EUR 25305 EN

2012
Ivan Pearson, Peter Zeniewski, Francesco
Gracceva & Pavel Zastera (JRC)
Christophe McGlade, Steve Sorrell & Jamie
Speirs (UK Energy Research Centre)
Gerhard Thonhauser (Mining University of
Leoben)

Other contributors: Corina Alecu, Arne Eriksson,
Peter Toft (JRC) & Michael Schuetz (DG ENER)
Unconventional Gas:
Potential Energy Market Impacts
in the European Union


















European Commission
Joint Research Centre
Institute for Energy and Transport

Contact information
Arne Eriksson
Address: Joint Research Centre, Westerduinweg 3, 1755 LE, Petten, The Netherlands
E-mail: arne.eriksson@ec.europa.eu
Tel.: +31 22456 5383
Fax: +31 22456 5641

http://iet.jrc.ec.europa.eu/
http://iet.jrc.ec.europa.eu/energy-security

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

This study has been undertaken by the Joint Research Centre, the European Commission's in-house science service, to provide
evidence-based scientific support to the European policy-making process. The scientifc output expressed does not imply a policy
position of the European Commission.

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JRC 70481

EUR 25305 EN

ISBN 978-92-79-19908-0

ISSN 1831-9424

doi: 10.2790/52499

Luxembourg: Publications Office of the European Union, 2012

European Union, 2012

Reproduction is authorised provided the source is acknowledged.

Printed in 2012






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All eiiois oi omissions iemain the authois' own.
Executivesummary
Background
Thisreportinvestigatesthepotentialimpactofunconventionalgas,mostnotablyshale
gas,onEuropeanUnion(EU)energymarkets.
It should be noted that Commission services are currently examining whether the
environmentalchallengesofunconventionalgasproductioncanbeeffectivelymanaged
throughexistingregulation,monitoringandtheapplicationofindustrybestpractices.In
thisvein,theJointResearchCentre(JRC)haspreparedareportreviewingtheliterature
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
addressingenvironmentalissues.
In February 2011, the European Council stated that: In order to further enhance its
securityofsupply,Europe'spotentialforsustainableextractionanduseofconventional
and unconventional (shale gas and oil shale) fossil fuel resources should be assessed.
Thisreportisapreliminaryattempttorespondinparttothiscallbyprovidingreliable
factsforEUpolicymakers.
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
criticalfuelforthetransformationoftheenergysystem.Thesubstitutionofcoalandoil
with gas in the short to medium term could help to reduce emissions with existing
technologiesuntilatleast20302035.
Conventional gas currently dominates worldwide natural gas production, accounting
for over 85% of total marketed output today. In recent years, however, two key
developments have shifted the focus to socalled 'unconventionals'. The first has been
mounting concern that growing demand for energy worldwide would outstrip supply.
The second factor has been a dramatic increase in unconventional gas production in
NorthAmerica,toroughly50%ofdomesticproduction.
TheInternationalEnergyAgency(IEA)hasestimatedthatundertherightconditions
unconventionalgasmaymeetmorethan40%oftheincreasedglobaldemandforgasby
the year 2035. However, many questions still remain about how easily unconventional
gasresourcescanbedevelopedoutsideNorthAmerica.
Unconventional gas resources are thought to be, geographically, broadly distributed
across all continents, including Europe. Their potential development may therefore
offer a number of securityofsupply benefits for the Union: lower natural gas prices;
more readily available gas on the European market; easing tightness in global energy
markets;andaddingdiversitytotheEU'sgassupplies.
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. In addition, more and cheaper (unconventional) gas
may challenge investment in coal, nuclear and renewables, as well as the established
gas business model. And, of course, questions have been raised about the size of the
recoverableresourcebase.
iii

iv
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ueneially speaking, conventional natuial gas is gas extiacteu fiom uisciete, well-uefineu
ieseivoiis anu can usually be uevelopeu using only veitical wells, with iecoveiy iates of
ovei 8u% of the oiiginal gas in place.
0nconventional natuial gas iesouices aie geneially founu in less peimeable iock
foimations, wheie iesouice accumulations may be uistiibuteu ovei a much laigei aiea
than conventional gas. 0nconventional gas iesouices typically iequiie well-stimulation
measuies in oiuei to be maue piouuctive, but iecoveiy iates aie much lowei than in
conventional gas - typically of the oiuei of 1S-Su% of oiiginal gas in place.
Theie aie thiee main types of unconventional natuial gas piouuceu touay, which aie
consiueieu in this iepoit:
(>EF= EB@: this is natuial gas tiappeu in ielatively impeimeable haiu iock,
limestone oi sanustone;
$GBHIJ:K A:=FBL: M$52N: this is natuial gas tiappeu in coal seams, ausoibeu in
the soliu matiix of the coal; anu
-FBH: EB@: this is natuial gas tiappeu in fine-giaineu seuimentaiy iock calleu
shale that has a chaiacteiistic 'flaky' quality.
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The objective of this iepoit is to investigate the impact of unconventional gas, notably
shale gas, on E0 eneigy maikets. This iepoit seeks to claiify ceitain contioveisies anu
iuentify key gaps in the eviuence-base ielating to unconventional gas. The scope of this
iepoit is iestiicteu to the economic impact of unconventional gas on eneigy maikets. As
such, it piincipally auuiesses such issues as the eneigy mix, eneigy piices, supplies,
consumption, anu tiaue flows. But it also coveis iesouice estimates anu the
auvancement of technologies foi shale gas extiaction.
Whilst this stuuy touches on coal-beu methane anu tight gas, its pieuominant focus is on
shale gas, which the eviuence at this time suggests will be the foim of unconventional
gas with the most giowth potential in the shoit to meuium teim.
This iepoit consiueis the piospects foi the inuigenous piouuction of shale gas within
the E0's 27 Nembei States. It evaluates the available eviuence on unconventional gas
iesouice size, extiaction technology (past anu possible futuie), iesouice access anu
maiket access.
This iepoit also consiueis the implications foi the E0 of laige-scale unconventional gas
piouuction in othei paits of the woilu. This acknowleuges the fact that many changes in
the uynamics of eneigy supply can only be unueistoou in the bioauei global context.
Specifically, it ieviews effects of the iapiu uevelopment of shale gas piouuction in the
0niteu States of Ameiica (0SA) anu its effect on Euiopean gas maikets, in combination
with a giowing liquefieu natuial gas (LNu) tiaue woiluwiue. An eneigy mouel is useu to
elaboiate possible futuie scenaiios that illustiate the potential impact of
unconventional gas on the Euiopean eneigy system.
;(,<%)%'%*=
This iepoit consists of two main components, namely:

v
A close examination of the unconventional gas liteiatuie coveiing both Euiope
anu the iest of the woilu.
Eneigy system mouelling of possible scenaiios of futuie global shale gas
uevelopment that illustiate the conuitions unuei which shale gas might be
integiateu into the eneigy system in the coming Su yeais.
Ninuful of the fact that the unconventional gas knowleuge-base is highly polaiiseu anu
cuiiently incomplete, this iepoit iuentifies anu uesciibes select points of contioveisy in
the liteiatuie that may have a beaiing on the impact of unconventional gas in Euiope. It
then assesses the existing eviuence aiounu these points anu evaluates the uegiee of
unceitainty that cuiiently exists.
In uoing so, the iepoit uiaws upon a iange of techniques iefeiieu to as '7-=')F'SI(.'=
&%:-F9 ()= &$(F8-F' that aims at giving gieatei weight to scientific ieseaich eviuence in
policy-making. Specifically, as in this iepoit, it incluues the synthesis of existing
eviuence thiough a piocess known as a .9.8',(8-F $'7-'T.
Simulations in this iepoit aie baseu on ETSAP-TIAN, a multiiegional paitial equilibiium
mouel of the eneigy systems of the entiie woilu that is uiviueu into 1S iegions. ETSAP-
TIAN is uevelopeu anu maintaineu by the Eneigy Technology Systems Analysis
Piogiamme unuei the aegis of the IEA.
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Regaiuing iegional anu global estimates of unconventional gas:
Theie aie multiple anu substantial unceitainties in assessing the iecoveiable
volumes of shale gas, both at iegional anu global level. Even in aieas wheie
piouuction is cuiiently taking place, notably Noith Ameiica, theie iemains
significant unceitainty ovei the size of the iesouice anu consiueiable vaiiation in
the available estimates. Foi seveial iegions of the woilu theie aie no estimates at all,
but some may well contain significant iesouices. uiven the absence of piouuction
expeiience in most iegions of the woilu anu the numbei anu magnituue of
unceitainties uesciibeu below, cuiient iesouice estimates shoulu be tieateu with
consiueiable caution.
Baseu on an assessment of the existing liteiatuie, this iepoit expiesses the
estimates of unconventional gas as technically iecoveiable iesouices (TRR). While
iesouice estimates baseu on piouuction expeiience aie likely to be moie iobust,
with veiy limiteu piouuction expeiience it is moie appiopiiate to incoipoiate
estimates fiom stuuies that use a iange of methouologies (expeit juugement;
liteiatuie ieview; bottom-up assessment of geological paiameteis anu extiapolation
of piouuction expeiience). Thus, this iepoit focuses on TRR anu takes no account of
economic viability oi any othei constiaints on iesouice iecoveiy. The ieview is
focuseu on liteiatuie with oiiginal estimates of unconventional gas anu pioviues an
oveiview of cuiient estimates of TRR foi tight gas anu coal-beu methane in foui
iegions (0SA, Canaua, Euiope anu China) as well as globally. An estimate is given foi
shale gas foi 1S iegions woiluwiue.
Cuiient estimates foi the TRR of shale gas suggest theie may be just above ovei 2uu
tiillion cubic meties (Tcm) globally. Similaily, the mean of cuiient estimates foi the
global TRR of tight gas is 4S Tcm anu the mean estimate of CBN is 2S Tcm. Foi
compaiison, the global TRR of conventional gas is estimateu at 42S Tcm of which

vi
aiounu 19u Tcm aie cuiiently classifieu as pioveu ieseives (i.e. iesouices that can
be easily iecoveieu with the highest uegiee of confiuence).
Foi some iegions, it was possible to obtain high, best anu low TRR estimates foi
shale gas. In the 0SA, the highbestlow estimates aie 472u1S Tcm anu foi China
the estimates aie 4u211.6 Tcm. As an illustiation of the unceitainty in the
estimates, the high anu low estimates in the 0SA aie 2Su% anu 64% of the best
estimate iespectively. Theie is even gieatei unceitainty in the unconventional gas
iesouice estimates foi the iest of the woilu. 0iganisations that have pioviueu
multiple estimates foi single iegions have consistently, anu often significantly,
incieaseu theii estimates ovei time. The best estimate foi Westein Euiope is 12 Tcm
anu foi Eastein Euiope it is 4Tcm.
The vaiiability anu unceitainty in the ievieweu estimates have a vaiiety of souices.
Stuuies use uiffeient methouologies foi the iesouice estimates, often using
impiecise oi ambiguous teiminology. Foi estimates baseu upon geological
appiaisals, significant souice of unceitainty stems fiom the assumeu iecoveiy factoi
- the fiaction of the oiiginal gas in place that is estimateu to be iecoveiable - which
may vaiy substantially (1S-4u%) foi shale gas. Foi estimates baseu upon the
extiapolation of piouuction expeiience, a key souice of unceitainty is the
appiopiiate application of 'uecline cuive analysis', with no consensus on how
quickly the iate of piouuction fiom cuiiently piouucing wells will slow in the futuie.
Futuie technological piogiess, even if only leauing to a small inciease in iecoveiy
factois, coulu have a significant impact on the estimateu ultimately iecoveiable
iesouices.
Regaiuing technological uevelopment:
The successful uevelopment of shale gas in the last uecaue is uue to the combination
of piogiess in two key technologies, namely hoiizontal (oi uiiectional) uiilling anu
hyuiaulic fiactuiing. Piogiess has also been maue in othei stages of shale gas
exploiation anu piouuction, fiom well pau uesign, to watei management anu
infiastiuctuie planning, to micioseismic monitoiing.
Enviionmental conceins have accompanieu the giowth in shale gas exploiation anu
piouuction. Some significant iisks can have similai causes to those associateu with
conventional onshoie gas. These incluue: gas migiation anu giounuwatei
contamination uue foi instance to faulty well constiuction; blowouts; anu above
giounu leaks anu spills of wastewatei anu chemicals. Significant iisks that aiise
fiom shale gas uevelopment iequiie auuitional consiueiation anu ueuicateu
analysis. Factois to take into account incluue, foi example, the laigei numbei of
wells when compaieu to conventional piactices, anu the high volume of watei anu
fiactuiing fluius useu.
As the hoiizontal section of wells gets longei, multi-stage hyuiaulic fiactuiing with
1u to 2u stages pei well has uevelopeu. Fuithei impioveu unueistanuing of the
fiactuiing piocess may impiove piecision; impiove the netwoik of fiactuies
cieateu; ieuuce the numbei of fiactuiing stages pei well; ieuuce the time neeueu to
uiill anu fiactuie; anu ieuuce the consumption of watei. Such impiovement may
leau to a significant ieuuction in fiactuiing cost. Auvancements in micioseismic
monitoiing allow foi the mapping anu visualisation of how fiactuiing is piogiessing.
It also pioviues infoimation foi the eaily uetection of geo-hazaius.

