(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, June 4 Britain's politicians and
petroleum explorers are promoting increasingly optimistic
visions about the country's shale gas future. But the only way
to gauge the potential properly is to start drilling and
So far, only a handful of wells has been drilled
specifically to explore shale formations, and only one well has
Estimates for shale gas are therefore based on models which
take into account the thickness and extent of shale formations,
their organic content, thermal maturity and porosity, and draw
analogies with similar shale formations in the United States.
"The UK shale gas industry is in its infancy, and ahead of
more drilling, fracture stimulation and testing there are no
reliable indicators of potential productivity," the British
Geological Survey warned readers of its 2010 estimate of "The
Unconventional Hydrocarbon Resources of Britain's Onshore
"Resource estimates can only be made by analogy with
producing shale gas plays in America," BGS explained. "Ahead of
drilling, hydraulic fracturing and flow testing these analogies
may ultimately prove to be invalid."
Formations vary enormously in their productivity, depending
on the amount of pore space, organic content, how much organic
material has been converted into oil and gas, and how much clay
is present and therefore how easy it is to prop open the
fractures once the formation has been fracked.
Even within the same formation, different areas and
different wells can yield vastly different amounts of oil and
Like Texas and North Dakota, Britain will need to drill and
fracture hundreds of wells before the country's shale gas
production potential can be predicted with any confidence.
In 2010, BGS conservatively estimated Britain's potential
shale reserves could be as high as 150 billion cubic metres (5.3
trillion cubic feet), enough to supply the country's needs for
about 20 months.
BGS is currently updating its estimates, which are expected
to show large upward revisions when they are published region by
region, starting with the North of England.
But exploration and production companies have already begun
to publish their own estimates showing far larger resources.
On Monday, IGas Energy captured the headlines and stoked the
country's shale fever by saying there were likely to be 102
trillion cubic feet, and possibly up to 170 trillion cubic feet,
of shale gas under 300 square miles of Northwest England where
it has exploration and production licences.
"Our estimates for our area alone could mean that the UK
would not have to import gas for a period of 10 to 15 years"
IGas Chief Executive Andrew Austin told the BBC.
Britain's Institute of Directors (IOD) said last month shale
gas development could create tens of thousands of jobs, reduce
imports, generate significant tax revenue and support British
The problem is that all these estimates have been
constructed on a very slender base of evidence.
"IGas has constructed a geological model utilising 320
kilometres of reprocessed seismic lines, subsurface data ...
from about 20 offset wells and geological data from IGas's well
at Ince Marshes," the company explained.
"This data has been analysed to give estimates of the
reservoir characteristics of the shale formations and the
thickness of the shale. Based on this model, IGas has estimated
the volume of gas initially in place (GIIP)."
In other words, the company has drilled, but not fractured,
one well itself, and acquired data from 20 others in the region,
none of which has flowed shale gas on a sustained basis, and
coupled that with seismic and other data, to produce an estimate
for the total amount of gas that might be contained in shale
formations over an area of 300 square miles.
No wonder its estimate for the GIIP ranges from practically
nothing (15.1 trillion cubic feet) to an enormous amount (172
trillion cubic feet), with a most likely estimate somewhere in
the middle (102 trillion cubic feet).
Based on IGas' model, the region could contain shale gas
equivalent to anywhere between 5 years and 54 years worth of
Britain's consumption, though in practice, much less will be
technically and economically recoverable.
The original aim of the well at Ince Marshes was to explore
the coal seams in the area for coal-bed methane potential. But
when the seams were encountered at shallower depths than
expected, the company carried on drilling into the underlying
shale, where the hydrocarbon potential "surpassed our
"Clearly further wells and analysis are required to fully
appraise the shale and critically flow tests need to be
performed, however our results combined with those of operators
in neighbouring licences in the Bowland shale are extremely
encouraging," IGas wrote candidly in its 2011/12 annual report
IGas is "one of the leading producers of onshore
hydrocarbons in the UK," according to the company. Its total
output amounted to 2,700 barrels of oil equivalent per day at
the end of March 2012.
Substantially all of that came from acquiring Star Energy
Group in December 2011, including Star's inventory of 247 oil
and gas wells, some 85 of which are still operating.
This is all from conventional oil and gas wells - including
eight fields in the Weald Basin in Hampshire and Sussex, one of
which nestles, virtually unknown, in the fields at Stockbridge,
near my home town of Winchester.
In the year to March 2012, IGas drilled just three new
wells, including the one at Ince Marshes, according to its
Like its better-known rival, Cuadrilla Resources, IGas is
essentially a promoter and pioneer of the shale concept.
Publication of optimistic estimates is intended to build
interest among investors to help finance the enormous capital
cost of drilling more exploration and production wells.
TIME TO FRACK
In the United States, thousands of shale wells have been
fractured, allowing companies to identify the most attractive
plays and the sweet spots in each one.
The prolific gas-bearing Barnett shale in Texas is not a
good analogue for the potential of Britain's own shales, BGS
wrote in its 2010 report.
Instead, the best analogies are probably to Michigan's
Antrim shale and the little-developed Conasauga shale in
Alabama. Far less is known about their productivity.
The only way to test Britain's shale potential is to start
drilling and fracturing wells to test how much gas they flow,
and experiment with different techniques and configurations for
the wells and the fracturing operations to see which work best.
IGas plans to start a drilling programme in the fourth
quarter of 2013, and has already ordered long lead-time items
such as wellheads and casings.
The drilling programme will allow the company to "further
refine these estimates and advance our understanding of this
shale basin" in the Northwest.
For the industry as a whole, drilling and fracturing dozens
or hundreds of wells will be expensive and highly risky.
Investors must be convinced that the potential rewards are
worth the costs and the risk. Optimistic estimates about how
much shale gas is potentially recoverable are part of the
process of building a case for investing.
The resource estimates published by BGS, IGas and Cuadrilla
are best thought of as Bayesian first guesses that will be
substantially updated in the light of experience from actual
With only one well fractured so far, it would be premature
to start relying on a shale gas boom transforming Britain's
economy. The potential is there, but it can only be proved by
wheeling up the heavy equipment and getting down to fracking.
(Editing by Keiron Henderson)