Learning from the UK Market: How They Are Working with Communities Andy Lukas, AJ Lucas Group Ltd East Coast Gas Markets Conference, Sydney Oct 2013
Learning from the UK Market: How They Are Working with Communities
• What is the UK shale market and its resources?
• What are the challenges UK developers are facing in exploring?
• What is being done in UK to alleviate community concerns surrounding fracking?
• What can Australian producers learn from the UK market?
Today’s Presentation
• What is the shale gas “fracking” process?
• What are the local environmental risks? (such as groundwater pollution, water usage, emissions, visability, “earthquakes” etc.)
• What are the larger climate risks?
• What’s in it for us?
What is on the community’s mind?
• Founded in Sydney in the 1950’s, now ASX (AJL)
– specialist, niche engineering and construction in energy and water sectors
– world leader in coal seam gas drilling,
– oil & gas pipelines, water processing and water pipelines,
– world leader in horizontal directional drilling
– Investor in coal seam gas, shale – owner operator
– large fleet of owned equipment to suit the pipelines, drilling ,HDD
• Strategic partnerships:
– China Petroleum Pipeline Bureau (CNPC)– CSG, shale gas, HDD, pipelines
– Spiecapag – world leader in major high pressure cross country pipelines,
– Cuadrilla > 400 tcf shale gas resource in UK
– Xtreme Coil – North American coil drilling company
– Groupe Marais – micro trenching technology for telecoms & power cables
Who is AJ Lucas?
4
Page 5
Investor in Oil & Gas Fields
Bowland Shale Gas UK 50% owner and active participant in Bowland > 400 tcf shale gas resource - exploration and pilot well planning and engineering as well as drilling and hydraulic fracturing
Weald Shale Oil UK 56% owner and active participant in Weald shale gas and shale oil resource in UK – planning and engineering of exploration and pilot wells
Monument County, Texas oil shale prospect interests
Canning Basin, WA 8,000 sq.km in Western Australia
Gloucester Coal Seam Gas: (sold) Formerly 75% owner and operator for exploration and pilot well development programme for Gloucester
Sydney Gas: (sold) Formerly 20% owner - exploration and development of Hunter Valley CSG and Camden fields i0-50 JV with AGL.
Wolleebee Creek Qld (sold) Formerly 15% owner of PEL651 in Surat Basin
Lucas owns 44% of Cuadrilla
• Formed in 2007, UK company
• First to spot shale gas opportunity
in Europe
• Acquired most prospective acreage
before anybody else identified the
potential
• Diversified acreage portfolio throughout Europe – spreading the risk
• Largest acreage holding in Europe outside of the major oil companies
• Partnered with government or industry-specialist funds
• Ownership of own rig to reduce reliance on external service providers
6
Exploration assets
•Netherlands ≈ 680,000 acres
•UK Bowland basin ≈ 293,000 acres
•UK Weald basin ≈ 57,000 acres
•Poland ≈ 440,000 acres
Licenses in the UK, The Netherlands, Poland
CUADRILLA EUROPEAN PLAYS
PEDL165, EXL269 Bowland Shale Fm 293,190 acres Multi-TCF Shale Gas
KOSP (EDL244, EXL189) Kimmeridge Clay FM Limestone Oil Play 57,189 acres Unconventional Oil
Lublin Trough (Pionki, Ryki) Silurian/Devonian/Carboniferous 446,741 acres Multi-TCF Tight Gas and Shale Gas
Noord Brabant Carboniferous, Triassic, Jurassic 476,666 acres Tight Gas, Shale Gas, Oil Shale
Noordoostpolder Namurian Shales 202,379 Acres Multi-TCF Shale Gas
What is the UK shale market?