vii
Alteinative fiactuiing fluius aie being ieseaicheu to allow the use of non-fiesh
watei anu flowback watei. Watei tieatment piocesses aie being investigateu that
coulu potentially be useu on a laige scale, with the ultimate goal of achieving a
closeu-loop system.
Nultiple hoiizontal wells uiilleu fiom a single pau will inciease the opeiational
efficiency of gas piouuction anu ieuuce infiastiuctuie costs, lanu use anu
enviionmental impact.
A laigei numbei of wells pei pau anu longei wells will leau to a coiiesponuing
inciease in time spent on uiilling anu well completion opeiations on each well pau.
This woulu favoui a new, moie 'inuustiialiseu' concept foi site anu iig uesign,
incluuing highly automateu uiilling iigs with highei efficiency. Biilling cost
ieuuction in the oiuei of Su-6u% is juugeu feasible. Auuitional savings can be
expecteu fiom the specialisation of well uesign anu well constiuction.
Baseu on the histoiical uevelopment of the uiffeient components making up the
piocess of exploiation anu piouuction of shale gas, as well as juugement on potential
futuie gains, a mouel foi potential shale gas uevelopment in Euiope is outlineu,
coveiing minimum, most likely anu maximum scenaiios of the key vaiiables
contiibuting to the cost of shale gas piouuction.
Regaiuing lanu anu iesouice access:
Theie is a tight inteiielationship between the iegulatoiy, enviionmental, technical,
social anu economic challenges associateu with lanu access foi shale gas
uevelopment. A seiies of obstacles to accessing lanu foi unconventional gas
uevelopment have been ievealeu: watei management; piotecteu aieas; mineial iight
anu ioyalties; suiface uistuibance; noise anu visual impact; community impact;
waste management; as well as the neeu to engage multiple small lanu owneis anu
communities.
Lanu is iequiieu to finu, uevelop, piouuce anu tianspoit gas, which incluues well
paus, access ioaus, utility coiiiuois (watei anu electiicity lines, etc.), space foi gas
gatheiing lines, watei management facilities, etc.
It has become common to use a single pau foi multiple hoiizontal wells (typically
foui to eight wells at piesent in the 0SA) in oiuei to uevelop as much subsuiface
aiea as possible fiom one spot. Such paus iequiie some one to foui hectaies of lanu.
Bowevei, the effective suiface aiea usage pei well is significantly lowei when
constiucting hoiizontal multi-well paus.
Well uensity oi well spacing will uepenu on geological anu othei factois. The
numbei of well paus pei squaie mile typically vaiies fiom 16 foi single veitical
wells, uown to one, foi hoiizontal multi-well configuiations with six to eight wells on
each pau.
In auuition to uiiect lanu use, theie aie uistuibances causeu by the uuiation anu
intensity of all the activities ielateu to exploiation, e.g. tiuck tiips, noise levels anu
visual impacts. The uuiation of activities (incluuing the constiuction of well paus
anu access ioaus, uiilling, well completion anu clean up) uepenu on multiple factois
(numbei of wells pei pau, anu geological, logistical anu iegulatoiy factois). The

viii
uuiation of the complete opeiation typically vaiy fiom S to S6 months (foi
hoiizontal single anu multi-well paus iespectively).
It is necessaiy to consiuei the F#,#:(8-7' -,&(F8 of seveial hoiizontal wells being
uiilleu annually ovei a longei peiiou of uevelopment. The potential impacts must be
balanceu with othei lanu usage, such as wilulife, agiicultuie anu touiism, anu the
oveiall quality of life in a community.
Regaiuing the iegulatoiy fiamewoik:
A successful iegulatoiy iegime goveining the exploitation of sub-suiface mineials
must ieconcile the objectives of thiee main sets of actois: goveinments, with theii
uesiie to maximise ients while achieving socioeconomic anu enviionmental
objectives; maiket playeis anu theii uesiie foi a ietuin on investment that is
consistent with the iisk associateu with the pioject; anu finally, the neeus of societal
actois to pieseive oi impiove welfaie in social, monetaiy oi enviionmental teims.
Key iegulatoiy issues iepoiteu can be categoiiseu accoiuing to theii
technicallogistical, legal anu socioeconomic uimensions.
With faim plots smallei anu lanu owneiship moie uiffuse in Euiope, a key
iegulatoiy consiueiation is how to manage multiple lanuowneis anu theii vaiying
claims anu conceins. In the 0SA, this is auuiesseu by what is known as pooling anu
unitisation (the combination of seveial small tiacts of lanu neeueu to suppoit a well
oi well pau, up to the fielu-wiue opeiation of a piouucing ieseivoii), which allow foi
managing concession aieas faiily anu effectively. Such an appioach, wheieby the
uevelopment of a 'complex' of multiple well paus is manageu centially, helps to
avoiu uuplication of infiastiuctuie, as well as goous anu seivice piocuiement. It
speeus up peimitting pioceuuies anu ieuuces enviionmental impact.
It is often aigueu that because the lanuowneis own both suiface anu mineial iights
in the 0SA, this favouis shale gas uevelopment (financially benefitting the
lanuownei), wheieas because the sub-suiface iights woulu geneially be owneu by
the state in the E0, lanuowneis have no incentive to suppoit uevelopment. Bowevei,
the situation is moie complicateu in both the 0SA anu the E0, as well as being
vaiiable between uiffeient E0 Nembei States. The ieal uistinction is the uegiee to
which suiface lanuowneis have a say in gianting peimission to uevelop an aiea.
In the 0SA, the law tenus to favoui the ownei of the mineial estate, whilst often
gianting the iight to compensation foi the use of the suiface. In the E0, on the othei
hanu, theie is vaiiation between Nembei States in the extent to which suiface
lanuowneis can iestiict the uevelopment of shale gas. Fiance, the 0niteu Kinguom
anu Polanu all have uiffeient iegimes in place.
Regaiuing maiket access:
Theie aie two piinciple ueteiminants of whethei new gas iesouices aie able to
ieach maikets: 1) theii physical pioximity to suitable gas tianspoitation
infiastiuctuie; anu 2) the iegulatoiy stiuctuie of the natuial gas maiket. Whilst the
uistance between the wellheau anu pipelines uiives up the capital anu opeiating
costs iequiieu to uelivei gas to consumeis, the stiuctuie of the natuial gas maiket
has impoitant implications foi how easily new supplies aie able compete with
establisheu supplies.

ix
The 0S anu E0 gas tianspoitation systems aie bioauly analogous in teims of gas
tiansmission pipeline uensity if we take into account the uense infiastiuctuie in
ceitain paits of the 0SA that is the legacy of many yeais of hyuiocaibon
uevelopment. Theie aie SSkm of tiansmission pipeline foi eveiy 1uuu km
2
in the
0SA, compaieu with 29km in the E0.
A libeialiseu anu competitive maiket foimeu an impoitant pait of the iegulatoiy
backuiop to the unconventional gas ievolution in the 0SA. The incieaseu investoi
iisk in this libeialiseu maiket has not pieventeu the completion of majoi
infiastiuctuie investments intenueu to biing unconventional gas to maiket. This is
in spite of the naiiowei piofit maigins anu gieatei unceitainty commonly asciibeu
to unconventional gas piouuction.
As laige-scale shale gas piouuction has so fai not been obseiveu outsiue of
libeialiseu eneigy maikets, questions iemain about whethei the phenomenon can
be ieplicateu in uiffeiently stiuctuieu maikets anu, if so, how this might look.
Wheieas the 0SA has a fully libeialiseu maiket foi natuial gas, iefoims to the E0's
inteinal gas maiket aie still ongoing. Theie have been encouiaging iecent
uevelopments inuicating that E0 maiket libeialisation is gatheiing pace. Bowevei, a
iecent Euiopean Commission iepoit on maiket piogiess conceues that 'a tiuly
single eneigy maiket is fai fiom complete'. Questions thus iemain as to whethei the
E0's inteinal maiket iules can be piactically applieu in the context of possible
unconventional gas uevelopment anu be cleai, non-uisciiminatoiy, timely anu
iepeatable acioss laige opeiations.
Regaiuing the impact of shale gas in the 0SA:
0nconventional gas piouuction in the 0SA has incieaseu maikeuly in the last
uecaue. It accounteu foi S8% of uomestic piouuction in 2u1u, causing the 0SA to
suipass Russia as the laigest gas piouucei in the woilu. Nuch of the expansion has
been uue to shale gas, which accounteu foi 2S% of total 0S natuial gas piouuction in
2u1u. Consequently, piojections foi futuie 0S piouuction have been continuously
ieviseu upwaius.
It was initially expecteu that the 0SA woulu neeu to impoit substantial quantities of
LNu, which leu to massive investments in the LNu infiastiuctuie in the last uecaue.
The ieality, howevei, is that the 0SA has enueu up iequiiing less than 1u% out of its
cuiient 1Su bcm ie-gasification capacity. Insteau theie aie now plans to auu expoit
capabilities.
Nost of the giowth in uemanu foi gas in the 0SA is expecteu to occui in the powei
geneiation sectoi, followeu by tianspoitation (natuial gas vehicles) anu in the
petiochemical inuustiies. uas-fiieu powei plants have cost, timing anu emission
auvantages compaieu to coal-fiieu plants, anu inciemental incieases in gas-fiieu
electiicity capacity have been obseiveu since 2uuS, which is backeu up by iepoiteu
plans foi the coming yeais. The extent to which these auvantages aie capitaliseu
upon uepenus paitly on the extent to which 0S piouuceis ueciue to expoit natuial
gas via LNu.
Cost estimates foi shale gas piouuction anu the bieak-even piice that is necessaiy to
iecoup expenuituies pei well vaiy consiueiably anu aie subject to much
contestation. Bieak-even piice estimates in the 0SA have been ieuuceu lately anu

x
iange between $S-7NBtu. Estimates foi Euiope vaiy between $S-12NBtu.
Bowevei, the piouuction of natuial gas liquius fiom shale wells is iepoiteuly having
a significantly positive effect on shale well economics in the 0SA, anu technological
leaining, which has contiibuteu to ieuucing total uiilling anu completion costs by
half in the last five yeais, is expecteu to lowei costs even moie.
Estimates of futuie natuial gas piices in both the 0SA anu foi Euiope have been
iepeateuly ieviseu uownwaius in iecent yeais, suppoiteu by the inciease in shale
gas uevelopments. The spot piice foi natuial gas in the 0SA (Beniy Bub) has fallen
fiom a peak at $1SNBtu in miu-2uu8 uown towaius $2NBtu in 2u12.
Regaiuing the impact in Euiope to uate:
ulobal LNu tiaue volumes incieaseu two-folu between 2uuu anu 2u1u, anu
incieasing LNu liquefaction anu iegasification capacity looks set to continue to uiive
this tienu foi the foieseeable futuie. As a majoi consumei of natuial gas, Euiope is
iobustly contiibuting to this tienu: the E0's cuiient iegasification capacity of 1Su
bcm looks set to uouble by 2u2u.
Theie is ample eviuence that LNu is changing the chaiacteiistics of global gas
maikets. Wheieas the high cost of tianspoiting gas hau pieviously iestiicteu tiaue
to specific iegions, fluctuations in supply, uemanu anu piices aie incieasingly being
tiansmitteu thioughout the globe.
Rapiuly incieasing LNu capacity in ieceiving teiminals in Noith-West Euiope
stiengtheneu the link between 0K anu 0S gas hub piices between 2uu9 anu 2u1u,
enabling many E0 Nembei States to benefit fiom the cheap spot-tiaueu gas paitially
iesulting fiom incieaseu unconventional gas piouuction in the 0SA. 0S net impoits
of natuial gas fell Su% between 2uu7 anu 2u1u.
With legal anu technical baiiieis to giowing volumes of spot-tiaueu gas
uisappeaiing as E0 maiket iefoims take effect, the shaip fall in spot piices
witnesseu in 2uu9 anu 2u1u occasioneu wiuespieau uissatisfaction amongst the
utilities, which weie lockeu into buying gas on oil-inuexeu teims as they weie
giauually piiceu out of the maiket. Spot gas piices weie some 2S% lowei than oil-
inuexeu gas uuiing this peiiou.
The close coiielation between 0S anu E0 gas hub piices came to an enu aiounu
Apiil 2u1u as a iesult of unfoieseen uemanu-siue events, incluuing the Fukushima
uisastei. Bowevei, the cuiient balance of expeit opinion suggests that the E0 will
continue to move slowly away fiom oil inuexation because of the peisisting iisk of
futuie exposuie to uiscount hub piices.
Regaiuing potential impacts on the global eneigy system:
To exploie the unceitainty suiiounuing the ieseive size anu piouuction costs of
shale gas, a scenaiio analysis has been caiiieu out with a global eneigy system
mouel, ETSAP-TIAN, which is able to captuie the complex anu inteiielateu factois
uiiving futuie gas supply anu uemanu uevelopments. Some pieliminaiy conclusions
as to what can be expecteu fiom shale gas uevelopment aie summaiiseu in the
following points.

xi
0veiall, the scenaiio analysis highlights that shale gas uoes have the potential to
extensively impact global gas maikets, but only unuei stiongly optimistic
assumptions about its piouuction costs anu ieseives.
In a scenaiio favouiable to shale gas uevelopment, natuial gas as a whole has the
potential to captuie Su% of the woilu's total piimaiy eneigy supply by 2u2S, iising
fuithei to SS% by 2u4u. This woulu make it suipass oil as the woilu's foiemost
souice of eneigy.
Relative to a scenaiio that is not caibon constiaineu, stiict C02 emissions taigets
ieuuce the piouuction of natuial gas, incluuing shale gas. Bowevei, the stiict C02
emissions taigets mouelleu uo not piecluue a significant absolute giowth in natuial
gas use. The mouelling iesults theiefoie suppoit the potential iole of natuial gas as a
biiuge fuel.
Shale gas is ielatively evenly uispeiseu aiounu the woilu anu the majoiity of iegions
will likely witness at least some level of piouuction in the futuie. The 0SA anu China
aie well placeu to become the top piouuceis of shale gas, although significant
piouuction also takes place in most of the othei iegions. The scenaiio analysis
suggests that shale gas will tenu to be useu within the iegions wheie it is piouuceu.
No single iegion will piouuce enough shale gas so as to move fiom being a net
impoitei to a net expoitei.
The global tiaue in natuial gas, uiiven by conventional gas, will inciease in any
scenaiio. Shale gas uevelopment, howevei, has the potential to moueiate the uegiee
of giowth, paiticulaily foi inteiiegional LNu flows. Low LNu costs woulu mitigate
the ieuuction in tiaue iesulting fiom wiuespieau shale gas uevelopment.
Significant shale gas piouuction has the potential to lowei natuial gas piices,
although the extent of this ieuuction stiongly uepenus on the way natuial gas will be
piiceu in the futuie. In paiticulai, oil inuexation has the potential to ieuuce the fall in
gas piices iesulting fiom shale gas uevelopment.
The uegiee of penetiation of gas in tianspoit stiongly uepenus on the oil-gas piice
link. A weakei link implies gieatei potential foi shale gas to inuuce a significant
giowth of gas use in tianspoitation.
The impact on uemanu in an optimistic shale gas scenaiio is not equal acioss all
iegions. Nuch uepenus on the ielative competitiveness of fuels anu technologies in
each iegion. This is paiticulaily appaient foi electiicity geneiation. While shale gas
can inuuce a uiamatic change in the 0SA's electiicity geneiation mix, its impact on
China's mix is moie limiteu.
Shale gas piouuction will not make Euiope self-sufficient in natuial gas. The best
case scenaiio foi shale gas uevelopment in Euiope is one in which ueclining
conventional piouuction can be ieplaceu anu impoit uepenuence maintaineu at a
level aiounu 6u%. Regaiuing tiaue flows, the stiuctuie of E0 gas impoits is veiy
sensitive to the LNu cost assumptions.

