Proponents of shale gas have come in for heavy criticism from environmentalists. Yet, as demand for energy increases globally, industry heavyweight Breitling Energy sets the record straight.
The environmental impact of the shale gas revolution has been hotly debated around the world, and in particular in those countries that are keen to harness the vast potential of this seemingly abundant alternative to crude oil. While governments are eager to tap into this new source of energy, environmental campaigners have been increasingly vociferous in their opposition to the hydraulic fracturing – also know as fracking – that companies use to extract the shale gas from the ground.
The US has swept aside much of the opposition to shale gas and is enjoying a sharply reduced reliance on overseas oil, but other regions – notably Europe – have had difficulty in getting past stringent regulations and passionate anti-fracking campaigners. To discuss the issues facing the industry, World Finance spoke recently with Chris Faulkner, CEO of US firm Breitling Energy, and avid supporter of the shale gas industry.
He cuts a divisive figure, with critics dubbing him the ‘Frack Master’, but such is his sway in the industry that governments across the globe have been keen to hear his views on how best to develop their own shale gas industries.
The US’ march towards energy independence has sped up in the last couple of years, with fracking taking place across many parts of the country, while oil production has also stepped up in recent years. Faulkner is keen to point out the progress made.
“The US has made great strides in heading towards energy independence. In the last year alone our oil production has increased 20 percent, up to seven and a half million barrels a day. If that continues, we could be energy independent by the end of this decade. Now keep in mind that when we talk about independence, we’re still a massive consumer of oil. So we’re not going to be exporting crude oil, but we’ll be able to have enough supply to meet the US demand,” he says.
Natural gas is what is spurring this energy independence however, and Faulkner believes that it will lead to a situation where the country is a net energy exporter, offering the likes of Europe an alternative source of fuel.
“On the flipside, if we’re talking about natural gas independence we’re already there. The US has more than a 100-year surplus of natural gas. We have converted our import terminals to export, and we will begin exporting natural gas by 2017, hopefully to Europe and to Asia, where we can capture a nice profit margin of $4-$5 per thousand cubic foot.
“That’s net of transportation, regasification and liquefaction. We think we can move gas offshore and make $4-$5 per thousand cubic feet, giving Europe a different supply choice.”
The contribution that shale has made to the US economy has been considerable, and Faulkner believes that the growing number of areas that they and the rest of the industry are developing will only help spur economic growth (see Fig. 1). “Our trade deficit numbers in the US have been greatly impacted. We spend a tremendous amount of money importing foreign oil into the US.
Source: International Monetary Fund. Note: Figures pas 2013 are IMF Estimates
I think the number is around a million dollars every single minute we spend bringing foreign oil into the country. If we can shift that money, that’s a free stimulus package to the US. I think the Bakken is going to be instrumental to that, as well as the Eagleford Shale and the Permean Basin.
“All of these places are adding tremendous value to the US and creating jobs. It’s helping un-marry us from the decades of foreign oil dependency. The fact that in 1973 there was an oil embargo to the US – we are on the way to ensuring that that never happens again. That same thing is happening to Europe, but it’s with natural gas from Russia.”
Countering energy shortages
Europe has been far slower in adopting shale gas, weighing the industry down with much tougher regulations than in the US. The UK has been more receptive, but is coming under increasing pressure from the EU and campaigners to slow down the industry’s growth. The need for the UK to adopt shale gas is stark, with energy shortages hitting the UK during recent cold winters, as well as soaring energy prices. Faulkner says that the reason environmental campaigners are so opposed to shale gas is that it will likely lead to a curtailing of investment in their favoured renewable energy technologies.
[Faulkner] believes that sentiment will shift in favour of his industry once the realities of energy shortages begin to hit home during the freezing winters
“You can look at what’s happening in Europe with natural gas shortages. For example, the UK came within six hours last winter of running out of natural gas. The storage numbers this year are down 20 percent on what they were last year. I think the reality is that natural gas will play a major role as a bridge fuel in the future and will displace coal. We think it will be a gateway fuel that could curtail the immediate need for massive investment in renewable energy,” says Faulkner.
He is adamant that shale can help replace the highly polluting coal industry in the years to come. “Does that mean it’s going to make environmentalists happy that investors will jump off the wind and solar bandwagon? No. Does it mean that we can start displacing coal for power generation, utilising natural gas for transportation fuel? Absolutely.”
Faulkner also believes that sentiment will shift in favour of his industry once the realities of energy shortages begin to hit home during the freezing winters.
“The reality is that, as much of the concern I have with anti-frackers and this idea of fracking regulation, when the time comes to choose between turning off the gas in winter or finding a pathway forward that utilises shale gas, I think that it’s a no-brainer.
“One thing to tie into the UK specifically is the potential, based on the British Geological Society’s estimates, there’s 1,300 trillion cubic feet (tcf). If we can recover just 10 percent of that – 130 tcf – it will power the UK for 50 years. So that is a must.”
Understanding the conflict
However, the intransigence of the environmental lobby is a problem. “Finding that pathway forward creates challenges. You’ve got the environmentalists and the industry trying to find some common ground. And as you know, environmentalists just say ‘no’.”
While some of their concerns may come from the right place, they are not based on the scientific facts or the evidence shown from the industry’s success in the US, says Faulkner.
“Everyone’s concerns are valid in their own mind. I think when you come from the industry’s standpoint – the US has been the world’s guinea pig. We have fracked a million and a half wells in the US since we started doing this process in the late 1940s. We’ve developed and expanded the process, and made it better and bigger. We’ve unlocked a treasure trove of oil and natural gas. Can that be replicated, molecule for molecule, barrel for barrel? Probably not. But the reality is it can be the pathway or a blueprint for other countries to follow.