Today’s Presentation
UK gas production supplies a
decreasing share of UK demand
UK Uses > 4 tcf / year of gas
UK Uses > 4 tcf / year of gas
Electricity is only about 1/3 of usage
• 36% gas goes to heat ~ 1.4 tcf/year
• 36% of gas goes to electricity and associated uses ~ 1.4 tcf / year
• 28% to industry and other customers ~ 1.2 tcf/year
Use of Gas
Heat
Electricity
Industry
Other
(Department of Energy and Climate Change) 11
UK offshore and shale gas production
and net gas imports
UK still uses a lot of coal UK coal plants are being de-commissioned, but in the
meantime, our electricity depends on coal and gas
(Gridwatch Oct 16 2013, 6:30am)
What is the UK shale resource?
Today’s Presentation
Cuadrilla Gas Bubbling from New Core
15
British Geological Survey Study
Upper limit 2,281 tcf Lower Limit 822 tcf Central est. 1,329 tcf Cuadrilla: PEDL > 400tcf
Cuadrilla in Bowland
• Bowland Basin is a very significant shale gas
resource play
• Over 1000m (>3300 ft) thickness of shale
• Shale is naturally fractured (free + absorbed
gas)
• Cuadrilla: Gas in Place (GIIP) > 200+ tcf
• BGS: 1300 tcf
– Many places GIIP > 1 tcf / sq.mile
– 1000’s feet below aquifers – not enough energy to
frac into aquifers
– Very close to major pipeline infrastructure
– Market ready for this gas
• DECC/ HSE approved, in alignment with
government policy
17
What are challenges for UK shale explorers?
Today’s Presentation
Approvals needed from:
• Department of Climate Change is regulator oil & gas exploration
– Three step approvals : exploration, production pilots, production
• All exploration and development needs local government approvals – Councils are poorly equipped to evaluate
• European law requires Environmental Impact Assessment
• Environment Agency approves impact on water and disposal or waste
• Health & Safety Executive approves well design
Long Approvals Chain
Exploration in the UK – how it works
Business model, does anyone understand David beck,....Steve Sommers. Planning guys
Herbert Huppert.
Water...he will think about this and get back. Discussed Andrew Quarles and I going to Cambridge.
License is granted by DECC to explore DECC, EA, HSE are the national regulators Drilling must occur within 5 years
Site temporary permission is granted by County Council
Business model, does anyone understand David beck,....Steve Sommers. Planning guys
Herbert Huppert.
Water...he will think about this and get back. Discussed Andrew Quarles and I going to Cambridge.
An exploration well is drilled and tested Commercial viability of the well is calculated
• Water – Aquifer contamination
– Water use
– Flowback water disposal
• Seismicity
• Landscape and community impact -
• Emissions – local health impact, greenhouse gas
• Impact on renewables investment
Issues of Concern
Risks as EA represents What are the risks to air, land and water in
the UK?Tanks or Storage
LagoonProduction
Platform
Aquifer
Confining
Layers
Production
Zone
Water Table
Clean water
Contamination of
groundwater due
to mobilization
of solutes or
methane
Contamination of
groundwater due
to poor well
design or failure
Fugitive
emissions of
methane
Contamination of
soil, surface or
groundwater due
to spills of
chemicals or
return fluids
Inadequate
transport or
treatment of
wastes &waste
waters
Impact on water
resources from
water taken from
the environment
Inadequate
transport or
processing of
produced gas
(Source: Environment Agency 2013)
Risks as perceived:
Water is the biggest issue
(Source: BritainThinks, Lancashire Tracking Sept 2013)
Benefits as perceived:
Jobs, future employment, investment
Q. Which do you think is the most important potential benefit? [500 adults aged 18+ interviewed by telephone between 6th and 21st August 2013]
3%
6%
1%
1%
2%
2%
3%
6%
7%
8%
15%
47%
Don't know
None/no potential benefits
A proportion of the money generated would go into afund to benefit the local community
Cleaner than other fossil fuels
The development of a new industry for Lancashire
Can be developed without any public money
Developing new skills in the community
Investment in the local community
Future employment opportunities in the area for today'spupils and students
Reduced reliance on foreign gas
Cheaper energy
Job creation
Dart rebuttal....
Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc.
mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal....
Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea [email protected]
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal....
Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea [email protected]
(Source: BritainThinks, Lancashire Tracking Sept 2013)
Men (who are more likely to support)
see water pollution as the most
important disadvantage (33% Men
compared with 24% Women)
Women (who are more likely to be
opposed) see earth tremors as the most
important disadvantage (29% Women
compared with 19% Men)
Business model, does anyone understand David beck,....Steve Sommers. Planning guys
Herbert Huppert.
Water...he will think about this and get back. Discussed Andrew Quarles and I going to Cambridge.
Business model, does anyone understand David beck,....Steve Sommers. Planning guys
Herbert Huppert.
Water...he will think about this and get back. Discussed Andrew Quarles and I going to Cambridge.
(Source: BritainThinks, Lancashire Tracking Sept 2013)
Perceptions of Aquifer Contamination
Water use – the scare story
Fracking water make-up
Fugitive methane
Seismic Risks
Shale battleground on hydrocarbons
Greenpeace, Friends of Earth using shale gas as battleground against hydrocarbons Delaying tactics via Judicial Reviews
What is being done to alleviate community concerns about fracking?
Today’s Presentation
• Engage early and often
• Proactive engagement – Small and large meetings
– Site tours
– Presentations, community participation
• Research, to better understand how the issues are seen – released to media
• Communications – before, during, and after permitting and operations
33
Cuadrilla strategy
Shale gas – different views
Government • Energy security • Economic
development • Taxes Regulator
• Controversial activity
• Threat of judicial review
Operator • Proven methods
to mitigate risk • Need for
exploration activity
Community • Risk with no
obvious gain • Disruptive
Shale gas – different views
Government • Energy security • Economic
development • Taxes
Regulator • Controversial activity • Threat of judicial
review
Operator • Proven methods to
mitigate risk • Need for exploration
activity
Community • Risk with no obvious
gain • Disruptive
NGOs • Climate change • Environmental risk
Media • Polarising fight – good
for eyeballs! • Skepticism
The Resident • Anxious • Mostly undecided
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Cuadrilla strategy
36
Prove that shale gas from the Bowland can be developed safely, and in an environmentally responsible, community-acceptable fashion
1. Technical Prove that gas is present, technically recoverable, of a predictable quality and quantity
2. Socio-political Earn the social license to operate
Balcombe well test, good plan
Ea chemicals approval Problem for Balcombe is loci dental that Cuadrilla learns what chemicals are in what. But we don't know
about it. Between mfg Matt idea, that we specify what we put in additives Clear Solutions., a supplier who takes accountability
REACH compliant. Eu registrations. Chris Tomorrow the day to hear from Roseacre. One landowner, name picovance(?)
Plumpton soon. Early signing agreement for Friday, not going to happen. Plumpton also one horse, name
wendslies.
Balcombe Wscc, could validate within next couple days . Thinks quality planning app poor, presentation not good,
pixelated, didn't flow, etc Get Arup to rewrite it. Urgently
Tony. IT strategy review Moreland. Going well Frac kit will all be gone tomorrow Need a paragraph to defend the story, and Francis.... Met chairman of alkane, roger Macdowall . Meet hi and CEO next Friday
Trespass. One let c take chances I court Treasury, needs legislative fix Chris CBRE working on valuations
Des Correia.
Takes the risk out of the technical side.
