Unconventional Gas: Potential Energy Market Impacts in the European Union

Publié le 9 septembre 2012 par nongazdeschisteinfos

NDLR : Il est utile – voire indispensable – de connaître les arguments que l’on nous opppose ; ceux-ci proviennent d’une étude commandée par la Commission Européenne qui est favorable aux gaz de schiste ; ils en font la démonstration, malgré une réserve concernant le caractère aléatoire des réserves et la forte déclivité de la production. Si j’ai analysé le document - en anglais – il m’est matériellement impossible [328 pages] de le traduire. Cependant, il révèle le caractère aléatoire des gisements et le fort déclin de la production sur 1 à 2 mois. D.F.

This publication is a Scientific and Policy Report by the Joint Research Centre of the European Commission.

A REPORT BY THE ENERGY SECURITY UNIT OF THE EUROPEAN COMMISSION’S JOINT RESEARCH CENTRE

Remarks : Regarding regional and global estimates of unconventional gas:

• There are multiple and substantial uncertainties in assessing the recoverable volumes of shale gas, both at regional and global level. There remains – even in USA - significant uncertainty over the size of the resource and considerable variation in the available estimates. For several regions of the world, there are no estimates at all, but some may well contain significant resources. Given the absence of production experience in most regions of the world and the number and magnitude of uncertainties described below, current resource estimates should be treated with considerable caution. For estimates based upon the extrapolation of production experience, a key source of uncertainty is the appropriate application of ‘decline curve analysis’, with no consensus on how quickly the rate of production from currently producing wells will slow in the future.

Pour les estimations basées sur l'extrapolation de l'expérience de production, une source importante d'incertitude est l'application appropriée de 'analyse de la courbe en déclin ", sansconsensus sur la rapidité. Le taux de production des puits qui produisent actuellement va ralentir à l'avenir .

Increased unconventional gas production may also have climatic and environmental benefits. When burned, natural gas emits less CO2 and local pollutants than other fossil fuels. As a result of this, some have argued that the use of natural gas for power generation is among the cheapest and fastest ways to reduce CO2 emissions, and that additional unconventional production may help natural gas play a role as a ‘bridging fuel’ until a permanent transition can be made to renewable sources of energy. Gas may also have an important function as lower carbon--‐backup generation to help balance the intermittency of many renewable Energy sources. Whilst the benefits listed above are notable, unconventional gas carries A host of potential negative impacts and risks. Environmental concerns include the risk of induced seismicity, as well as the strain on land use in areas developing shale gas. Concerns centre, however, on the large volume of water required for the hydraulic fracturing process; the disposal of this water once it has been used; and the potential Contamination of fresh water aquifers as a result of drilling and well stimulation processes. The latter point is especially of concern because the treatment of contaminated groundwater can be a long and costly process and may even be impossible in some cases. As such, moratoria on the hydraulic fracturing process have been sought while further investigation is carried out in certain US states, Quebec, South Africa [no longer : http://www.lemonde.fr/planete/article/2012/09/10/l-afrique-du-sud-leve-son-moratoire-sur-l-exploration-du-gaz-de-schiste_1757921_3244.html], Bulgaria and France. The extent of these additional emissions [unconventional gas] may diminish, and in the worst case even negate, any life-cycle emissions advantage natural gas has over competing fuels, such as coal. Finally, the International Energy Agency (IEA) has estimated that – under the right conditions – unconventional gas may Meet more than 40% of the increased global demand for gas to the year 2035.

This report [its predominant focus is on shale gas, which the evidence at this time suggests will be the form of unconventional gas with the most growth potential in the short to medium term] investigates the potential impact of unconventional gas, most notably shale gas, on European Union (EU) energy markets [With regards to the regulatory framework, this report uses as an input the analysis provided by the legal study commissioned by the European Commission and delivered by the law firm Phillipe and Partners in November 2011.] It should be noted that Commission services are currently examining whether the environmental challenges of unconventional gas production can be effectively managed through existing regulation, monitoring and the application of industry best practices. In this vein, the Joint Research Centre (JRC) has prepared a report reviewing the literature on environmental impacts. The present report examines only the potential benefits of shale gas exploitation and should be seen together with the associated JRC report addressing environmental issues.