xii
)LK:9
J+?LUV<"KB"H"LG@ ............................................................................................................................................. ii
EXEC0TIvE S0NNARY ............................................................................................................................................ iii
INBEX ...................................................................................................................................................................... xii
LIST 0F FIu0RES ................................................................................................................................................... xvi
LIST 0F TABLES .................................................................................................................................................... xxi
ACR0NYNS .......................................................................................................................................................... xxiv
1 INTR0B0CTI0N .............................................................................................................................................. 1
1.1 What is this iepoit about. ................................................................................................ 1
1.2 Why is this iepoit neeueu. .............................................................................................. 1
1.S 0bjectives anu scope of this iepoit .............................................................................. 8
1.4 The Euiopean eneigy policy context ........................................................................ 1u
1.S Nethouology ........................................................................................................................ 11
1.S.1 Eviuence-baseu policy anu piactice .......................................................................... 11
1.S.2 The ETSAP-TIAN mouel ................................................................................................. 12
1.6 Repoit stiuctuie ................................................................................................................. 1S
2 A REvIEW 0F REuI0NAL ANB uL0BAL ESTINATES 0F 0NC0NvENTI0NAL uAS RES00RCES ............. 1S
2.1 Estimates: The global unconventional gas iesouice base ............................... 16
2.1.1 Befinitions ............................................................................................................................ 16
2.1.2 Souices of uata .................................................................................................................... 22
2.1.S Estimates of shale gas iesouice .................................................................................. 24
2.1.4 Shale gas estimates in context ..................................................................................... Su
2.2 Nethous foi estimating the iecoveiable iesouices of shale gas ................... S2
2.2.1 Besciiption of appioaches ............................................................................................. SS
2.2.2 Nethouological iobustness of each methou .......................................................... 4u
2.2.S Impact of technology on iesouice estimates ......................................................... 44
2.2.4 Summaiy ............................................................................................................................... 4S
2.S Becline cuive analysis anu the estimation of iecoveiable iesouices ......... 47
2.4 Best estimates: chaiacteiising the unceitainty .................................................... Su
2.4.1 Estimates of shale gas iesouices ................................................................................ Su
2.4.2 Confiuence in cuiient estimates anu conclusions ............................................... S2
S SBALE ANB TIuBT uAS BEvEL0PNENT F0R E0R0PE ............................................................................. S6
S.1 Intiouuction to unconventional gas technology .................................................. S6
S.1.1 Conventional gas ................................................................................................................ S6

xiii
S.1.2 Befinition of shale anu tight gas anu coal-beu methane ................................... S6
S.1.S ueneiation of contact suiface in the shale ............................................................. S9
S.2 Befinition of state-of-the-ait shale gas technology ............................................ S9
S.2.1 Biilling .................................................................................................................................... S9
S.2.2 Byuiaulic fiactuiing ......................................................................................................... 6S
S.2.S Nonitoiing ............................................................................................................................ 7u
S.S Evaluation of technical anu opeiational assumptions foi shale gas
uevelopment scenaiios in Euiope ...................................................................................................... 7S
S.S.1 Fielu uevelopment pau sizing anu well configuiation scenaiio .................... 7S
S.S.2 Biilling anu completion capacity scenaiio ............................................................. 74
S.S.S Biilling technology anu cost scenaiio ...................................................................... 78
S.S.4 Fiactuiing technology anu cost scenaiio ................................................................ 8S
S.S.S Fielu uevelopment infiastiuctuie anu gas piocessing anu tieatment
scenaiio .................................................................................................................................. 84
S.S.6 uas piouuction scenaiio fiom shale uevelopments ........................................... 8S
S.S.7 Summaiy anu conclusions ............................................................................................. 87
S.4 Conclusions .......................................................................................................................... 98
4 LANB ANB NARKET ACCESS ..................................................................................................................... 1uu
4.1 Lanu access ......................................................................................................................... 1uu
4.1.1 Resouice access ................................................................................................................ 1u1
4.1.2 Regulatoiy fiamewoik .................................................................................................. 11S
4.2 Naiket access .................................................................................................................... 12S
4.2.1 Naiket stiuctuie .............................................................................................................. 124
4.2.2 Naiket access in Noith Ameiica ............................................................................... 126
4.2.S Naiket access in the E0-27 ......................................................................................... 1S2
4.S Inuigenous piouuction anu eneigy secuiity ........................................................ 1S8
4.4 Summaiy ............................................................................................................................. 14S
S TBE INPACT 0F 0NC0NvENTI0NAL uAS 0N TBE E0R0PEAN ENERuY SYSTEN ................................ 14S
S.1 The impact of shale gas in the 0niteu States of Ameiica ................................ 14S
S.1.1 Piojections of supply anu piouuction .................................................................... 14S
S.1.2 Piojections of uemanu anu futuie eneigy mix ................................................... 149
S.1.S Natuial gas anu ienewable eneigy .......................................................................... 1SS
S.1.4 Shale gas piouuction costs anu natuial gas piices ........................................... 1S6
S.2 The impact in Euiope to uate ..................................................................................... 16S
S.2.1 Incieasing LNu liquefaction anu iegasification capacity ............................... 16S

xiv
S.2.2 The LNu tiaue anu global gas maikets .................................................................. 171
S.2.S E0 Nembei States anu the iecent 'gas glut' ......................................................... 17S
S.2.4 The oil-gas piice link ...................................................................................................... 181
6 TBE P0TENTIAL INPACT 0F SBALE uAS 0N TBE uL0BAL ENERuY SYSTEN ....................................... 186
6.1 Key factois foi shale gas uevelopment .................................................................. 189
6.1.1 0pstieam natuial gas iesouices anu cost ............................................................. 189
6.1.2 Niustieam ........................................................................................................................... 196
6.1.S Natuial gas in powei geneiation anu othei enu uses ...................................... 2u1
6.1.4 Summaiy of key assumptions .................................................................................... 2u4
6.2 Scenaiio analysis iesults .............................................................................................. 2u7
6.2.1 Context anu global tienus ............................................................................................ 2u7
6.2.2 0pstieam gas piouuction ............................................................................................. 2u9
6.2.S The iole of gas in a caibon-constiaineu woilu ................................................... 21S
6.2.4 uas tiaue .............................................................................................................................. 216
6.2.S The impact of shale gas piouuction on impoits ................................................. 221
6.S Natuial gas in powei geneiation anu enu uses .................................................. 22S
6.S.1 Powei geneiation ............................................................................................................ 224
6.S.2 uas in tianspoit ................................................................................................................ 228
6.4 Conclusion .......................................................................................................................... 229
ANNEXES
A SYSTENATIC REvIEW NETB0B0L0uY ......................................................................................................... II
B BEFINITI0NS ................................................................................................................................................. Iv
B.1 Resouices, ieseives anu the 0SuS uefinitions ......................................................... v
B.2 Estimates of shale gas iesouice .................................................................................. vII
C NETB0BS F0R ESTINATINu TBE REC0vERABLE RES00RCES 0F SBALE uAS ......................................... X
C.1 Besciiption of appioaches ................................................................................................ X
C.2 Nethous useu by INTEK foi the 0S Eneigy Infoimation Auministiation .... X
C.S Compaiison of 0SuS anu INTEK methous .............................................................. XII
C.4 Impact of technology on iesouice estimates ....................................................... XIv
B BECLINE RATE NETB0B0L0uIES ......................................................................................................... XvIII
E BEST ESTINATES: CBARACTERISINu TBE 0NCERTAINTY .................................................................. XXIv
F EvIBENCE BASE ........................................................................................................................................ XXv
u NA}0R REu0LATI0NS F0R TBE E0 INTERNAL uAS NARKET ......................................................... XXXvI
B EvAL0ATINu P0TENTIAL SBALE uAS WELLS ANB Q0ANTIFYINu FINBINu ANB BEvEL0PINu C0STS
XXXvIII

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xvi
+>@= GO 6>E<C:@
Figuie 1-1: Shale gas piouuction anu wellheau gas piices in the 0niteu States of Ameiica
.................................................................................................................................................................................... S
Figuie 1-2: Piimaiy piouuction of natuial gas anu eneigy impoit uepenuence in the E0-
27 .............................................................................................................................................................................. S
Figuie 1-S: Factois ueteimining the viability of natuial gas uevelopments ............................ 9
Figuie 2-1: Resouices anu ieseives ....................................................................................................... 21
Figuie 2-2: Cumulative numbei of iepoits publisheu pioviuing oiiginal countiy-level
estimates of any of the unconventional gases .................................................................................... 22
Figuie 2-S: Estimates of iemaining iecoveiable iesouices foi unconventional gases in
the 0SA in successive Annual Eneigy 0utlooks fiom the EIA ..................................................... 2S
Figuie 2-4: Bistiibution of liteiatuie pioviuing oiiginal iesouice estimates by iegion,
souice anu gas type ........................................................................................................................................ 2S
Figuie 2-S: 0S shale gas iesouice estimates anu annual piouuction ...................................... 24
Figuie 2-6: Estimates of global shale gas iesouices by souices consiueiing iegions
outsiue Noith Ameiica ................................................................................................................................. 27
Figuie 2-7: Estimates maue since 2uu8 of the technically iecoveiable shale gas
iesouices in the 0niteu States of Ameiica (above) anu Canaua (below) ............................... 28
Figuie 2-8: All estimates of the technically iecoveiable iesouices of shale gas within
Euiope ................................................................................................................................................................. 29
Figuie 2-9: All estimates of the technically iecoveiable iesouices of shale gas within
China ..................................................................................................................................................................... Su
Figuie 2-1u Appioaches useu by all iepoits pioviuing oiiginal countiy-level shale gas
iesouice estimates ......................................................................................................................................... SS
Figuie 2-11: Schematic iepiesentation of the steps useu in the geological-baseu
appioach (see Table S-1 foi teiminology) ........................................................................................... S4
Figuie 2-12: Illustiative chait of typical uecline in shale gas piouuction ............................. 48
Figuie S-1: veitical vs. hoiizontal well compaiison ........................................................................ 6u
Figuie S-2: Typical wellboie tiajectoiy ................................................................................................ 61
Figuie S-S: Boiizontal uiilling technology .......................................................................................... 62
Figuie S-4: Nulti-well pau uevelopment .............................................................................................. 6S
Figuie S-S: veitical well anu hoiizontal well fiactuie views ...................................................... 64
Figuie S-6: Repiesentation of the new fiactuiing appioach with iespect to a
conventional fiactuie .................................................................................................................................... 67
Figuie S-7: Byuia-jet peifoiation anu pioppant plug uiveision to fiactuie multiple
inteivals, veitically anu hoiizontally ..................................................................................................... 67
Figuie S-8: Consumptive watei uses in the Belawaie Basin ....................................................... 69
Figuie S-9: Bistiibution of magnituues of micioseismic events in Bainett Shale .............. 7u

xvii
Figuie S-1u: Typical hyuiaulic fiactuie monitoiing configuiations foi hoiizontal
tieatment wells ................................................................................................................................................ 71
Figuie S-11: Nap view of hyuiaulic fiactuie inteisecting a pie-existing fault .................... 71
Figuie S-12: Location anu oiientation of the fault iuentifieu by micioseismic monitoiing
................................................................................................................................................................................. 71
Figuie S-1S: Bevelopment of uiilling peifoimance in Euiope ................................................... 74
Figuie S-14: Well uiilling anu completion time bieakuown ....................................................... 7S
Figuie S-1S: Rig uiilling in The Bague (NL) ........................................................................................ 78
Figuie S-16: Rig location close to a hospital ....................................................................................... 78
Figuie S-17: Fielu uevelopment with centialiseu functions anu iig specialisation .......... 79
Figuie S-18: Liquiu piouuction fiom shale gas plays in Texas ................................................... 87
Figuie 4-1: Phases anu key steps in ueveloping a Naicellus shale well ............................... 1uS
Figuie 4-2: Total suiface aiea iequiiements foi ueveloping natuial gas wells ................ 1uS
Figuie 4-S: Theoietical well uensities of veitical anu multi-well hoiizontal paus .......... 1u6
Figuie 4-4: Cuiient well uensity in 0S counties of compaiable shale gas plays, 2uu9 .. 1u7
Figuie 4-S: Timeline foi shale gas uevelopment anu piouuction (single well) ................. 1u8
Figuie 4-6: Estimateu uaily heavy anu light tiuck iounu-tiip tiaffic by well type .......... 11u
Figuie 4-7: Natuial gas piocessing plants anu piouuction basins in the 0SA, 2uu9 ...... 112
Figuie 4-8: Bainett Shale uiilling in 1997 anu 2uu9, Ft. Woith Basin, Texas, 0SA ......... 11S
Figuie 4-9: Key elements of an unconventional gas iegulatoiy fiamewoik ....................... 11S
Figuie 4-1u: 0S natuial gas pipeline capacity auuitions veisus maiketeu gas piouuction
............................................................................................................................................................................... 129
Figuie 4-11: Significant pipeline expansions in the 0SA in 2uu9 ............................................ 1Su
Figuie 4-12: The 0S natuial gas tiansmission netwoik .............................................................. 1SS
Figuie 4-1S: The E0's natuial gas tiansmission netwoik ........................................................... 1S4
Figuie S-1: Piojections of 0S natuial gas piouuction ................................................................... 146
Figuie S-2: Foiecasts of 0S natuial gas piouuction by type ...................................................... 148
Figuie S-S: Bistoiical anu piojecteu net 0S LNu impoits ........................................................... 149
Figuie S-4: 0S electiicity geneiation by fuel .................................................................................... 1Su
Figuie S-S: Planneu auuitions to coal anu gas-fiieu electiicity capacity in the 0niteu
States of Ameiica (aggiegate 2u11-2u1S) ......................................................................................... 1S1
Figuie S-6: Aveiage cost of coal anu gas foi electiicity geneiation in the 0niteu States of
Ameiica, }anuaiy 2uu7 - 0ctobei 2u11 ............................................................................................... 1S2
Figuie S-7: Piojecteu non-hyuiopowei ienewable electiicity geneiation in the 0niteu
States of Ameiica, 2u1u-2uSS ................................................................................................................. 1S4
Figuie S-8: Piojecteu C02 emissions in the 0niteu States of Ameiica ................................... 1SS