Correct bad imagery
Industrial Education
38
Conventional and Unconventional
Fracturing makes path through nano
sized pores
Sustainable development Meeting present needs without compromising the future
Security & diversity of
supply
Environmental sustainability
Social acceptance
Economic efficiency
Sustainable development
(Framework -- Brian HorsfIeld, Helm Holtz GFZ Center Potzdam 2013)
Well Integrity – triple layer thru aquifer
Water Use - the reality is very small
Hydraulic fracturing and its
associated operations account
for 6.15% of the life cycle
freshwater consumption
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
The reality
4KM (2.5 mi) 8” wellbore (Credit: Ground Gas Solutions 2012)
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Seismic risks
Injection can lubricate faults, cause small tremors
Cuadrilla’s two events: 1 April 2.3 ML and 27 May 2011 1.5 ML
Subsequently we have
1. Conducted 3D survey (better a-priori knowledge of faults)
2. Planned to hydrofracture in smaller stages
3. Placed seismometers and tiltmeters in arrays around sites (real-time data)
4. Agreed a “traffic light” mitigation system, at 0.5ML threshold
Seismic Risks – the reality
(Davies et al, 2013)
Is fracture height a cause for concern?
– Maximum fracture length circa 588m/1919 ft
– The top of the Bowland shale is at a depth of circa 6000 feet
(Davies et al, 2012)
Fugitive methane – the reality
National Academy of Sciences
“The study finds that natural gas sites release 0.42 percent of methane produced --
which equals 48 million metric tons of carbon dioxide equivalent (CO2e) per year, or
the emissions from 10 million automobiles -- into the atmosphere. That value is slightly
lower than U.S. EPA's current estimate of 0.47 percent.”
(vs “3.6% to 7.9% of the methane from shale-gas production escapes to the
atmosphere in venting and leaks over the life- time of a well.” – Howarth et al)
(“Measurements of methane emissions at natural gas production sites in the United States” NAS Sept 2013 “Methane and the greenhouse-gas footprint of natural gas from shale formations”
Howarth, Santoro, Ingraffea, 2011) )
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Fugitive methane – the reality Green completion methods eliminate fugitive methane issue
Hydraulic fracturing and its associated
operations account for 1.17% of the
life cycle GHG emissions (Marcellus
operations)
(Laurenzi/ Jersey ExxonMobil LCA 2013)
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
GHG Emissions – the reality
(Potential Greenhouse Gas Emissions Associated with Shale gas Production and Use- DECC 2013)
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Cuadrilla water makeup and management
• What goes in
– Mains water from United Utilities (already has a biocide)
– Polyacrylamide (classified as non hazardous by the EA) , to reduce friction and improve the suspension of sand in the water
– Sand
• What Comes Out
– Very salty water
– Various minerals from the rock, metals – very dilute solution
– NORM (Naturally occurring radiation)
– Flow back water is classified as non hazardous by the Environment Agency – is captured, processed at industrial facility
• We are aiming for a water recycling model
Getting better imagery
52
The beginning of moderate consensus
“We have to face it: North Sea gas production is falling…So UK shale gas could increase our energy security by cutting those imports. “Home-grown gas, just like home-grown renewables and new nuclear, also provides jobs for our people and tax revenues for our society. “Nobody can say, for sure, how much onshore UK shale gas resource exists …so we can’t bank on shale gas to solve all our energy challenges.
First, fracking has real potential to drive energy bills down…It’s simple – gas and electric bills can go down when our home-grown energy supply goes up. Secondly, fracking will create jobs in Britain. In fact, one recent study predicted that 74,000 posts could be supported by a thriving shale-gas industry in this country… Thirdly, fracking will bring money to local neighbourhoods.
Support for fracking has increased
while opposition is slightly reduced
15%
21%
23%
29%
34%
33%
31%
22%
23%
12%
11%
10%
11%
12%
10%
Oct-12
Dec-12
Aug-13
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of respondents
Strongly support Support Neither support nor oppose Oppose Strongly oppose
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
56%
44%
Dart rebuttal....
Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc.
mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership
Dan Lewis. Philip booth. In iea
Dart
rebutt
al....
Laidla
w Ega
n ... D
o spad
e word
befor
e or a
fter
High l
evel to
start
with
, sedim
icity e
tc Turk
s wate
r etc.
mi
ni Ipc
c. Ever
y claim
w re
butta
l Sta
te ow
nersh
ip mi
neral
rights
, vs pr
ivate
owne
rship
Dan L
ewis.
