impact of this global economic tsunami from a trio of senior US shale gas experts.
A panel discussion will also consider whether this US revival can be mirrored in the UK. It will feature a representative from US shale player Devon Energy, delegates from the shale states of Oklahoma and Louisiana, global supply chain company Schlumberger and Ken Cronin, chief executive of Onshore Operators Group, which represents UK shale companies.
The invitation to the American delegates follows a week-long fact-finding trip to the United States by Durham-based NOF Energy and seven member companies, which left many in awe of the economic impact of the shale gas industry.
David Millar, managing director of Merseyside valve company Heap & Partners, is also on the board of the British Valve and Actuator Association (BVAA). He was a delegate on the NOF Energy fact-finding trip, along with North East businesses which included Ward Hadaway, LV Shipping and Reece Innovations.
Millar equates what is happening in the US with events in the UK almost 200 years ago.
“Shale is as big a deal to the US as coal was to the Industrial Revolution in the UK,” he said.
“It is transforming America. It’s led to the onshoring of heavy industry which would have been unimaginable just a few years ago. New steel mills are being erected, car plants and bulk chemicals plants are coming to the US from overseas.”
With natural gas having half the carbon dioxide of coal, the US is the leading first world country in emissions reduction, while changing the way its transport sector is powered.
He added: “What has happened in the States is mind-boggling, it’s absolutely staggering and as a country we cannot afford not to do it. The politicians need to show the political will to make it happen.”
A report from the British Geological Society last year highlighted the extent of the UK shale reserves.
It reported the Bowland Shale in Lancashire contained 1,300tcf (trillion cubic feet) of shale gas; if only 10% of this was recovered, it would meet the UK’s domestic gas needs for 50 years.
The vast reserves of shale oil and gas in the South East are set to be quantified in similar detail later this year.
The potential economic benefits to the UK are huge, but there are strong headwinds which may prevent a home industry developing as in America.
NOF Energy, while highlighting the benefits to the UK economy, its member companies and the supply chain, cautions on the challenges faced in a home setting.
Among these are scale, with the UK being a small island with limited space. Oklahoma, which NOF delegates visited, is larger than England, with a population of four million people.
NOF’s report on its visit elaborates: “While New York and California still have shale on hold, regions like Oklahoma and Louisiana have long been used to seeing derricks working in urban locations and not just in remote areas. An example is the University of Texas which has well pads on site; they have addressed the issue and we could learn from them.”
In fact, the Oklahoma hotel in which the NOF delegation stayed had a shale gas well in its car park.
Shale exploration requires large quantities of water and with more than 50% of this likely to return to the surface, it has to be disposed of safely.
In order to mitigate heavy traffic volumes on nearby roads, many US shale drillers create their own reservoirs at a drilling site and in the US and UK permits have to be obtained to dispose of water safely. Millar acknowledges there will are issues to overcome in the UK including the quantities of water required and its subsequent disposal, but believes that with the political will, these can be overcome while benefitting sectors such as transport and agriculture.
He believes there is significant potential for a valve manufacturing company such as his own, but along with fellow NOF delegates highlights how the UK needs to see a supply chain develop.
One major issue will be sourcing drilling rigs as there are around 100 land drilling rigs in Europe right now, with approximately 50% of them located in Poland, Romania, Germany and Ukraine.
The UK may have no more than a handful of these rigs with the average purchase price being around £15m.
Along with regulatory and supply chain issues there is the need to source sand or man-made ceramics and chemicals for use in the hydraulic fracturing – fracking – process.
Joanne Leng, deputy chief executive of NOF Energy, acknowledges the challenges that lie ahead.
She said: “There is a lot of interest in the potential for UK shale gas among the supply chain. They have looked to the United States and seen how shale has transformed the country’s energy landscape including considerable job creation and the US transforming itself from an importer to an exporter of gas.
“However, the UK faces many different challenges to the United States and, in reality, there is a five to 10-year lead time for the UK onshore gas industry to really establish itself due to the issues the country, the industry and its supply chain have to deal with.
“At this stage, NOF Energy is helping to identify and highlight the challenges to provide our members with a balanced and informed view of the sector, which will the support the development of a UK industry.
“Of course, there is a lot to learn from how the US has built its onshore gas industry, but with differences in such things as regulation, land ownership and even public perception, the UK industry will take a different form and size to its US counterpart.
“Despite the challenges ahead, the foundations are being laid for a British shale gas sector and we are actively engaging with the sector to support supply chain companies with transferable and complementary skills, products and services who can take the first steps towards entering the industry.”
The NOF delegation visited the Oklahoma and Louisiana regions where shale operations are now well-established.
In Louisiana shale gas investments have reportedly led to $77bn (£45bn) of direct impacts which include new gas processing and exporting facilities, the relocation of a methanol production plant from Chile and a new BASF production plant.