xviii
Figuie S-9: Total pei-well piouuction costs foi shale gas .......................................................... 1S7
Figuie S-1u: Inuicative cost bieakuown of a shale gas pioject, fiist thiee yeais ............. 1S9
Figuie S-11: Inuicative cost bieakuown of a shale gas pioject, full life cycle .................... 1S9
Figuie S-12: Bieak-even piices foi unconventional gas piouuction ..................................... 16u
Figuie S-1S: 0S natuial gas piouuction anu aveiage annual Beniy Bub piices ............... 162
Figuie S-14: IEA estimates of impoit piice foi Euiope unuei iefeience scenaiio .......... 16S
Figuie S-1S: ulobal LNu tiaue volumes anu LNu as a peicentage of global gas
consumption ................................................................................................................................................... 16S
Figuie S-16: E0 LNu impoits by Nembei State .............................................................................. 166
Figuie S-17: Cuiient anu planneu E0-27 LNu iegasification capacity (as of Septembei
2u11) .................................................................................................................................................................. 167
Figuie S-18: E0 LNu impoits by oiigin ............................................................................................... 168
Figuie S-19: Shoit-teim tiauing in LNu ............................................................................................. 172
Figuie S-2u: 2u1u expoit uestinations of global LNu swing supplieis ................................. 174
Figuie S-21: Euio aiea anu E0-27 inuustiial piouuction, total inuustiy excluuing
constiuction .................................................................................................................................................... 17S
Figuie S-22: Foiecast 0S natuial gas impoits .................................................................................. 176
Figuie S-2S: 0S natuial gas impoits anu expoits ........................................................................... 177
Figuie S-24: 0S LNu expoits anu gas piices ..................................................................................... 178
Figuie S-2S: Beniy Bub anu National Balancing Point gas piices .......................................... 179
Figuie S-26: ulobal natuial gas piices ................................................................................................. 18u
Figuie 6-1: Assumptions on the global, technically iecoveiable ieseives of shale gas . 19u
Figuie 6-2: ulobal conventional gas ieseives (iecoveiable, enhanceu iecoveiy anu new
uiscoveiy) ........................................................................................................................................................ 191
Figuie 6-S: Conventional gas piouuction cost estimates in 2u2u ........................................... 191
Figuie 6-4: Shale gas piouuction cost estimates foi 2u2u .......................................................... 194
Figuie 6-S: Shale gas supply cuives foi the 0niteu States of Ameiica in 2u1S ................. 19S
Figuie 6-6: Illustiative costs of gas, oil anu coal tianspoitation .............................................. 198
Figuie 6-7: LNu liquefaction plant capital costs ............................................................................. 199
Figuie 6-8: uBP anu gas consumption by iegion, 2uuS-2u1u .................................................. 2u2
Figuie 6-9: Schematic of the scenaiio analysis fiamewoik ........................................................ 2u6
Figuie 6-1u: Total eneigy uemanu unuei uiffeient scenaiio assumptions ......................... 2u8
Figuie 6-11: ulobal piimaiy eneigy supply by fuel (conseivative low giowth anu
optimistic high giowth) ............................................................................................................................. 2u8
Figuie 6-12: Total eneigy uemanu by iegion ................................................................................... 2u9
Figuie 6-1S: ulobal gas piouuction ...................................................................................................... 21u

xix
Figuie 6-14: 0nconventional gas piouuction in the optimistic high-giowth scenaiio .. 211
Figuie 6-1S: Changes in ielative shaie of total gas piouuction in 2u4u
(conseivativeoptimistic) ......................................................................................................................... 212
Figuie 6-16: Shale gas piouuction by iegion in 2u4u: 0ptimistic-Bu anu Conseivative-
Lu scenaiios .................................................................................................................................................... 21S
Figuie 6-17: Total piimaiy eneigy supply anu C02 emissions in the optimistic low-
giowth scenaiio (above) anu a caibon-constiaineu optimistic low-giowth scenaiio
(below) .............................................................................................................................................................. 21S
Figuie 6-18: LNu expoits unuei optimistic anu conseivative shale gas uevelopment .. 217
Figuie 6-19: LNu expoits unuei conseivative anu optimistic shale gas uevelopment
with low LNu cost ......................................................................................................................................... 217
Figuie 6-2u: Pipeline expoits by iegion unuei optimistic anu conseivative shale gas
uevelopment ................................................................................................................................................... 218
Figuie 6-21: LNu impoits by iegion in the conseivative shale gas uevelopment scenaiio
with low LNu cost veisus optimistic low giowth ........................................................................... 219
Figuie 6-22: Pipeline impoits by iegion in the conseivative shale gas uevelopment
scenaiio veisus optimistic low giowth ............................................................................................... 22u
Figuie 6-2S: Euiopean gas impoits in conseivativeoptimistic shale gas scenaiios ..... 221
Figuie 6-24: Conseivative (above) anu optimistic (below) Euiopean shale gas
piouuction in the low-giowth scenaiio .............................................................................................. 222
Figuie 6-2S: uas piices in China, Westein Euiope anu the 0niteu States of Ameiica in
the optimistic anu conseivative shale gas scenaiios .................................................................... 22S
Figuie 6-26: Inciease in gas uemanu between conseivative anu optimistic shale gas
scenaiios ........................................................................................................................................................... 224
Figuie 6-27: Electiicity piouuction by fuel in foui scenaiios: conseivative vs. optimistic;
optimistic with high nucleai; optimistic in a caibon constiaineu eneigy system ........... 22S
Figuie 6-28: China's electiicity geneiation by fuel ........................................................................ 226
Figuie 6-29: 0S electiicity geneiation by fuel .................................................................................. 226
Figuie 6-Su: Euiope's electiicity geneiation by fuel ..................................................................... 227
Figuie 6-S1: ulobal gas use in tianspoit in the low giowth scenaiios .................................. 228
Figuie 6-S2: The oil-gas piice iatio compaieu with the use of gas in tianspoit ............... 228
Figuie C-1: Nap of 0S shale gas plays (lowei 48 states) ............................................................... XII
Figuie B-1: Exponential anu hypeibolic uecline cuives with equal initial piouuction anu
uecline iate ....................................................................................................................................................... XIX
Figuie B-2: Semi-log plot of exponential anu hypeibolic uecline cuives .............................. XIX
Figuie B-S: Implications of vaiying I foi estimates of 0RR foi 44 wells in the
Baynesville Shale ........................................................................................................................................... XXI
Figuie B-4: vaiiation of hypeibolic uecline with the value of I .............................................. XXII

xx
Figuie E-1: Examples of possible piobability uistiibutions between estimates in a
selection of iegions .................................................................................................................................... XXIv
Figuie B-1: Example of finuing anu uevelopment costs foi iange iesouices ............... XXXIX

xxi
+>@= GO (BJH:@
Table 1-1: Biffeiences between systematic anu naiiative ieviews .......................................... 12
Table 2-1: Inteipieting the teiminology useu foi unconventional gas iesouice estimates
................................................................................................................................................................................. 2u
Table 2-2: Estimates of oiiginal shale gas in place by Rognei .................................................... 2S
Table 2-S: Nean estimates of iemaining technically iecoveiable iesouices of
conventional gas, CBN, tight gas anu shale gas pioviueu by the eviuence base (Tcm) ... S1
Table 2-4: 0SuS estimates of shale gas iesouice in the 0niteu States of Ameiica ............. 4u
Table 2-S: Auvantages anu uisauvantages of geological anu extiapolation appioaches to
estimating shale gas iesouices ................................................................................................................. 46
Table 2-6: Estimates of shale gas iesouices (Tcm) .......................................................................... S1
Table S-1: Summaiy of ciitical uata useu to appiaise coal-beu anu shale gas ieseivoiis
................................................................................................................................................................................. S8
Table S-2: Ten-squaie-mile total suiface uistuibance of veitical anu hoiizontal wells .. 6S
Table S-S: An example of the volumetiic composition of hyuiaulic fiactuiing fluiu ........ 64
Table S-4: Natuially occuiiing substances that may be founu in hyuiocaibon-containing
foimations .......................................................................................................................................................... 6S
Table S-S: Watei use by sectoi in shale gas basins .......................................................................... 69
Table S-6: Bakei Bughes woiluwiue iig count .................................................................................. 76
Table S-7: Bakei Bughes iig count Euiope ......................................................................................... 77
Table S-8: Compaiison of uiill bit finuing anu uevelopment cost pei 1 uuu cubic feet
equivalent (Ncfe) (thiee-yeai aveiage) foi uiffeient 0S opeiatois ......................................... 82
Table S-9: Compaiison of lifting cost pei Ncfe of piouuction (thiee-yeai aveiage) foi
uiffeient 0S opeiatois .................................................................................................................................. 8S
Table S-1u: Technically iecoveiable shale gas iesouices foi the 0SA .................................... 86
Table S-11: Technically iecoveiable shale oil iesouices foi the 0SA ...................................... 87
Table S-12: Typical well configuiations ............................................................................................... 88
Table S-1S: Typical iig site configuiations .......................................................................................... 89
Table S-14: Bepth-baseu cost scenaiios ............................................................................................... 9u
Table S-1S: Biilling peifoimance scenaiios ....................................................................................... 91
Table S-16: Biilling opeiations uay-iate-baseu cost scenaiios .................................................. 92
Table S-17: Biilling cost scenaiio pei well .......................................................................................... 9S
Table S-18: Fiactuiing cost scenaiio pei well ................................................................................... 94
Table S-19: Fielu uevelopment, infiastiuctuie anu piocessing costs by scenaiio ............. 9S
Table S-2u: Piouuction cost scenaiio combining optimistic, most likely anu conseivative
cost anu piouuction scenaiios .................................................................................................................. 96

xxii
Table S-21: Piouuction cost scenaiios baseu on the 'most likely' piouuction anu thiee
cost scenaiios ................................................................................................................................................... 97
Table S-22: Piouuction cost scenaiios baseu on 'optimistic' piouuction anu thiee cost
scenaiios ............................................................................................................................................................. 97
Table S-2S: Piouuction cost scenaiios baseu on 'conseivative' piouuction anu thiee cost
scenaiios ............................................................................................................................................................. 97
Table S-24: Shale gas cost scenaiios foi Euiope ............................................................................... 99
Table 4-1: Suiface usage foi natuial gas well paus anu associateu facilities, hectaies (ha)
pei well .............................................................................................................................................................. 1u2
Table 4-2: Buiation of uiilling anu completion activities ........................................................... 1u8
Table 4-S: Economic impacts of Naicellus Shale uevelopment in Pennsylvania, 0SA,
2uu9 .................................................................................................................................................................... 121
Table 4-4: Bisaggiegation of single test well costs (in thousanu pounus steiling) ......... 12S
Table 4-S: Najoi legislation foi the 0S gas inuustiy by Congiess, FERC anu couit iulings
............................................................................................................................................................................... 127
Table 4-6: 0S shale gas pipeline piojects in the neai futuie ...................................................... 1S1
Table 4-7: uas tiansmission giiu uensity by countiy ................................................................... 1SS
Table 4-8: Najoi iegulations foi the E0 inteinal gas maiket .................................................... 1S7
Table 4-9: Summaiy of the main challenges foi accessing lanu foi shale gas uevelopment
in Euiope .......................................................................................................................................................... 144
Table S-1: LNu iegasification teiminals by iegion (as of }une 2u1u) .................................... 167
Table S-2: Qatai's new liquefaction tiains ......................................................................................... 168
Table S-S: LNu liquifaction plants unuei constiuction by countiy ........................................ 169
Table S-4: Euiopean spot gas piices as a peicentage of oil-inuexeu gas piices in tNWh
............................................................................................................................................................................... 18S
Table 6-1: Total unit piouuction cost pei shale gas well in Euiope without liquius ...... 192
Table 6-2: 0pstieam costs foi FRS companies, 2uu6-2uu8 anu 2uu7-2uu9 ...................... 19S
Table 6-S: Najoi inteiiegional natuial gas pipeline piojects .................................................... 2u1
Table 6-4: Assumeu maximum liquefaction capacity 2u2u ....................................................... 2u1
Table 6-S: uBP assumptions in the mouel ......................................................................................... 2uS
Table 6-6: Summaiy of mouelling assumptions .............................................................................. 2uS
Table A-1: Stages of a tiauitional systematic ieview compaieu to those of a 'iealist'
ieview ................................................................................................................................................................... III
Table B-1: Shale gas iepoits pioviuing oiiginal countiy level estimates by uate,
countiies oi iegions coveieu anu type of iesouice estimate .................................................... vIII
Table C-1: Assumeu iates of technological piogiess in 0RRwell fiom vaiious souices
.............................................................................................................................................................................. XvII
Table F-1: Bocumentation anu classification of the eviuence base ....................................... XXv

xxiii
Table B-1: FX Eneigy's uiilling piogiamme in Polanu anu net asset value analysis
....................................................................................................................................................................... XXXvIII

xxiv
*;CGLDA@
1P - Pioveu ieseives
2P - Pioveu anu piobable ieseives
SP - Pioveu, piobable anu possible ieseives
ACER - Agency foi the Coopeiation of Eneigy Regulatois
AE0 - Annual Eneigy 0utlook iepoit by the EIA
BA0 - Business-as-usual
bcm - Billion cubic meties
bbl - Baiiel
BuR - Bunuesanstalt fi ueowissenschaften unu Rohstoffe
boe - Baiiel of oil equivalent
CBN - Coal-beu methane
CCuT - Combineu cycle gas tuibine
CCS - Caibon captuie anu stoiage
BCA - Becline cuive analysis
BECC - 0niteu Kinguom's Bepaitment of Eneigy anu Climate Change
Bu ENER - Euiopean Commission Biiectoiate-ueneial foi Eneigy
Bu ENv - Euiopean Commission Biiectoiate-ueneial foi the Enviionment
BTS - Bistiibuteu tempeiatuie sensing
E&P - Exploiation anu piouuction
EBPP - Eviuence-baseu policy anu piactice
EIA - 0niteu States of Ameiica's Eneigy Infoimation Auministiation
ENTS0 - Euiopean Netwoik of Tiansmission System 0peiatois
EPA -0SA's Enviionmental Piotection Agency
ERR - Economically iecoveiable iesouices
ETSAP - Eneigy Technology Systems Analysis Piogiamme
ETSAP-TIAN - ETSAP-TINES Integiateu Assessment Nouel
E0 - Euiopean 0nion
E0R - Estimateu ultimate iecoveiy
Ev - Electiic vehicle
F&B - Finuing anu uevelopment
FERC - 0SA's Feueial Eneigy Regulatoiy Commission
FRS - EIA's Financial Repoiting System
FS0 - Foimei Soviet 0nion

xxv
FT - Flat time
FTE - Full-time employment
uBP - uioss Bomestic Piouuct
uBu - uieenhouse gas
u} - uigajoules
ut - uigatonne
uTL - uas-to-liquius
utoe - uigatonnes of oil equivalent
ha - Bectaies
BBv - Bigh heating values
ICE - Inteicontinental Exchange
IEA - Inteinational Eneigy Agency
ILT - Invisible lost time
IP - Initial piouuction
K0P - Kick-off point
kPa - Kilopascal
LEL - Lowei explosive level
LBC - Local uistiibution companies
LBS - Left-hanu siue
LNu - Liquefieu natuial gas
L0E - Lease opeiating expenuituies
LPu - Liquefieu petioleum gas
NBtu - Nillion Biitish theimal units
mcm - Nillion cubic meties
Ncf - 1 uuu cubic feet
Ncfe - 1 uuu cubic feet equivalent
mB - Nilliuaicy
NIT - Nassachusetts Institute of Technology
NNBtu - Nillion Biitish theimal units (alteinative convention to NBtu)
NNcf - Nillion cubic feet
NSN - Nicioseismic Napping
Ntoe - Nillion tonnes of oil equivalent
mtpa - Nillion-tonne-pei-annum
NWB - Neasuiement while uiilling
NWh - Negawatt houi

xxvi
NBP - National Balancing Point
NINBY - Not in my backyaiu
NuL - Natuial gas liquiu
Nuv - Natuial gas-poweieu vehicle
NPC - National Petioleum Council
NPT - Non-piouuctive time
NYNEX - New Yoik Neicantile Exchange
NYSBEC - New Yoik State Bepaitment of Enviionmental Conseivation
NYSERBA - New Yoik State Eneigy Reseaich anu Bevelopment Authoiity
0ECB - 0iganisation foi Economic Co-opeiation anu Bevelopment
0uIP - 0iiginal gas in place
P} - Petajoules
ppm - Paits pei million
PPRTvs - Piovisional peei-ievieweu toxicity values
PRNS - Petioleum Resouices Nanagement System
PT - Piouuctive time
Pv - Photovoltaic
RBS - Right-hanu siue
RSS - Rotaiy steeiable systems
RTRR - Remaining technically iecoveiable iesouices
R&B - Reseaich anu uevelopment
SEC - 0S Secuiities anu Exchange Commission
SuEIS - Supplemental ueneiic Enviionmental Impact Assessment
SPE - Society of Petioleum Engineeis
Tcf - Tiillion cubic feet
Tcm - Tiillion cubic meties
TBS - Total uissolveu solius
TPA - Thiiu paity access
TRR - Technically iecoveiable iesouices
TS0 - Tiansmission system opeiatois
TWh - Teiawatt houis
0K - 0niteu Kinguom
0KERC - 0niteu Kinguom Eneigy Reseaich Centie
0RR - 0ltimately iecoveiable iesouice
0SA - 0niteu States of Ameiica