“If we have fracked a million and a half wells and the process was floored or didn’t work, then the entire US would be a disaster. The reality is it’s not. I live in Fort Worth, Texas, on top of the Barnett Shale. I drink the water from that area every single day, and I have fracked thousands of wells in the US, many in the Barnett Shale. I have zero concerns over safety.”
What is needed, says Faulkner, is better dialogue between the industry and the communities that are affected by fracking. He says that up till now the industry has been poor at communicating at a grassroots level.
“I think that and have said many times that the industry has done a very poor job in dealing with this environmentalist movement. What we need to do is get the information out and let folks make an informed decision, rather than an ignorant decision. I go through the UK and see thousands of people camping and protesting against this process, and I don’t see one single person there, talking to those people about why this process is not floored and what it can do for this country – the jobs, the economic impact.
“All I see is thousands of people feeding off of each other, and all of this fear-mongering getting worse and worse and worse. Those grassroots efforts are what’s taking place, and the industry has not realised that our efforts need to take place at a grassroots level.
“Things like speaking with community leaders and having town hall meetings. I was down at the Balcombe site in the UK, trying to explain to people the benefits of fracking. Some of their minds are made up, but I hope I can just put a seed of doubt in their minds so they can go and continue their research. It’s better to have a conversation.”
Europe has suffered in recent years from an overreliance on gas from Russia, which Faulkner thinks leaves it susceptible to pressure from the former Soviet state (see Fig 2 and 3).
“I think that shale gas will be a piece of the energy mix here in Europe, and it will help Europe alleviate its massive marriage issues with Gasprom, such as the issues going through Ukraine as the single choke point into Europe. Hopefully we can also put more gas into storage and alleviate some of the concerns over these shortages.”
He adds that developing shale gas will give the region better energy security. “The fact that there’s 1,300 tcf of gas in the UK – that is energy security. We have to find a way to develop that. It would be foolish to just leave it there and decide to buy gas from Qatar or from Russia, hoping that they will lower prices.
“They’re not; they’re going to raise prices. You can’t be left in a situation where those countries can switch off natural gas, and that’s where the UK is currently. Those countries are very anti-fracking because they want the cartel pricing and the power. This is all about geo-politics.”
Getting the approval, however, will prove difficult unless politicians look more long-term, rather than just towards their next election. “I think governments can do more by taking a step back.
“They should be looking at regulation from a macro level and not getting caught up in the emotion and all of the hoopla. The problem with politicians is they have to take the party line or they have to go and meet with their constituents. They’re not looking at it as fact versus fiction, they’re looking at it from the point of view of how to get elected again.
“You see countries like the UK that have put together great regulation and a great framework for tax, and then you have the EU coming out and saying they want environmental assessment studies done. If the governments put too much regulation in place they will stymie any momentum we have.”
The attractiveness of these markets would decline considerably with overregulation, says Faulkner.
“Overregulation means cost. I have other opportunities elsewhere. Why would I want to be overregulated? At some point it becomes uneconomical.
“It may cost me more to drill for shale gas than I could bring it out of the ground and sell it for less. It’s pretty simple economics. There’s so much opportunity around the world – it’s not just the US and Europe, it’s the whole planet.”
Outside of Europe and the US, Breitling see plenty of opportunities to develop a strong fracking industry. While Faulkner says there is plenty of natural gas located in China, reaching it may prove considerably more difficult than those found in the US.
“There are massive quantities of natural gas in China. No doubt about it. China will always be a massive importer of natural gas, even if, in their wildest dreams, they can extract all that shale gas, which they cannot.
“They have topography challenges, geological challenges. Their shale deposits were deposited about 300 million years ago, underwater. That means it’s not as brittle as other shale deposits. They also have water scarcity issues, population density issues, and lack of knowhow.”
The huge domestic demand for energy means that China is unlikely to ever challenge the US industry as a major natural gas exporter. Faulkner points out the trend of China buying up resources around the globe will continue.
“China has been going on a buying spree of natural resources all over the world. They just did a huge deal for 80 bcm worth of pipeline capacity from Turkmenistan – a six thousand metre pipeline – which is practically unheard of.
“They want to have other avenues of natural gas and oil coming into the country, as they know their economy hinges on it. China wants energy security and I think that that is what we need to think about when countries are looking at shale gas development.”
Elsewhere, the Middle East is also actively looking to develop a shale gas industry, although oil will continue to be the dominant resource in the region. “There’s massive opportunity in the Middle East. I think most of that is concentrated offshore and around Abu Dhabi and onshore.
“They have unconventional gas deposits in that area and they’re fracking right now. Dubai would also want to be able to find its own gas resources, but will probably have a very difficult time. The one challenge you see is that they have very, very extreme water scarcity issues.
“They are blessed with oil, but fracking for gas requires large quantities of water and they don’t have that. There’s opportunity there, certainly, but I don’t expect them to have as large deposits as in places like Argentina, China and the US.”
Breitling is content to look domestically for opportunities, as the US market is full of new finds. “For us, we will continue to do value-weighted joint venture opportunities. The problem we have as a company is that there are so many new blossoming opportunities in the lower 48 states of the US. For example, we’re looking in California at the Monterrey, in Illinois at the New Albany Shale, and we’ve just gone into the Cline Shale in Texas. There are these new emerging basins in our own country, which keep drawing our attention back.”
However, Faulkner adds that Breitling’s consultancy work overseas will continue, and if the right opportunity were to present itself, then it will be ready to step in.
“In the very near term, our capital expenditures for drilling will stay in the US. “We’ll continue to do our geological consulting work with our consulting arm in the Middle East and elsewhere. If the opportunities are right then I would obviously welcome the right joint venture partner.”