In Oklahoma public perceptions of the industry have been transformed in the past 20 years.
The OERB, which represents the state oil and natural gas producers, has trained 12,000 teachers to go into classrooms to educate pupils about the industry. It runs a ‘Petrotech’ programme which involves free training for pupils leaving school so they have a grasp of the industry and potential careers.
Through a programme of activities in the state of Oklahoma to promote the industry and offer the facts and benefits, almost 80% of Oklahomans now have a positive perception of the industry – compared to just 22% 20 years ago.
As attendees at the NOF Energy event will be aware, attempts to frack for shale gas in the UK have led to protests, most notably at Balcombe, Sussex and Salford in Lancashire, and this form of opposition may be the biggest hurdle for the incipient UK industry to overcome.
NOF Energy conference
The shale gas debate forms part of the NOF Energy conference’s wider discussion about the role of the supply chain in securing a balanced energy mix in the UK.
In attendance at the conference will be a strong panel of speakers, exhibitors and leading executives from respected organisations, including Oil & Gas UK, Nexen Petroleum UK, GE Hitachi Nuclear and EDF Energy Renewables, who will discuss the future of the energy sectors and the opportunities for a multi-skilled, adaptable, integrated supply chain.
Other sessions will look at addressing the skills gap using the military and will be delivered by Harry Dean, British Forces Resettlement Services. John Westwood, chairman of energy advisers Douglas-Westwood, will outline the global outlook for the energy industry.
About 300 delegates are expected to attend the conference and exhibition and take the opportunity to network with key industry executives.
George Rafferty, chief executive of NOF Energy, said: “Achieving a balanced energy future will provide multiple benefits for the UK. Of course, it will deliver security of supply by utilising multiple energy resources, but also provides considerable opportunities for the supply chain.
“The experience and technology-led expertise developed by supply chain companies in industries such as oil and gas can often be replicated for other sectors. NOF Energy works closely with its members to help them explore developments across the energy sectors that present opportunities to expand the reach of their products and services.
“This provides additional business prospects for companies, but also helps emerging sectors, such as offshore renewables and shale gas, tap into a more established supply chain resource.
“Increasing opportunities for companies also supports the supply chain’s business case for serving a balanced energy mix as it has the potential to provide additional financial benefits to suppliers, which in turn enhances the role the industry plays in the UK economy.”
The get-together starts on the evening of March 12 at a pre-conference networking reception with guests from the operator and contractor community, including Technip, Foster Wheeler Energy, Amec, Siemens, GE Oil & Gas, Aker Solutions, and Areva Wind.
The event takes on March 13 at the Hilton Hotel, Newcastle Gateshead, and will be opened with an official conference welcome by Paul Charlton, chairman of NOF Energy.
'There is a substantial amount of work to be done to satisfy the environmental lobby that fracking can be done safely'
A delegate’s view on the NOF Energy fact-finding shale gas mission to the United States
Colin Hewitt, partner and head of commercial at Newcastle law firm Ward Hadaway, is also a director at NOF Energy, and was on the shale gas delegation to the US in January.
He said: “It’s undoubtedly true that shale gas has had massive economic benefits in the US where they have developed the technology since the 1940s, where they have a lot of space and crucially where they have the buy-in of the large majority of the local population to the development of energy resources which the populace see is key to local economic success.
“It has delivered massive economic benefits in places like Oklahoma City where there are enormous numbers of developments of hotels and leisure businesses alongside industries directly involved in the actual fracking. The boom has delivered an increasing number of highly-paid jobs and there has been a significant impact on the local economy and on people’s lives at all income levels.
“However, I’m not so sure that there is the same level of popular buy-in here in the UK at the moment. While there are significant levels of consumer and environmental concern in some states in the US, in many of the traditional energy-producing areas such as Texas, Oklahoma and Louisiana, these concerns are more than matched by enthusiasm for the economic benefits delivered by shale gas.”
Moving on to the potential for the shale gas industry to be transferred to the UK, he flagged up a number of issues.
“In terms of whether we would develop fracking in the UK, I still think there is a substantial amount of work to be done to satisfy the environmental lobby that fracking can be done safely.
“There are a number of scare stories and while there is some truth in some of them, many don’t accurately reflect the facts.
“However, most people in the UK would want a level of assurance that the mistakes that have been made in the US are not repeated here.
“The good news is that the technology currently being used in the US in terms of drilling is a mature technology with a high level of assurance and the likelihood of drilling itself impacting on the water table, for example, is extremely low.
“The greater problem for the UK is that because we are such a small island, it is unlikely to be acceptable for most people to have the number of individual drill sites that they have in places like Oklahoma.”