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This iepoit investigates the impact of unconventional gas on Euiopean 0nion (E0)
eneigy maikets.
Natuial gas iesouices can be coaisely classifieu as being eithei conventional oi
unconventional. Conventional gas uominates woiluwiue piouuction, accounting foi
ovei 8S% of total maiketeu output touay.
1
ueneially speaking, conventional gas is gas
extiacteu fiom uisciete, well-uefineu, high-peimeability ieseivoiis. The fact that gas can
easily migiate to the wellboie anu up to the suiface in these ieseivoiis means that they
can usually be uevelopeu using veitical wells only anu often yielu economic iecoveiy
iates of moie than 8u% of the oiiginal gas in place (0uIP).
0nconventional gas is gas piouuceu using auuitional piocesses beyonu the stanuaiu
uiilling techniques ueployeu wiuely in conventional ieseivoiis. 0nconventional gas
iesouices aie geneially founu in less peimeable iock foimations anu foi this ieason
they aie moie complex to extiact. These iesouice accumulations may be uistiibuteu
ovei a much laigei aiea than conventional accumulations anu typically iequiie well-
stimulation measuies in oiuei to be maue economically piouuctive. Recoveiy iates aie
much lowei than in conventional gas typically of the oiuei of 1S-Su% of 0uIP.
2

Theie aie thiee main types of unconventional gas piouuceu touay; shale gas, tight gas
anu coal-beu methane.
S
Shale gas is natuial gas piouuceu fiom commonly occuiiing
shale iock foimations, a kinu of seuimentaiy iock that is iich in oiganic mattei. Tight
gas iefeis to gas ueposits founu in low peimeability iock foimations, like sanustone.
4

Anu coal-beu methane, as the name implies, is natuial gas containeu in coal beus.
?@C A<= 5- ,<5- 0(:%0, $(()()B
Fossil fuels, such as oil, gas anu coal, aie by fai the laigest souices of eneigy in Euiope,
compiising just ovei 7S% of gioss inlanu consumption in 2u1u.
S
While goveinmental
suppoit will ensuie that alteinative eneigy souices such as ienewables will incieasingly

1
IEA, 'Aie we enteiing a goluen age of gas.', in V%$:= ")'$;9 U#8:%%W (Paiis: 0iganisation foi Economic
Co-opeiation anu Bevelopment 2u11), Su.
2
E.}. Noniz, B.B. }acoby anu A.}.N. Neggs, 'The futuie of natuial gas', (Cambiiuge, Nassachusetts:
Nassachusetts Institute of Technology, 2u1u), 6.
S
0thei kinus of unconventional gas, such as methane hyuiates, aie at a much eailiei stage of
uevelopment.
4
Tight gas is sometimes consiueieu to be a continuation of conventional gas because tight gas sanustone
anu limestone aie simply ieseivoii iocks, wheieas coal anu shale aie consiueieu to be both the souice
anu the ieseivoii iock.
S
Souice: Euiostat.

2
contiibute to total eneigy supply, hyuiocaibons aie wiuely piojecteu to uominate the
Euiopean eneigy mix thiough to at least 2uSu.
6

It has long been known that global unconventional gas iesouices may be significant -
they aie ioughly equal to conventional gas iesouices, accoiuing to one wiuely citeu
estimate.
7
In spite of theii abunuance, howevei, it was tiauitionally thought that the vast
majoiity of the iesouice base was too uifficult oi costly to be commeicially extiacteu.
Foi this ieason, viitually all estimates of the global oil anu gas enuowment up to the
199us focuseu on conventional ieseives anu iesouices.
8
In iecent yeais, howevei, two
key uevelopments have shifteu the focus to so-calleu 'unconventionals'.
The fiist has been mounting concein that giowing uemanu foi eneigy woiluwiue woulu
outstiip supply. Whilst unceitainty ovei access to fossil fuel ieseives peisists, global
population giowth anu iising stanuaius of living in the ueveloping woilu have pusheu
eneigy uemanu up consiueiably. These two factois have iesulteu in significant
incieases in the maiket piices of oil anu natuial gas ovei the last uecaue.
The seconu factoi has been a uiamatic inciease in unconventional gas piouuction in
Noith Ameiica. Against the backuiop of stiffei inteinational competition foi iesouices,
unconventional gas piouuction in the 0SA has iobustly incieaseu, moie than offsetting
the steauy uecline in uomestic conventional gas piouuction. 0nconventional gas
accounteu foi aiounu 6u% of all gas piouuceu in the 0SA in 2u1u - shale gas was 2S%.
9

This has hau a uiamatic supply impact, tuining the ielatively tight 0S gas maikets of
2uu6-u7 into a buyeis' maiket with uepiesseu natuial gas piices now foiecast to
continue foi some yeais to come.
1u
The shaip inciease in shale gas piouuction is
paiticulaily stiiking in light of the significant 0uIP estimates of the iesouice not only in
the 0SA, but globally.

6
Euiopean Commission, 'Eneigy infiastiuctuie piioiities foi 2u2u anu beyonu - A Bluepiint foi an
integiateu Euiopean eneigy netwoik', eu. Biiectoiate-ueneial foi Eneigy (Luxembouig: 0ffice foi 0fficial
Publications of the Euiopean Communities, 2u1u).
7
B.B. Rognei, 'An Assessment of Woilu Byuiocaibon Resouices', J))#(: 1'7-'T %D ")'$;9 ()= 8C'
")7-$%),')8 22 (1997).
8
NPC, 'Facing the Baiu Tiuths about Eneigy: A compiehensive view to 2uSu of ulobal 0il anu Natuial
uas', (Washington BC: National Petioleum Council, 2uu7), 96-97.
9
Souice: EIA.
1u
EIA, 'Annual Eneigy 0utlook 2u11 with Piojections to 2uSS', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u11).

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PP


The iecent inciease in unconventional gas piouuction in the 0SA has been unueipinneu
by technological auvancements in hyuiaulic fiactuiing anu hoiizontal uiilling. These
have been essential in ieuucing the pei-unit piouuction cost of piocess-intensive
unconventional gas opeiations, making them piogiessively moie piice competitive with
conventional gas. They have also unlockeu access to iesouices pieviously beyonu
technical ieach, incieasing estimates of the size of the iecoveiable iesouice. These
auvances have been so notewoithy that they aie coveieu in gieatei uetail in Chaptei S
of this iepoit.
Besiues the technological aspects, howevei, maiket foices aie also ielevant to oui
unueistanuing of the 0S case. Bighei maiket piices maue pieviously maiginal oi
uneconomic iesouices piofitable to extiact because they compensateu foi the highei
costs involveu in piouucing these iesouices. Piice signals pioviueu impoitant
incentives foi switching to uiffeient fuel souices anu they encouiageu exploiation,
which leu to the uiscoveiy of iesouices that weie pieviously unknown. Nost
significantly in the case of 0S unconventional gas, iising piices incentiviseu the
uevelopment anu ueployment of new technologies. In this way, the iecent inciease in 0S
unconventional gas piouuction can be unueistoou within the funuamental economics of
the piice mechanism.
12

Nany questions still iemain about how easily unconventional gas iesouices can be
uevelopeu elsewheie. Bowevei, at the time of wiiting theie aie giowing expectations

11
Souice: Piouuction uata fiom 1982-1989 taken fiom }.A. Slutz, '0nconventional gas iesouices: well
completions anu piouuction challenges' (papei piesenteu at the Nethane to Naikets Paitneiship Expo,
Beijing, China, 2uu7). Piouuction uata fiom 199u onwaius taken fiom EIA, 'AE0 2u11'. Piice uata fiom
EIA.
12
It is also impoitant to note the effect of 0S uoveinment initiatives, such as the Section 29 Non-
Conventional uas Tax Cieuits intiouuceu in 198u. This pioviueu a $u.SuNcf incentive foi gas piouuceu
fiom tight gas sanus, coal-beu methane anu Bevonian shale.

4
that 'potential baiiieis to fuithei unconventional gas piouuction will be laigely
oveicome anu that incieaseu supplies become available in othei iegions at costs
compaiable to those in Noith Ameiica'.
1S
In light of the fact that iock foimations
potentially yieluing unconventional gas can be founu in abunuance in many paits of the
woilu, this has sent iipples thiough the eneigy ieseaich community. Rock that was
pieviously consiueieu to be of little value suuuenly helu the piomise of changing some
long-helu assumptions about natuial gas as an eneigy caiiiei.
Although pioven ieseives
14
of conventional gas have incieaseu steauily since the 197us,
the uistance of much of these fiom maikets
1S
has pieventeu a gieatei iole foi natuial
gas in the global eneigy mix. This is because natuial gas has much less flexibility in
teims of tiansmission anu stoiage when compaieu with, say, oil oi coal, owing to its
gaseous foim anu low eneigy uensity. Consiueiable capital expenuituie is necessaiy to
biing it to maiket, whethei by pipeline oi as liquefieu natuial gas (LNu), making natuial
gas ielatively expensive to tianspoit. The inflexibility anu high cost of gas tiansit
infiastiuctuie also tenus to lock buyeis anu selleis into long-teim ielationships anu
makes it uifficult to ieplace lost gas supplies.
Being highly impoit-uepenuent foi gas anu othei eneigy piouucts, the E0 is especially
affecteu by these conceins. The E0 cuiiently biings in well ovei half of the eneigy it
consumes,
16
anu it estimates that, in the next 2u-Su yeais, falling inuigenous piouuction
levels will mean that up to 7u% of its eneigy uemanu will have to be met thiough
impoits.
17
Bue to questions iemaining about how quickly extiaction capacity can be
expanueu by some of Euiope's most impoitant supplieis, it is little wonuei that the
focus on unconventional gas has been intense, in spite of the fact that the continent itself
is only at the eailiest stages of exploiation foi shale gas - the one that coulu be the most
significant foim of unconventional gas.

1S
IEA, 'uoluen age', 17-18.
14
An inuustiy teim foi ieseives that can be easily iecoveieu with the highest uegiee of confiuence.
1S
Two-thiius of global pioven ieseives of natuial gas aie locateu in Russia, Iian, Qatai, Sauui Aiabia, the
0AE, venezuela anu Nigeiia. BP, 'Statistical ieview of woilu eneigy', eu. BP (2u11).
16
Souice: Euiostat.
17
Euiopean Commission, 'Towaius a Euiopean stiategy foi the secuiity of eneigy supply', eu.
Biiectoiate-ueneial foi Eneigy anu Tianspoit (Luxembouig: 0ffice foi 0fficial Publications of the
Euiopean Communities, 2uuu).

S
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PU

0nconventional gas may offei a numbei of secuiity-of-supply benefits foi the 0nion,
helping natuial gas to become cheapei anu moie ieauily available on the Euiopean
maiket. 0nconventional gas may make it easiei foi the E0 to meet its futuie eneigy
neeus, eithei thiough incieasing inuigenous piouuction levels, oi by ieuucing uemanu
foi gas elsewheie in the woilu, thus fieeing up moie supplies that can be impoiteu.
Easing tightness in global eneigy maikets has iecently been given auueu impoitance in
light of waning public suppoit foi nucleai powei following the Fukushima uisastei.
uiven the concentiateu natuie of conventional gas supplies anu the high costs anu iisks
associateu with long-uistance tianspoitation, theie may also be consiueiable economic
anu stiategic value in the uevelopment of unconventional iesouices closei to the
Euiopean maiket. Such supplies woulu auu uiveisity to the E0's gas supplies - a key
goal of E0 eneigy policy.
19
Nany Southein anu Eastein Euiopean states weie seveiely
affecteu by a uisiuption of Russian gas thiough 0kiaine in 2uu9, anu the continueu
instability in othei suppliei states as a iesult of the 'Aiab Spiing'
2u
is a compelling
ieminuei of the uangeis of ovei-uepenuence on any one gas souice oi supply ioute.
Bettei uiveisification of supplies coulu also impiove the E0's baigaining position as a
gas consumei. Bigh piices foi pipeu gas in those E0 Nembei States with only a single

18
Souice: Euiostat. Biy maiketable gas piouuction measuieu aftei puiification anu extiaction of NuLs
(Natuial uas Liquius) anu sulphui. Eneigy uepenuency shows the extent to which an economy ielies upon
impoits in oiuei to meet its eneigy neeus. The inuicatoi is calculateu as net impoits uiviueu by the sum of
gioss inlanu eneigy consumption plus bunkeis.
19
Euiopean Commission, 'The E0 eneigy policy: Engaging with paitneis beyonu oui boiueis', eu.
Biiectoiate-ueneial foi Eneigy (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2u11), S.
2u
In paiticulai, Italian supplies of ciuue oil anu natuial gas weie stiongly affecteu by the uniest in Libya
in 2u11.