1.4 The European energy policy context

Fossil fuels, such as oil, natural gas and coal are by far the largest sources of energy in the EU and are widely projected to dominate the European energy mix through to at least 2030. The European Commissions Energy Roadmap 2050 identifies gas as a critical fuel for the transformation of the energy system. Hence,

In the future, Europe might need more gas in the transition towards an energy system based largely on renewable energies. This gas will need to come from either domestic production or from imports – but most likely from both. The substitution of coal and oil with gas in the short to medium term could help to reduce emissions with existing technologies until at least 2030‐2035.

1 – growing demand

2 - The second factor has been a dramatic increase in unconventional gas production in

North America, to roughly 50% of domestic production

Unconventional gas resources are thought to be, geographically, broadly distributed across all continents, including Europe. Their potential development may therefore offer a number of security‐of‐supply benefits for the Union. However, the growing focus on unconventional gas has not come without controversy. Notably, it has been argued that there may be several negative environmental and climatic aspects to its production And, of course, questions have been raised about the size of the recoverable resource base. Unconventional gas resources typically require well-stimulation measures in order to be made productive. The scope of this report is restricted to the economic impact of unconventional gas on energy markets and its predominant focus is on shale gas and possible scenarios of future global shale gas development that illustrate the conditions under wWhich shale gas might be integrated into the energy system in the coming 30 years. This report identifies and describes select points of controversy in the literature that may have a bearing on the impact of unconventional gas in Europe. Simulations

In this report are based on ETSAP-TIAM.

2.1.3 Estimates of shale gas resource / Global estimates

There are multiple and substantial uncertainties in assessing the recoverable volumes of shale gas, both at regional and global level ; so this report expresses the estimates of unconventional gas as technically recoverable resources (TRR) [over 200 trillion cubic metres (Tcm) globally]/Conventionnal = 425 Tcm and the best Estimate for Western Europe is 12 Tcm and for Eastern Europe it is 4Tcm.

The successful development of shale gas in the last decade is due to the combination of progress in two key technologies, namely horizontal (or directional) drilling and hydraulic fracturing. Progress has also been made in other stages of shale gas exploration and production, from well pad design, to water management and infrastructure planning, to microseismic monitoring. These include: gas migration And groundwater contamination due for instance to faulty well construction; blowouts; and above ground leaks and spills of wastewater and chemicals. Factors to take into account – about significant risks - include, for example, the larger number of wells when compared to conventional practices, and the high volume of water and fracturing fluids used. Further improved understanding of the fracturing process may improve precision; improve the network of fractures created; reduce the number of fracturing stages per well; reduce the time needed to drill and fracture; and reduce the consumption of water. Such improvement may lead to a significant reduction in fracturing cost. Alternative fracturing fluids are being

researched to allow the use of non--‐fresh water and flowback water.

NEW TECHNOLOGY SHALE GAS

NDLR : Increasing the operational efficiency of gas production and reducing costs is not the problems of UE but those of drillers.

There is a tight interrelationship between the regulatory, environmental, technical, social and economic challenges associated with land access for shale gas development. A series of obstacles to accessing land for unconventional gas development have been revealed: water management; protected areas; mineral right and royalties; surface disturbance; noise and visual impact; community impact; waste management; as well as the need to engage multiple small land owners and communities. Land is required to find, develop, produce and transport gas, which includes well pads, access roads, utility corridors (water and electricity lines, etc.), space for gas gathering lines, water management facilities, etc.

Regarding market access: 1) their physical proximity to suitable gas transportation infrastructure; and 2) the regulatory structure of the natural gas market.

The reality, however, is that the USA has ended up requiring less than 10% out of its current 150 bcm re-gasification capacity.

Estimates of future natural gas prices in both the USA and for Europe have been repeatedly revised downwards in recent years, supported by the increase in shale gas developments. The spot price for natural gas in the USA (Henry Hub) has fallen from a peak at $13/MBtu in mid--‐2008 down towards $2/MBtu in 2012.

