ERM is a global sustainability consultancy and has been engaged with the oil and gas industry for over 40 years. ERM has been involved with shale gas development in the U.S. since its inception over 10 years ago. As such, there is a wealth of experience to share as the UK looks to develop its own unconventional resources (UCR) industry.
We asked Jim Summers, an ERM Partner in North America, to share his thoughts on the development of the shale gas industry in the U.S. and what the UK can learn.Jim has 25 years’ industry experience working for majors like Conoco and BP as well as smaller oil and gas related start-ups. At ERM, his focus is supporting Upstream and Midstream clients in the unconventional plays through North America to manage their risk and create incremental value in the areas of capital project development, environmental and regulatory compliance, process and organisational safety, and operational excellence.
Jim shares his thoughts and insights as to what have been the effects of the unconventional resources (UCR) industry in the US and the UK could learn from in terms of the challenging aspects of the industry:
One of the most positive effects of the UCR industry has been opening up a new channel for increasing the U.S.’s energy independence. Many of the basins being developed today were once thought to be no longer economically viable. However, with advancements in the use of horizontal drilling combined with hydraulic fracturing, they are once again profitable and further discoveries in deeper shale formations are being made. This has led to several positive secondary benefits, such as job creation and lowering the cost of energy.
However, the rapid growth of the industry has not been without its challenges.These have primarily related to water, safety and infrastructure.
The Water Challenge
As the US industry has grown it has become evident that the logistics of the shale water cycle are demanding.
Fresh water demand for hydraulic fracturing is significantly greater than for conventional wells, in some locations requiring up nine million gallons of water per well. Then, once the well is completed, “flowback” water combined with water returning from within the formation needs to be disposed of. In the US, this has typically been done by deep underground injection wells; however, this is not always an option. The cost associated with hauling and disposing of this fresh and produced water is significant, sometimes constituting as much as 50% of the overall operating costs for some wells. In response to this, we are seeing water recycling starting to gain some traction, particularly in the northeastern United States where disposal options are scarce.
Today, roughly 16% of fracture fluid volume is made with recycled oilfield wastewater and this figure is forecast to double in the next seven years. In Pennsylvania, for example, where regulatory oversight is extremely stringent and disposal options are not available, nearly 90% of all produced water is recycled. This has taken tremendous collaboration between the producers, logistics operators, and treatment providers to make this a reality.
In the UK, where the disposal options are limited by legislation, it will be important for operators to import this evolving best practice, working with regulators and stakeholders to minimise the impacts of the project water cycle both commercially and environmentally.
Safety statistics in the US have shown a dramatic rise in fatalities in the oil and gas sector coinciding with shale development in the US. This trend has been amplified in areas that are not traditional producing states, such as North Dakota and West Virginia. These states have experienced twice the fatality rates of Texas and Oklahoma, which are traditional producing states. ERM has been involved in a number of projects with operators to assess the root causes of these accidents. These can range from lack of workforce awareness to pinch points in the infrastructure network servicing the fields. In almost all cases, effective investment into the safety culture of the workforce, such as project onboarding and training, alongside key infrastructure modifications have a positive outcome for projects.
In the UK, the communities and, therefore, the workforce, in the areas of likely development will also be unfamiliar with expected safety standards of the Oil and Gas industry.Operators have the opportunity through the exploration stage to train and develop the future workforce placing safety at the heart of a successful industry in these communities.
The Infrastructure Challenge
The need for new infrastructure to support the US industry has been dramatic. Gas volumes associated with UCR wells have been significantly higher than in traditional wells, necessitating new pipeline, treatment, and natural gas liquids processing capacity. In addition, a number of the plays have been in ‘remote’ areas which have presented infrastructure challenges.
Clearly, this is amplified by the size and scale of the US. However, it is also a reasonable observation that the rapid growth of shale gas in the US meant that the planning of the midstream sector was reactive rather than proactive.In some cases missed opportunities such as the inadequate development of fresh water piping resulting in the need for increased trucks or lack of compression resulting in gas “flaring”, both of which have increased the disruption to surrounding communities.
The UK has a strong utilities network which could assist both the offtake of gas and import of resources, such as water, should shale gas progress to production.In the future, operators in areas which have good potential should consider options for shared infrastructure to minimise the effects of their individual projects.In addition, ongoing discussions between industry and the relevant utilities to proactively plan for an onshore gas industry in the UK will pay dividends in reducing possible effects on communities and managing operational costs.
A recent study by Accenture* showed that only 30% of major energy projects were completed on budget, and only 15% on time. Among the major reasons cited were new or unconsidered regulatory requirements and insufficient detail during the project planning stage.If we consider the capital project life cycle and the ability to make decisions, project planning at the front end is paramount. For shale, this particularly relates to the infrastructure build necessary to support future production (e.g., gas and water).
Whilst the current focus in the UK on exploration is understandable and necessary, having a foresight to the production stage, at this point in the development of the industry in the UK would be beneficial. As an example, we recently helped a client in Texas save over US$800 million (~£515 million) over the life of the field by implementing an alternative water infrastructure strategy. The decision was based on a multitude of factors, including health and safety, reliability, environmental risk, and others. We are now working with this same client using a similar approach to help them develop strategies for power, H2S management and flaring. Companies need to find the right balance between the use of industry best practices and a nimble and flexible operational approach. A framework that allows for well thought out and justified strategies is more powerful than a stringent structure that does not take into consideration uncertainties that exist in the “real world”.
Finally, a critical element in all shale projects has been engaging with stakeholders at all levels. Whilst sometimes challenging, effective engagement has proven successful in garnering public support and changing perception for shale development in the US. This has especially been the case in the northeastern states where development occurs in less rural areas and political sentiment is often not favourable for oil and gas production. Establishing an open and transparent dialogue with the public and government has helped support project success in all stages of shale gas development.
The unconventional resources industry has had a profoundly positive effect on the economy of the US. The industry expanded rapidly and has been reactive in responding to its evolving needs and challenges. ERM has been engaged in the industry throughout its growth and expansion. We have seen what works well and have supported a number of our clients in minimising the effects of their projects. The UK has a great opportunity to learn from the US and take the best practice approaches to addressing these issues in advance. Given the clear scrutiny, the UK industry will be under, the proactive management of sustainability risks in this way through exploration and onwards to potential future production, will be paramount to the success of the industry.
*Accenture (2012) Developing Strategies for the effective delivery of Capital Projects.
This is a guest post from our partner, Charles Maxwell Events.