6
suppliei suggest that gieatei economic efficiency can be achieveu thiough the
intiouuction of alteinative supply options. Theoietically speaking, the bioau
geogiaphical uistiibution of unconventional gas ieseives coulu also ieuuce any nascent
gas caitel's powei to contiol the scaicity, anu hence piice, of global natuial gas supplies.
Incieaseu unconventional gas piouuction may also have climatic anu enviionmental
benefits. When buineu, natuial gas emits less C02 anu local pollutants
21
than othei fossil
fuels. As a iesult of this, some have aigueu that the use of natuial gas foi powei
geneiation is among the cheapest anu fastest ways to ieuuce C02 emissions, anu that
auuitional unconventional piouuction may help natuial gas play a iole as a 'biiuging
fuel' until a peimanent tiansition can be maue to ienewable souices of eneigy. uas may
also have an impoitant function as lowei caibon-backup geneiation to help balance the
inteimittency of many ienewable eneigy souices. Finally, substituting impoits of gas
extiacteu fai away with unconventional gas piouuceu closei to maikets may ieuuce the
caibon cost associateu with the tianspoitation of that gas anu hence its life-cycle caibon
footpiint.
Whilst the benefits listeu above aie notable, unconventional gas caiiies a host of
potential negative impacts anu iisks. Enviionmental conceins incluue the iisk of
inuuceu seismicity, as well as the stiain on lanu use in aieas ueveloping shale gas.
Conceins centie, howevei, on the laige volume of watei iequiieu foi the hyuiaulic
fiactuiing piocess; the uisposal of this watei once it has been useu; anu the potential
contamination of fiesh watei aquifeis as a iesult of uiilling anu well stimulation
piocesses. The lattei point is especially of concein because the tieatment of
contaminateu giounuwatei can be a long anu costly piocess anu may even be
impossible in some cases. As such, moiatoiia on the hyuiaulic fiactuiing piocess have
been sought while fuithei investigation is caiiieu out in ceitain 0S states, Quebec, South
Afiica, Bulgaiia anu Fiance.
With iegaiu to climate policy, at the time of wiiting theie is giowing concein ovei the
life-cycle emissions fiom unconventional gas; paiticulaily shale gas. Whilst gas that is
souiceu fiom unconventional shale oi sanustone foimations emits the same amount of
C02 when buineu, the auuitional piocesses necessaiy to extiact it mean that moie
gieenhouse gas is geneially emitteu at the mining stage. The extent of these auuitional
emissions may uiminish, anu in the woist case even negate, any life-cycle emissions
auvantage natuial gas has ovei competing fuels, such as coal.
Finally, the Inteinational Eneigy Agency (IEA) has estimateu that - unuei the iight
conuitions - unconventional gas may meet moie than 4u% of the incieaseu global
uemanu foi gas to the yeai 2uSS.
22
This iaises two investment-ielateu questions. Fiist, if
piojections such as these come to pass, then natuial gas will piobably gain a gieatei
shaie of the global eneigy mix. But what will it uisplace. Some have suggesteu that
cheapei gas may challenge the political commitment to ceitain kinus of ienewable
eneigy that still iequiie goveinment suppoit in oiuei to be piice competitive. uiven
that a shift to gas alone will not be sufficient to meet agieeu C02 emission taigets, this
may have significant implications foi climate change. Seconuly, if the actual volume of
futuie unconventional gas supplies uoes not meet expectations, laige infiastiuctuie
investments coulu be uiveiteu fiom viable alteinatives, with ielateu supply-siue

21
Sulphui uioxiue (S02), nitiogen oxiues (N0X) anu paiticipate mattei (PN2.S), foi example.
22
IEA, 'uoluen age', 29.

7
consequences.
2S
In both cases, too zealous a commitment to ueveloping gas iesouices
coulu lock the E0 into an eneigy mix that fulfils neithei its secuiity of supply noi its
climate iequiiements.
In light of the possibilities outlineu above, questions have been askeu about if anu how
Euiopean policy-makeis shoulu iesponu to the oppoitunities anu challenges poseu by
unconventional gas. The Euiopean Council itself has stateu: "In oiuei to fuithei enhance
its secuiity of supply, Euiope's potential foi sustainable extiaction anu use of
conventional anu unconventional (shale gas anu oil shale) fossil fuel iesouices shoulu
be assesseu."
24
The uifficulty faceu by policy-makeis is that the liteiatuie is highly
polaiiseu, with no cleai consensus within the expeit community on a numbei of issues
that aie ciitical to unueistanuing both the moualities anu the extent of the impact of
unconventional gas.
0ne explanation foi this polaiisation is the bioau assoitment of stakeholueis who eithei
stanu to gain oi lose as a iesult of incieaseu unconventional gas piouuction. As
unconventional gas may take maiket shaie fiom coal, nucleai oi ienewable eneigy - as
well as 'tiauitional' gas supplieis - commentatois have suggesteu that the phenomenon
has mobiliseu the commeicial, political anu acauemic auvocates of each of these
inuustiies. By this view, both the pioponents anu opponents of unconventional gas aie
embellishing its potential benefits anu iisks in oiuei to geneiate sufficient public
concein to eithei auvance oi pievent its expansion.
2S

Anothei, moie tangible explanation foi this polaiisation is that the shale gas inuustiy is
still in its infancy anu that this immatuiity is ieflecteu in the inconsistent quality of the
eviuence that has, until now, been available. In the 0SA, much of the gas piouuceu thus
fai has come fiom the most fiuitful 'sweet spots' that may not be iepiesentative of the
piouuctivity of entiie foimations. Theie is a lack of compiehensive anu inuepenuently
coiioboiateu uata on geology, the iesults of exploiation uiilling anu the long-teim
piouuction levels of wells.
26
Inuustiy piactice is evolving so iapiuly that ultimate
iecoveiy iates anu unit costs of piouuceu unconventional gas aie moving taigets, with
some foiecasts pieuicateu on the anticipation of futuie technological piogiess. Anu
estimating the bieak-even costs foi shale gas piouuction is maue moie uifficult because
of the possible piouuction of quantities of natuial gas liquius (NuLs), which fetch a high
maiket piice, fiom ceitain shale plays.
The knowleuge ueficit is even moie acute outsiue the 0niteu States of Ameiica, wheie
othei key vaiiables such as uiilling seivice costs, enviionmental iegulation, piicing
mechanisms anu the stiuctuie of maikets aie laigely untesteu. Anu finally, one-off
events, like the global economic ciisis anu the slew of long-planneu LNu piojects
coming online between 2uu9 anu 2u1u, have so fai maue it uifficult to assess the
economic anu tiaue effects of shale gas in isolation.

2S
It shoulu be noteu that impiovements to Euiope's natuial gas infiastiuctuie aie neeueu iegaiuless of
the futuie contiibution of unconventional gas.
24
Euiopean Council, 'Conclusions on Eneigy - 4 Febiuaiy', (Biussels: 2u11).
2S
Natt Riuley, 'The Shale uas Shock', (Lonuon: The ulobal Waiming Policy Founuation, 2u11).
26
In Fiance uiilling uata is available immeuiately - piouuction uata aftei ten yeais. The 0K anu the
Netheilanus have a foui-yeai confiuentiality peiiou foi uiilling uata. In Sweuen theie is a five-yeai
waiting peiiou - 2u yeais foi offshoie wells. In Benmaik the confiuentiality peiiou is five yeais. In
ueimany uata is nevei maue publicly available.

8
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In the inteiest of effective policy-making, this iepoit seeks to claiify ceitain
contioveisies anu iuentify key gaps in the eviuence-base ielating to unconventional gas.
The scope of this iepoit is iestiicteu to the economic impact of unconventional gas on
eneigy maikets. As such, it piincipally auuiesses such issues as the eneigy mix, eneigy
piices, supplies, consumption anu tiaue flows.
A selection of othei topics that have a uiiect beaiing on the economic impact of
unconventional gas aie also tackleu, albeit to a less uetaileu extent. Foi instance, whilst
local pollution anu climate change consiueiations incieasingly influence oui eneigy
choices, this iepoit only touches on these aspects to the extent to which they impact
unconventional gas piouuction oi consumption patteins. It shoulu be noteu that othei
Commission seivices aie cuiiently examining whethei the enviionmental challenges of
unconventional gas piouuction can be effectively manageu thiough iegulation,
monitoiing anu the application of inuustiy best piactices. In this vein, the }RC Institute
foi Enviionment anu Sustainability is in the piocess of piepaiing a iepoit ieviewing the
liteiatuie on enviionmental impacts. Regaiuing the uiiect gieenhouse gas emissions
stemming fiom unconventional gas mining, this iepoit touches on notable souices.
Bowevei, it uoes not engage in a thoiough examination of the methouological meiits
anu weaknesses of these souices.
Whilst this stuuy touches on coal-beu methane anu tight gas, its pieuominant focus is on
shale gas, which the eviuence at this time suggests will be the foim of unconventional
gas with the most giowth potential in the shoit to meuium teim. It shoulu be noteu that,
uespite this focus, the piocesses useu in shale gas extiaction - paiticulaily hyuiaulic
fiactuiing anu hoiizontal uiilling - aie to a uegiee shaieu by tight gas anu coal-beu
methane, as well as conventional gas. Technological gains in these aieas aie theiefoie
likely to also iesult in impiovements in the extiaction of natuial gas fiom othei souices.
This iepoit consiueis the piospects foi the inuigenous piouuction of shale gas within
the E0's 27 Nembei States. Infoimeu by the factois iuentifieu in Figuie 1-S below, it
evaluates the available eviuence on iesouice size, extiactive technology, iesouice access
anu maiket access. With iegaius to the iegulatoiy fiamewoik, this iepoit uses as an
input the analysis pioviueu by the legal stuuy commissioneu by the Euiopean
Commission anu ueliveieu by the law fiim Phillipe anu Paitneis in Novembei 2u11.
27

The two iepoits aie thus complementaiy in theii scope.

27
Philippe & Paitneis, 'Final Repoit on 0nconventional uas in Euiope', (Biussels: Euiopean Commission,
2u11).

9
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This iepoit also consiueis the implications foi the E0 of laige-scale unconventional gas
piouuction in othei paits of the woilu. This acknowleuges the fact that many changes in
the uynamics of eneigy supply can only be unueistoou in the bioauei global context. It
also acknowleuges that the E0 is a majoi impoitei of eneigy anu that it is theiefoie
heavily affecteu by uevelopments in global eneigy maikets that aie laigely out of its
contiol. Foi example, whilst the cuiient woilu gas tiaue is concentiateu in thiee
iegional maikets (Euiope, Asia anu Noith Ameiica), an anticipateu giowth in global
LNu flows is likely to leau to incieaseu piice anu supply inteiaction between iegions. In
spite of the fact that any significant shale gas piouuction in the E0 is not expecteu
befoie 2u2u, the fiist licensing iounus foi shale gas in othei majoi eneigy consuming
countiies, such as China, have alieauy taken place. uiven the laige estimateu

28
Auapteu fiom IEA, 'uoluen age', 47.
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unconventional iesouice base in these countiies,
29
theii successful uevelopment may
leau to supply effects on the E0 maiket, inuepenuent of the couise of any E0
piouuction.
In teims of the time hoiizon, this iepoit aims to covei the impact of unconventional gas
obseiveu to uate, as well as scenaiio analysis up to the yeai 2u4u.
ueopolitical consiueiations aie outsiue the scope of this stuuy. Nany commentatois
have wiitten about the possibility of unconventional gas limiting the ability of majoi
eneigy expoiteis to use theii iesouices as an instiument to auvance political
objectives;
Su
howevei this iepoit focuses on the eneigy maiket-ielateu factois.
The economic benefits to local economies anu national authoiities in teims of jobs anu
tax ievenues aie also excluueu fiom this stuuy. Expeiience shows that theie may be a
laige uemanu foi labouieis at both the gas fielus anu suppoit businesses, such as
uiilling contiactois, hyuiaulic fiactuiing companies anu tiucking companies. Although
estimations of the economic value-auueu of such seivice sectoi uevelopments aie often
auuiesseu in the liteiatuie, they can be vieweu as being outsiue the fielu of eneigy
economics in a stiict sense, anu they iequiie a uistinct knowleuge-set to evaluate in
uetail.
?@F G<( H10%:(/$ ($(0*= :%'5"= "%$,(I,
0n 1S Becembei 2u11, the Euiopean Commission auopteu its Eneigy Roaumap 2uSu.
S1

This Communication aims at exploiing how the E0's eneigy system coulu become moie
sustainable anu less caibon-intensive - in line with the E0's commitment to ieuuce
gieenhouse gas emissions by 8u-9S% in compaiison to 199u levels by 2uSu
S2
- while at
the same time ensuiing secuiity of eneigy supply anu competitiveness. The Roaumap
will help to inciease the long-teim pieuictability of the iegulatoiy fiamewoik foi
eneigy anu theieby ieuuce unceitainty foi investment by iuentifying initiatives that will
be ciucial foi the uecaibonisation piocess up to 2uSu. The Eneigy Roaumap 2uSu is the
stait of an iteiative uiscussion anu uialogue with Nembei States, E0 institutions anu
stakeholueis at laige.
Although foiecasting the long-teim futuie is not possible, the Eneigy Roaumap 2uSu
incluues scenaiios aiming at exploiing possible ioutes towaius uecaibonisation. Baseu
on this analysis, the Roaumap iuentifies key conclusions on 'no iegiets' options (namely
ienewable eneigy, eneigy efficiency anu infiastiuctuie) in the Euiopean eneigy system,
anu outlines othei key featuies foi a tiansition to a low-caibon eneigy system.
The Roaumap also iuentifies gas as a ciitical fuel foi the tiansfoimation of the eneigy
system. The substitution of coal anu oil with gas in the shoit to meuium teim coulu help
to ieuuce emissions with existing technologies until at least 2uSu-2uSS, as well as in the
longei teim with the commeicially availability of caibon captuie anu stoiage (CCS).
Bence, in the futuie, Euiope might neeu moie gas in the tiansition towaius an eneigy

29
EIA, 'Woilu Shale uas Resouices: An Initial Assessment of 14 Regions 0utsiue the 0niteu States',
(Washington, BC: 0S Eneigy Infoimation Auministiation, 2u11).
Su
See, foi example, Kenneth B. Neulock, Amy Nyeis }affe anu Petei R. Baitley, 'Shale uas anu 0.S. National
Secuiity ', (Bouston, TX: The }ames A. Bakei III Institute Eneigy Foium of Rice 0niveisity, 2u11).
S1
Euiopean Commission, 'Communication fiom the Commission to the Council anu the Euiopean
Pailiament - Eneigy Roaumap 2uSu', eu. Biiectoiate-ueneial foi Eneigy (2u11).
S2
In the context of necessaiy ieuuctions by uevelopeu countiies as a gioup.