As a major consumer of natural gas, Europe is robustly contributing to this trend:

[volumes increased] the EU’s current regasification capacity of 150 bcm looks set to double by 2020. ETSAP-TIAM [ The TIMES Integrated Assessment Model] : a scenario analysis for surrounding the reserve size and production costs of shale gas

Strongly optimistic assumptions about its production costs and reserves.
A scenario favourable to shale gas development, natural gas as a whole has the potential to capture 30% of the world’s total primary energy supply by 2025, rising further to 35% by 2040
Strict CO2 emissions targets reduce the production of natural gas, including shale gas
Shale gas will tend to be used within the regions where it is produced.
Increasing global trade
Potential to lower natural gas prices
The impact on demand in an optimistic shale gas scenario is not equal across all regions and depends on the relative competitiveness of fuels and technologies in each region.
Shale gas production will not make Europe self-sufficient in natural gas

http://www.globalchange.umd.edu/iamc_data/iamc2009/090916_10_Tosato.pdf

The fact that CONVENTIONNAL gas can easily migrate to the wellbore and up to the surface in these reservoirs means that they can usually be developed using vertical wells only. UNCONVENTIONNAL [There are three main types : Tight gas | Coal--‐bed methane (CBM) | Shale gas] are were too difficult or costly to be commercially extracted.

KEYS DEVELOPMENTS ON UNCONVENTIONNAL

Uncertainty over access to fossil fuel reserves persists

Increasing production in North America ; The sharp increase in shale gas production

Is particularly striking in light of the significant OGIP estimates [Volumetric estimation provides the basis for determining the Original Gas-In-Place (OGIP) of a prospect prior to flow testing and production ] of the resource not only in the USA, but globally. Many questions still remain about how easily unconventional gas resources can be developed elsewhere.

POTENTIAL RESOURCES DISCOVERED by the existence of a significant quantity of potentially moveable hydrocarbons [SPE/PRMS] : This appears to be a reasonable requirement, especially given the heterogeneity found in many unconventional gas plays. Unless otherwise stated, use of the term ‘undiscovered’ in this chapter refers only to the traditional definition – i.e. gas that is estimated to exist outside of known Formations [original gas in place (OGIP); this is the total volume of natural gas that Is estimated to be present in a given field, play or region. To be recoverable = the Recovery factor. The ultimately recoverable resource (URR) of a field or region is the sum of all gas that is expected to be recovered from that field or region over all time. The industry-standard term for discussing the ultimate recovery from an individual well is the estimated ultimate recovery (EUR) [EUR/well] Also used : technically recoverable resources (TRR) and economically recoverable resources (ERR).

Reserve definitions : The final subset of resources is reserves.

Natural gas is generally reported on a volumetric basis in either imperial (cubic feet) or metric (cubic metres) units. An original estimate for any country or region is one from a source that has either developed the estimate itself using recognized methodologies, or adapted the estimate from existing sources. However, the estimates must be different in order to be counted as original [Cumulative number of reports published providing original country--‐level estimates of any of the unconventional gases increased since 1990 to 2011 : 55 Tcm] [Shale gas estimates have increased by 200% in the same timeframe]. Relatively few organizations or individuals provide periodic resource estimates for all three of the unconventional gases on a consistent basis. One notable exception is the EIA, whose Annual Energy Outlooks (AEO) have provided estimates of the remaining, technically recoverable, unconventional gas resources in the USA since 1997.

Global estimates of shale gas resource [Rogner’s] i.e original shale gas in place in Europe : technically recoverable resources within Europe are presented as ranged From 2.3 Tcm to 17.6 Tcm, with a mean of 7.1 Tcm [Conventionnal = 11.6 /Tight = 1.4 / CBM = 1.4] = 10% TRR.

Using the mean estimates [regional basis], shale gas is estimated to represent 43% of the remaining TRR of natural gas in China, 39% in Canada, 38% in Europe and 35% in the USA.

The four approaches to estimating resource size [Expert judgment, Literature review/adaption of existing literature/ Bottom-up analysis of geological parameters/ Extrapolation of production experience] [Rogner and the UK’s Department of Energy and Climate Change (DECC).

Decline curve analysis : Production from shale gas wells declines continuously and rapidly within a month or two of initial production (IP) This fitted curve can then be extrapolated to derive the future production estimate

Or URR for each well. DECLIN PRODUCTION SHALE GAS

Such methodologies, termed decline curve analysis (DCA), are well-established and widely used. There is an absence of rigorous studies for a number of key regions across the world in current estimates [page 54] Estimating the future rate of production decline is therefore central, both to forecasting future production and to estimating the URR of the well – a key determinant of profitability. This debate has subsequently been explored by the press, with articles in the Financial Times and the New York Times discussing the argument over b constants [Berman, 'Shale Gas-Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations'.] and the range of opinion over the economic viability of shale gas in the USA.