Philip
booth
. In ie
a Pb
ooth@
ica.co
.uk
(Source: BritainThinks, Lancashire Tracking Sept 2013)
56% support, 20% oppose, undecided
moving to support
15%
21%
23%
29%
34%
33%
31%
22%
23%
12%
11%
10%
11%
12%
10%
Oct-12
Dec-12
Aug-13
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of respondents
Strongly support Support Neither support nor oppose Oppose Strongly oppose
Q.Thinkingabouteverythingwehavediscussed,howmuchdoyousupportexplora on,inyourarea,tounderstandthepoten alfornaturalgasfromshaleintheUK?[500adultsaged18+interviewedbytelephoneinOctober2012}][December2012base:503;October2012base:1,001]
15%
21%
23%
29%
34%
33%
31%
22%
23%
12%
11%
10%
11%
12%
10%
Oct-12
Dec-12
Aug-13
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of respondents
Strongly support Support Neither support nor oppose Oppose Strongly oppose
Q.Thinkingabouteverythingwehavediscussed,howmuchdoyousupportexplora on,inyourarea,tounderstandthepoten alfornaturalgasfromshaleintheUK?[500adultsaged18+interviewedbytelephoneinOctober2012}][December2012base:503;October2012base:1,001]
(Source: BritainThinks, Lancashire Tracking Sept 2013)
59% men support, 39% woman support
Dart rebuttal....
Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc.
mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership
Dan Lewis. Philip booth. In iea
Dart rebuttal.... Laidlaw Egan ... Do spade word before or after
High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal
State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea
(Source: BritainThinks, Lancashire Tracking Sept 2013)
What can Australian Producers Learn from UK?
Today’s Presentation
Shale gas is sustainable development
Cuadrilla’s Message
Forces at work – need to work together
Sustainable development of
shale gas
Industry itself
Community parish councils
Planning and permitting authorities
Skill and supply chain
Grid authorities
Government leadership
Wildly Exaggerated risks
Anti fossil fuel Ideology
Required support
The goal
Hijacking
dialogue
Scaremongering
59
What can we learn, going forward?
• Proactive, early engagement is best
– EIA studies are essential
• Government, regulators, local leaders must work together!
• Pick a frame and stick to it
– A local offer, with environmental certainty
– Jobs and future skills are real benefits
– Water is the most important issue
• Encourage collaboration
– Government, regulators, local leaders must work together
• Find a meaningful benefit narrative
– US – energy anxiety
– South Africans – the next gold industry
– Brits – protecting lifestyle (growing Govt & Independent energy anxiety)
• Gas from unconventional sources is about safety and ensuring it through regulation
• Needs political leadership to formulate and impose effective regulation to be seen to be looking after the interests of the general public.
• Properly engineered and executed unconventional gas extraction is safe.
• The government to exercise wisdom in the distribution of the economic and social benefits throughout the community.
• We need to create sufficient vested interests across the community. We, the community, should be the beneficiaries of its commercial exploitation.
• In the 1970's, NSW and Queensland were confronted by the introduction of irrigation, water licences and new farming techniques. At the time, these were threatening to the status quo. Where would agriculture and farmers be today had it not been for new technologies in water and farming introduced 40 years ago?
• Unconventional gas development is analogous
Safety and regulation
• National conversation about community benefit and safety in relation to our gas resource and its extraction.
• At the community level, it is not possible to tell whether shale gas or coal seam gas is a long-term threat, or a long-term benefit.
• Media opportunists amplify the anxieties of protesters, and unfortunately government and industry present the substantial local and national benefits in a disordered way.
• Is there a consistent story?
• The "story" needs to be one people are allowed and guided to gather for themselves; and not be harangued in the process.
• The industry and government need to give people a method or process which allows them to access information sessions in a productive way.
• Deliberate misinformation needs to be eliminated
• What's needed is a query -based process, allowing people to ask questions and hear the facts from all sides in response to their issues.
We need to talk!