11
system baseu laigely on ienewable eneigies. This gas will neeu to come fiom eithei
uomestic piouuction oi fiom impoits - but most likely fiom both.
In this context, this iepoit aims at pioviuing ieliable facts foi Euiopean policy-makeis
anu stakeholueis on unconventional souices of natuial gas which can, as the 0S
example shows, have piofounu impacts on the assumptions anu context of theii woik.
?@J ;(,<%)%'%*=
This iepoit consists of two main components. Fiistly, it closely examines the
unconventional gas liteiatuie coveiing both Euiope anu the iest of the woilu. As a
seconu component, this iepoit will use an eneigy mouel to elaboiate possible futuie
scenaiios that illustiate the potential impact of unconventional gas on the Euiopean
eneigy system. It will caiiy out this analysis baseu on the best, cuiient, estimateu
paiameteis as iuentifieu in the systematic liteiatuie ieview.
P]^]P '?>K:L;:IJB@:K QGH>;D BLK QCB;=>;:
Ninuful of the fact that the unconventional gas knowleuge-base is highly polaiiseu anu
cuiiently incomplete, this iepoit will iuentify select points of contioveisy in the
liteiatuie that may have a beaiing on the impact of unconventional gas in Euiope. It will
simply anu cleaily explain why these points of contioveisy aie impoitant to the uebate
anu then uesciibe the cuiient pievailing views. The iepoit will then assess the existing
eviuence aiounu these key points; evaluate the uegiee of unceitainty that cuiiently
exists; anu explain how possible futuie uevelopments in these aieas may impact oui
bioauei unueistanuing of the impact of unconventional gas.
In caiiying out the above, Chaptei 2 of this iepoit uiaws upon a iange of techniques
iefeiieu to as '7-=')F'SI(.'= &%:-F9 ()= &$(F8-F' (EBPP). Fiom ielatively small
beginnings within the meuical fielu, the concept of EBPP has gaineu incieasing
piominence in the 0K ovei the last 1S yeais anu now plays a uominant iole in a numbei
of policy aieas, incluuing euucation, social woik, ciiminal justice anu uiban
iegeneiation.
SS
Although the 0K Eneigy Reseaich Centie (0KERC) has successfully
applieu the methouology to the eneigy fielu foi a numbei of yeais, the concept iemains
laigely unknown to policy-makeis, ieseaicheis anu piactitioneis outsiue the 0K.
ueneially speaking, EBPP implies giving gieatei weight to scientific ieseaich eviuence
in policy-making than has conventionally been the case in the past. EBPP spans a iange
of piactices, such as a stiategic appioach to the cieation of eviuence anu the effective
uissemination of eviuence to wheie it is most neeueu. Bowevei, the aiea that has
ieceiveu the gieatest attention is the synthesis of existing eviuence thiough a piocess
known as a .9.8',(8-F $'7-'T.
Tiauitional, naiiative liteiatuie ieviews aie commonly uoggeu by shoitcomings such as
pooi specification of the ieview topic, leauing to excessively wiue-ianging uiscussion
anu inconclusive iesults; the selective anu oppoitunistic use of eviuence, leauing to
selection bias anu the neglect of ielevant stuuies; inauequate specification of the ciiteiia
foi incluuing oi excluuing stuuies; limiteu attention to the methouological quality of
uiffeient stuuies; anu a lack of tianspaiency, encouiaging subjectivity anu bias in the
iepoiting of iesults.

SS
Steve Soiiel, 'Impioving the eviuence base foi eneigy policy: The iole of systematic ieviews', ")'$;9
E%:-F9 SS (2uu7).

12
Systematic ieviews seek to auuiess each of the above limitations thiough the use of
explicit anu tianspaient methouologies that aie ieplicable anu upuateable. They involve
cleai specification of both the ieseaich question(s) to be auuiesseu anu the piocess that
is to be followeu; systematic anu exhaustive seaiching of the available liteiatuie;
explicit ciiteiia foi the inclusion oi exclusion of stuuies; quality appiaisal of the
incluueu stuuies using tianspaient anu stanuaiuiseu ciiteiia; objective summaiies of
the iesults, incluuing the meta-analysis of quantitative uata; effective uissemination of
the iesults to the appiopiiate auuience; anu iegulai upuating of the ieview iesults.
S4

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conclusions if they auopteu the
same methous, so the iesults
may easily be upuateu
0se methouologies anu ciiteiia
that lack tianspaiency, leaving
the inteipietation of iesults
open to subjectivity anu bias
P]^]S (F: '(-*/I()*2 AGK:H
This iepoit will also use the ETSAP-TIAN eneigy mouel to elaboiate possible futuie
scenaiios that illustiate the potential impact of unconventional gas on the eneigy mix,
baseu on the best, cuiient, estimateu paiameteis as iuentifieu in the liteiatuie ieview.
ETSAP-TIAN is the global multiiegional incaination of the well-known TINES mouel
geneiatoi that was uevelopeu anu is maintaineu by the Eneigy Technology Systems
Analysis Piogiamme (ETSAP) unuei the aegis of the IEA.
S6


S4
Ibiu.
SS
Souice: N. Petticiew, 'Systematic ieviews fiom astionomy to zoology: myths anu misconceptions',
X$-8-.C H'=-F(: 0%#$)(: S22 (2uu1). As quoteu in Soiiel, 'Impioving the eviuence base foi eneigy policy'.
S6
Foi moie infoimation, see The Eneigy Technology Systems Analysis Piogiam, C88&YZZTTT3-'(S
'8.(&3%$;ZT'IZ-)='A3(.& (citeu 1u1u2u11).

1S
ETSAP-TIAN is a paitial equilibiium mouel of the eneigy systems of the entiie woilu,
uiviueu into 1S iegions. The iegional mouules aie linkeu by tiaue vaiiables of the main
eneigy foims (coal, oil, gas) anu by emission peimits. Foi each iegion, the mouel
compiises explicit uesciiptions of moie than 1 uuu technologies anu 1uu commouities
(eneigy foims, mateiials, emissions), coveiing extiaction, piocessing, conveision,
tiauing anu enu-uses of all eneigy foims. Such technological uetail allows piecise
tiacking of capital tuinovei anu pioviues a piecise uesciiption of technological
competition.
The mouel constiucts a coheient image of the futuie eneigy system by choosing a mix of
technologies to invest in anu opeiate at each futuie peiiou, with the objective of
maximising total suiplus, while iespecting the many constiaints of the mouel. The
mouel's vaiiables incluue the investments, capacities anu activity levels of all
technologies at each peiiou of time, plus the amounts of eneigy anu mateiial flows in
anu out of each technology. Enuogenous tiaue of ciuue oil, petioleum piouucts, gas,
liquefieu natuial gas anu coal, as well as gieenhouse gas peimits, is iepiesenteu in
ETSAP-TIAN.
S7

Key factois affecting futuie gas supply anu uemanu aie ienueieu into a set of woikable
assumptions about what can be consiueieu as the piimaiy ueteiminants of futuie shale
gas uevelopment. In paiticulai, this iepoit focuses on the size anu piouuction costs of
shale gas iesouices, as well as global gioss uomestic piouuct (uBP) giowth. The mouel
is then useu to constiuct five possible scenaiios of futuie shale gas uevelopment. The
uiffeient tiajectoiies boine out by these scenaiios will be analyseu anu compaieu, with
a paiticulai focus on thiee main outputs: piouuction, inteiiegional tiaue anu final use.
In uoing so, this iepoit aims to sheu light on the conuitions unuei which shale gas can
be integiateu into the global eneigy system.
S8

0ne note of caution, howevei. Cuiient uevelopments suggest that NuLs may
significantly lowei the effective piouuction costs of natuial gas fiom shale wells. As a
iesult of a lack of ieliable geological uata on the NuL content of shale plays outsiue the
0SA, the mouelling section of this stuuy uoes not auuiess this potentially significant
factoi in global shale gas uevelopment.
?@K >(:%0, -,01",10(
Chaptei 2 of this iepoit, piepaieu by membeis of 0KERC, pioviues a systematic ieview
of eviuence aiounu the unconventional gas iesouice base - the staiting point foi any
examination of its economic impact. By examining the methous anu uata souices that
have been useu to piouuce vaiious estimates of the size anu chaiacteiistics of the
unconventional gas iesouices woiluwiue, this chaptei teases out the main
contioveisies anu unceitainties foi policy-makeis, anu attempts to pioviue a best
estimate of the iesouice base.
Chaptei S of this iepoit auuiesses existing techniques foi the extiaction of
unconventional gas, incluuing an assessment of costs foi uiffeient stages of exploiation
anu piouuction, as well as the piospects foi futuie leaining. The technological

S7
Richaiu Loulou anu Naiyse Labiiet, 'ETSAP-TIAN: the TINES integiateu assessment mouel Pait I:
Nouel stiuctuie', +%,&#8(8-%)(: H()(;',')8 @F-')F' S, no 1 (2uu8).
S8
Bespite stiiving foi a systemic point of view, it is invaiiably the case that not all factois affecting shale
gas uevelopment can be consiueieu. Aspects such as enviionmental impacts oi legal anu iegulatoiy issues
aie not consiueieu in the piesent analysis.

14
uimension of the pioblem is key to unueistanuing how much of the iesouice base can
be viably exploiteu anu at what piice. The chaptei has been piepaieu by Piof. ueihaiu
Thonhausei of the 0niveisity of Loeben (Austiia) anu although the subject mateiial
uoes not lenu itself to a systematic ieview, the chaptei pioviues a useful iefeience to
policy-makeis.
Chaptei 4 of the iepoit auuiesses key 'above-giounu' factois that may play a iole in
ueteimining the viability of inuigenous unconventional gas piouuction in Euiope. In
paiticulai, it singles out two key aieas of contioveisy in the Euiopean context - lanu
access anu maiket access. The chaptei also pioviues backgiounu infoimation foi policy-
makeis on the complex ielationship between eneigy inuepenuence anu eneigy secuiity.
Chaptei S of this iepoit pioviues an oveiview of eviuence aiounu the impact of
unconventional gas on gas supplies, gas piices, the eneigy mix, tiansnational tiaue
flows anu gas piicing iegimes. To this enu, the chaptei ieviews empiiical uata on the
effects of unconventional gas obseiveu so fai in both the 0SA anu Euiope, as well as
mouelling stuuies coveiing its possible futuie impact.
Finally, given the paucity of the existing uata on shale gas piouuction outsiue the 0niteu
States of Ameiica, Chaptei 6 aims to use an eneigy mouel to illustiate the potential
impacts of unconventional gas in the futuie in oiuei to aiu policy-makeis in iuentifying
potential challenges anu benefits. Key unceitainties aie selecteu anu testeu, anu
scenaiios aie uefineu, baseu on the best, cuiient, estimateu paiameteis as iuentifieu in
the liteiatuie ieview.

1S
S * C:?>:R GO C:E>GLBH BLK EHGJBH :@=>AB=:@ GO
<L;GL?:L=>GLBH EB@ C:@G<C;:@

+3 HFB:(=' !6)-7'$.-89 +%::';' <%)=%) ")'$;9 >).8-8#8'/ 6?5
@3 @%$$':: !@#..'A ")'$;9 B$%#& (8 6)-7'$.-89 %D @#..'A/ 6?5
03 @&'-$. !>,&'$-(: +')8$' D%$ ")'$;9 E%:-F9 ()= G'FC)%:%;9/ >,&'$-(: +%::';' <%)=%)/ 6?5

The uevelopment of unconventional gas iesouices is having an incieasing influence on
iegional anu global gas maikets, most notably in the 0SA. But the futuie potential foi
unconventional gas piouuction iemains contentious, with questions ovei the size anu
iecoveiability of the physical iesouice being cential to the uebate. Whilst estimates of
unconventional gas iesouices in the 0SA iemain veiy unceitain, this is eclipseu by the
much gieatei unceitainty suiiounuing unconventional gas iesouices in the iest of the
woilu. This chaptei assesses the available eviuence on the size of unconventional gas
iesouices at a global anu iegional level, incluuing the estimates maue to uate; the
methous by which they have been piouuceu; the iange of unceitainty in these
estimates; anu the factois that aie ielevant to theii inteipietation. Key messages
incluue the veiy wiue iange of unceitainty that exists at this eaily stage of uevelopment
of the iesouice; the confusion cieateu by competing iesouice uefinitions; anu the
existence of seveial notable contioveisies in unconventional gas iesouice assessments.
Thiee sepaiate types of unconventional gas aie consiueieu:
(>EF= EB@: this is gas tiappeu in ielatively impeimeable haiu iock, limestone oi
sanustone, sometimes with quantifieu limits of peimeability;
$GBHIJ:K A:=FBL: M$52N: this is gas tiappeu in coal seams, ausoibeu
1
in the
soliu matiix of the coal; anu
-FBH: EB@: this is gas tiappeu in fine giaineu seuimentaiy iock calleu shale,
which has a chaiacteiistic 'flaky' quality.
Shale gas anu CBN aie cleaily uefineu, baseu on the natuie of theii occuiience in eithei
coal seams oi shale. The case of tight gas is moie ambiguous since it exists in veiy
similai geological foimations to conventional gas, but exhibits ielatively slow flow iates.
(Foi a moie uetaileu uesciiption of these foims of unconventional gas, see Section
S.1.2.) The iecent inteiest in unconventional gas has been spuiieu mainly by the iapiu
emeigence of shale gas in the 0SA anu so this chaptei, while uiscussing all of the
unconventional gases, will focus in paiticulai on shale gas iesouices.
This chaptei pioviues a compiehensive ieview
2
of the available eviuence on the size of
unconventional gas iesouices, baseu upon an exhaustive seaich of the available
liteiatuie. uieatei ieliance is placeu upon the moie iigoious stuuies when uiawing
conclusions. The chaptei auuiesses the following foui questions:

1
Ausoibeu gas iefeis to gas molecules which have foimeu some auhesion to the soliu suiface of the
meuium in which it is containeu.
2
N. Petticiew anu B. Robeits, @9.8',(8-F 1'7-'T. -) 8C' @%F-(: @F-')F'.Y ( &$(F8-F(: ;#-=' (0xfoiu:
Blackwell Publishing, 2uuS).