Shale and tight gas development for Europe

G. Thonhauser (Mining University of Leoben, AT)

Introduction to unconventional gas technology

Conventional gas is typically found in reservoirs with permeabilities greater than 1 millidarcy (mD) and can be extracted via traditional techniques. Shale gas is an organically-rich shale formation, which in the classical definition can be both the source rock and cap rock of an oil or gas reservoir.

Definition of state of the art shale gas technology: The combination of two technological advances, namely ‘horizontal drilling’ and ‘hydraulic fracturing’

3.2.2 Hydraulic fracturing used to create a large number of fractures in the rock. Pump pressure causes the rock to fracture and water carries sand (‘proppant’) into the hydraulic fracture to prop it open, allowing the flow of gas.

Conventional fracturing fluid : For instance, sand, polyacrylamide, guar gum And hydroxyethyl cellulose are relatively benign materials. Acids and bases may cause an irritant response upon dermal or inhalation exposure, but more acute Responses are possible. Chronic toxicity has been associated with some identified chemicals, such as ethylene glycol, glutaraldehyde and N,N- dimethyl formamide [3 Legs Resources, 'Introduction to Shale Gas'] Naturally occurring metals also exert Various forms of toxicity even at low concentrations [Environmental Protection Agency /Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources]

Alternative fracturing fluids [!!] Fluids for fracturing operations that do not require high-purity fresh water as a base are being developed. Various components that allow for the reuse of fracturing flowback water have been developed, such as salt compatible, nano-particle friction reducers; neutral Ph iron controls; blended and targeted scale controls; aqueous biomass controls; and low-toxicity clay stabilisers. Alternative chemicals have been created to replace toxic 2-butoxyethanol, which have a far superior environmental profile and perform even better in well flowback enhancement. Apart from this, liquefied petroleum gas and foam fluids are being developed and utilised. Foam fluids are essentially two-phase fluids that consist of an inner phase, which is either liquid (N2) or vapour/gaseous (CO2), and an outer phase, which is primarily composed of a saline‐water mixture with either a surfactant or gallant.

Alternative fracturing methods : The idea is basically to substitute the homogeneous proppant pack in the fracture with a heterogeneous structure containing a network of open channels. The fracture is held open by discrete conglomerations of propping materials. Hydra-jetting (Figure 3-7) represents another notable alternative fracturing process (Tensile failure of the rock occurs at the jetting point without exposing the wellbore to breakdown pressures. This enables precise control of the location of the fracture initiation. Multiple fractures can be created by simply moving the jetting tool.

Best practices in water management : The water required for drilling a typical Shale gas well ranges from 2.300 to 4. 000 m³. The volume needed to fracture a well range is from 8.700m³ to 14.500m³. Once the frac job is finished, the pressure is released. Then, flowback and produced water (30% to 70% of the fluid injected), which typically contains very high levels of total dissolved solids (TDS) and other constituents (possibly including heavy metals and naturally occurring radioactive materials) returns to the surface.

The primary options of regulatory requirements are:

• Injection underground through a disposal well (not possible under EU law);

• Discharge to a nearby surface-water body (permission and treatment are required);

• Haul to a municipal wastewater treatment plant (limitations due to issues with TDS

treatment);

• Haul to a commercial industrial wastewater treatment facility (limited to allow TDS Discharges without violating surface water quality);

• Reuse for a future frac job, either with or without treatment.

3.2.3 Monitoring

Due to the fluids in each fracturing treatment containing a different subset of chemicals and because some of these chemicals could be hazardous in sufficient concentrations, baseline water testing conducted at each site might play an important role in ensuring that possible exposure is detected. This would help to limit the environmental and health risks posed by fracturing fluids in the case of contamination. Monitoring could also play an important role regarding the surface footprint of drilling activities, the safe transport and disposal of drilling fluids and cuttings, and air and noise pollution.

Microseismic fracture monitoring : Microfractures inducing shear-slip or microseismic events that generally have magnitudes of less than 1.5 on the Richter Scale. Microseismic mapping (MSM) provides insight into the development of Fracture propagation induce by the hydraulic fracture and the formation stress. Microseismic mapping has also been vital in observing the interaction or communication of the created fractures with other fractures and with geohazards that can be detrimental to the productivity of the wellbore. In August 2009, the EPA released the results of a site investigation near Pavillion, Wyoming, USA: EPA found elevated levels of arsenic, methane, petroleum hydrocarbons and other chemicals in drinking water wells. The presence of 2-butoxyethanol, a known.

http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconventional_gas.pdf

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