16
1) What estimates have been maue of unconventional gas iesouices. Section 2.1
examines the iange of liteiatuie on all thiee types of unconventional gas
iesouices in both Euiope anu the iest of the woilu, with a paiticulai focus on
shale gas iesouices. It also uiscusses the uiffeient classifications anu uefinitions
of iesouice estimates, inuicating wheie these aie compaiable, wheie they uiffei
anu in which iepoits these uefinitions aie useu.
2) Bow uo we explain the vaiiability in shale gas iesouice estimates. Section 2.2
exploies the uiffeiing methous useu to ueiive shale gas iesouice estimates anu
pioviues an assessment of theii ielative stiengths anu weaknesses.
S) What uoes expeiience in the 0nites States of Ameiica tell us about the iesouice
estimation. Section 2.S examines the ielevance of piouuction uecline iates fiom
inuiviuual wells, summaiises some of the iecent contioveisies ovei this issue in
the 0SA, anu assesses the implications foi the iobustness of iesouice estimates.
4) What is the iange of unceitainty ovei the size of unconventional gas iesouices.
Section 2.4 uiaws togethei the eviuence in pieceuing chapteis anu attempts to
chaiacteiise the unceitainty suiiounuing estimates of global unconventional gas,
anu paiticulaily shale gas, iesouices.
C@? H-,5+/,(-L G<( *'%7/' 1$"%$4($,5%$/' */- 0(-%10"( 7/-(
This section pioviues an oveiview of the liteiatuie pioviuing iesouice estimates foi the
thiee unconventional gases. These estimates aie piesenteu in a vaiiety of ways that aie
not always compaiable, so it is fiist impoitant to establish the meaning of the vaiious
teims anu uefinitions that aie employeu. These uefinitional issues aie uiscusseu in
uetail in Section 2.1.1.
Section 2.1.2 pioviues a bieakuown of the vaiious types of liteiatuie that exist,
categoiising stuuies by uate, iegion, unconventional gases coveieu anu whethei they
have been peei ievieweu. This is followeu by a closei examination of the upwaiu tienu
in shale gas iesouice estimates ovei the last two uecaues, which seives to uemonstiate
how iapiuly knowleuge is giowing in this aiea. Section 2.1.S examines the vaiious
iegional anu global estimates of shale gas iesouices, focusing in paiticulai on those
maue in the last thiee yeais, while Section 2.1.4 puts these into context by compaiing
them with global estimates of conventional, tight anu CBN iesouices. 0sing the mean of
iecoveiable iesouice estimates, it is shown that shale gas may compiise some Su% of
the global technically iecoveiable iesouice of natuial gas. Bowevei, the main lesson is
the wiue vaiiability anu laige unceitainty in unconventional gas iesouice estimates.
S]P]P [:O>L>=>GL@
>(-%10"( )(E5$5,5%$-
Estimates foi unconventional gas iesouices may be pioviueu foi uiffeient levels of
spatial aggiegation (e.g. countiy, iegion, 'geological play',
S
fielus, well) anu may eithei
iefei to quantities of gas that aie estimateu to be piesent oi quantities of gas that aie

3
A geological play is uefineu as "A set of known oi postulateu oil anu gas accumulations shaiing similai
geologic, geogiaphic, anu tempoial piopeities, such as souice iock, migiation pathway, timing, tiapping
mechanism, anu hyuiocaibon type." 0niteu States ueological Suivey, 'Chaptei uL ulossaiy', in V%$:=
&'8$%:'#, (..'..,')8 M[[[Y )'T '.8-,(8'. %D #)=-.F%7'$'= %-: ()= )(8#$(: ;(./ -)F:#=-); $'.'$7' ;$%T8C/
%#8.-=' 8C' 6)-8'= @8(8'. (Reston, vA: 0S Bepaitment of the Inteiioi, 2uuu).

17
estimateu to be technically oi economically iecoveiable. In the lattei case, these
estimates may be expiesseu piobabilistically anuoi given to uiffeient levels of
confiuence (e.g. 'piobable' oi 'possible'). Cleai uefinitions anu appiopiiate
inteipietation of the figuies stateu is impoitant as confusion oi pioblems fiequently
aiise when uiffeient estimates aie incoiiectly compaieu. Within this chaptei, the
specific uefinitions given below will be useu. Bowevei, the wiue-ianging natuie of the
eviuence means that not all of the iepoits use the same uefinitions. In some cases, the
uefinition being useu is not stateu explicitly oi at all; in otheis, similai teims aie useu
but with slightly uiffeient inteipietations; while in fuithei iepoits, ambiguous teims
that coulu iefei to any of the uefinitions aie employeu (e.g. 'iecoveiable iesouices').
This often compounus the pioblem mentioneu above of compaiing uiffeient estimates.
Wheievei possible, uefinitions have been compaieu only when they aie equivalent oi
aie juugeu to be effectively equivalent.
A pioblem that fiequently occuis is the use of teims applicable to conventional gas
iesouices when iefeiiing to unconventional gas iesouices, wheie it woulu be cleaiei
anu less ambiguous to use alteinative teims. An example of this is the use of the teims
'uiscoveieu' anu 'unuiscoveieu'. In contiast to conventional oil anu gas iesouices, the
location of the petioleum souice foi unconventional gas is usually known anu so they
aie not 'unuiscoveieu' in the tiauitional sense: a well uiilleu into an aiea holuing
unconventional gases will piobably yielu some volumes of gas. Bowevei, if these
iegions have not been extensively uiilleu, the piecise chaiacteiistics of the geology may
not be well known anu theie may be coiiesponuing unceitainty iegaiuing the technical
anu economic feasibility of gas piouuction.
The Society of Petioleum Engineeis (SPE) Petioleum Resouices Nanagement System
(PRNS) inuicates that 'uiscoveieu' shale gas iesouices iequiie 'collecteu uata |thatj
establish|esj the existence of a significant quantity of potentially moveable
hyuiocaibons'.
4
To meet this ciiteiion, the SPE inuicates that theie must be sufficient
eviuence of the existence of hyuiocaibons fiom well tests, coie anu log uata, togethei
with eviuence that aieas which aie similai to that unuei investigation ('analogues') can
suppoit commeicially viable gas piouuction. This appeais to be a ieasonable
iequiiement, especially given the heteiogeneity founu in many unconventional gas
plays (see Section 2.1.S). Bowevei it uoes not allow one to uistinguish between
geological aieas that contain 'Resouices postulateu fiom geologic infoimation anu
theoiy to exist outsiue of known oil anu gas fielus' (the 'tiauitional' uefinition of
unuiscoveieu conventional hyuiocaibons useu by the 0niteu States ueological Suivey,
0SuS
S
) anu those aieas that aie known but uo not meet the above iequiiement. 0nless
otheiwise stateu, use of the teim 'unuiscoveieu' in this chaptei iefeis only to the
tiauitional uefinition - i.e. gas that is estimateu to exist outsiue of known foimations.
When iepoiting unconventional gas volumes, the laigest figuie that can be given is the
initial oi %$-;-)(: ;(. -) &:(F' (0uIP); this is the total volume of natuial gas that is
estimateu to be piesent in a given fielu, play oi iegion. This figuie only conveys pait of
the necessaiy infoimation to estimate iecoveiable iesouices, howevei. The fiaction of
the 0uIP that is estimateu to be iecoveiable - the $'F%7'$9 D(F8%$ - is equally impoitant

4
Society of Petioleum Engineeis, 'uuiuelines foi Application of the Petioleum Resouices Nanagement
System', (Lonuon: Society of Petioleum Engineeis, 2u11).
S
0niteu States ueological Suivey, 'Chaptei uL ulossaiy'.

18
anu can vaiy substantially uepenuing on the geological conuitions, technology useu anu
pievailing gas piices.
The #:8-,(8':9 $'F%7'$(I:' $'.%#$F' (0RR) of a fielu oi iegion is the sum of all gas that is
expecteu to be iecoveieu fiom that fielu oi iegion ovei all time. This figuie incluues any
gas that is estimateu to be unuiscoveieu (using both of the above inteipietations), is not
iecoveiable with cuiient technology, anuoi is not cuiiently economic but which is
expecteu to become so befoie piouuction ceases. The fiaction of the gas in place that
can be classifieu as 0RR theiefoie takes into account anticipateu technological
uevelopments, changes in maiket conuitions anuoi exploiation effoits. Estimates of
0RR will theiefoie be sensitive to the assumptions useu anu aie likely to be paiticulaily
unceitain uuiing the eaily stages of a iegion's uevelopment. The inuustiy-stanuaiu
teim foi uiscussing the ultimate iecoveiy fiom an inuiviuual well is the '.8-,(8'=
#:8-,(8' $'F%7'$9 (E0R) usually uenoteu as E0Rwell anu also sometimes iefeiieu to as
the 'piouuctivity'. E0R is essentially iuentical to 0RR, although 0RR is usually piefeiieu
when iefeiiing to aieas oi iegions laigei than a well, anu so the notation of 0RRwell
has been useu thioughout this iepoit insteau of E0Rwell to avoiu confusion. A moie
uetaileu uesciiption of the ielationship between 0RR anu E0R is pioviueu in Annex B.
An alteinative estimate that can be given is the 8'FC)-F(::9 $'F%7'$(I:' $'.%#$F'. (TRR)3
TRR is the iesouice figuie most fiequently pioviueu by the liteiatuie; howevei,
complete anu cleai uefinitions of TRR aie iaiely pioviueu. Souices ievieweu in this
chaptei agiee that TRR is the fiaction of the gas in place that is estimateu to be
iecoveiable only with cuiient technology; howevei, ambiguity iemains ovei whethei
souices incluue unuiscoveieu volumes of gas fiom theii uefinitions anu what they mean
by the teim 'unuiscoveieu'. The majoiity of the souices that pioviue explicit uefinitions
uo appeai to incluue unuiscoveieu volumes of gas within theii estimates of TRR. The
iepoit authois have theiefoie employeu a uefinition wheieby TRR is gas that is
estimateu to be iecoveiable with cuiient technology in: a) uiscoveieu foimations that
aie consiueieu to meet the SPEPRNS iequiiements; b) uiscoveieu foimations that aie
not consiueieu to meet the SPEPRNS iequiiements; anu c) unuiscoveieu foimations.
If cumulative piouuction to uate is subtiacteu fiom the estimateu TRR, the iesiuual is
iefeiieu to as the $',(-)-); 8'FC)-F(::9 $'F%7'$(I:' $'.%#$F'. (RTRR). In piactice, given
the infancy of unconventional gas piouuction outsiue a few aieas in Noith Ameiica,
these two teims aie effectively equivalent in the majoiity of iegions. Wheie ielevant
anu possible, estimates can be conveiteu to the uefinition stateu (TRR, 0RR, etc.) using
the cumulative piouuction uata shown in Figuie 2-S.
Since not all of the technically iecoveiable iesouices will be economic to iecovei, foi
example in fielus with low piouuction iates anu high costs, a fuithei subset of the
technically iecoveiable iesouices is often given: the 'F%)%,-F(::9 $'F%7'$(I:' $'.%#$F'.
(ERR). Similai to TRR, this estimate typically incluues any gas that is in: a) uiscoveieu
foimations that aie consiueieu to meet the SPEPRNS iequiiements; b) uiscoveieu
foimations that aie not consiueieu to meet the SPEPRNS iequiiements; anu c)
unuiscoveieu foimations. Bowevei, unlike TRR, the ERR must be consiueieu to be both
technically anu economically iecoveiable. In piinciple, if the maiket piice was to
inciease oi the piouuction costs ueciease, the estimateu volume of economically
iecoveiable iesouices woulu be expecteu to inciease (anu vice veisa).
The concept of economically iecoveiable iesouices of unconventional gas in
unuiscoveieu aieas is stiange: theie appeais to be little basis foi assumptions about the

19
economic viability of iesouices within iegions which have not yet been founu, have not
been uiilleu anu about which veiy little infoimation is available. Bowevei, a numbei of
souices
6
iepoit the economically iecoveiable iesouices foi conventional oil anu gas in
unuiscoveieu aieas. So in oiuei to pioviue consistency, gas in unuiscoveieu aieas
within the iepoit's uefinition of ERR foi unconventional gas has also been incluueu
heie, although it coulu equally be aigueu that it shoulu be excluueu.
>(-(04( )(E5$5,5%$-
The final subset of iesouices is $'.'$7'.3 The exact uefinition of ieseives vaiies fiom one
souice to anothei, but they aie geneially those poitions of the economically iecoveiable
iesouices that have been uiscoveieu (i.e. fulfil the SPEPRNS ciiteiion uesciibeu above)
anu aie estimateu to have a specifieu piobability of being piouuceu. Reseive estimates
aie fiequently given to thiee levels of confiuence, namely: &$%7'= $'.'$7'. (1P); &$%7'=
()= &$%I(I:' $'.'$7'. (2P); anu &$%7'=/ &$%I(I:' ()= &%..-I:' $'.'$7'. (SP). In piinciple,
an estimate of economically iecoveiable iesouices incluues both ieseives anu the
estimateu volumes of unuiscoveieu gas that is consiueieu to be economically
iecoveiable. Bowevei, estimates of ERR aie iaiely given a piobabilistic inteipietation,
so typically it is not cleai whethei they aie baseu upon 1P, 2P oi SP ieseive estimates.
Befinitions of the 1P, 2P anu SP ieseives vaiy wiuely fiom one countiy to anothei anu
fiom one company to anothei, with some employing a ueteiministic uefinition (ceitain
qualitative ciiteiia must be satisfieu) anu otheis using a piobabilistic uefinition (ieseive
estimates aie baseu upon a piobability uistiibution of iesouice iecoveiy). Foi example,
the SPEPRNS allows one to associate 1P, 2P anu SP with eithei ueteiministic oi
piobabilistic uefinitions. Besciiptions of the ueteiministic uefinitions aie given with, foi
example, 1P ieseives: 'those quantities of petioleum which, by analysis of geoscience
anu engineeiing uata, can be estimateu with ieasonable ceitainty to be commeicially
iecoveiable'.
0nuei the SPEPRNS piobabilistic uefinitions 1P, 2P anu SP, ieseive estimates aie
commonly expiesseu as P9u, PSu anu P1u iespectively. P9u (1P) estimates aie then
inteipieteu as the volume of gas piouuction that is estimateu to have a 9u% piobability
of being exceeueu by the time piouuction ceases. Similaily, PSu (2P) anu P1u (SP)
estimates iefei to volumes of gas piouuction that aie estimateu to have a Su% anu 1u%
piobability iespectively of being exceeueu. 0nuei this inteipietation, 2P (PSu) is
equivalent to a ,'=-() estimate of ieseives. This leaus to two auuitional pioblems,
howevei. The fiist is whethei available ieseive estimates actually coiiesponu to these
piecise statistical uefinitions.
7
The seconu ielates to the aggiegation of ieseive
estimates: foi example, in ueiiving iegional ieseive estimates by summing the ieseive
estimates of inuiviuual fielus.
Statistically, it is only valiu to aiithmetically sum ieseive estimates if these coiiesponu
to ,'() estimates of iecoveiable iesouices. If, insteau, 1P (P9u) ieseive estimates aie

6
E.B. Attanasi anu P.A. Fieeman, 'Economic analysis of the 2u1u 0.S. ueological Suivey assessment of
unuiscoveieu oil anu gas in the National Petioleum Reseive in Alaska', (Reston, vA: 0niteu States
ueological Suivey, 2u11); Nineials Nanagement Seivice, 'Assessment of 0nuiscoveieu Technically
Recoveiable 0il anu uas Resouices of the Nation's 0utei Continental Shelf', (Washington, BC: 0S
Bepaitment of the Inteiioi, 2uu6).
7
Steve Soiiell et al., 'ulobal oil uepletion: An assessment of the eviuence foi a neai-teim peak in global oil
piouuction', (Lonuon: 0K Eneigy Reseaich Centie, 2uu9).

2u
aiithmetically summeu, the aggiegate figuie will #)='$'.8-,(8' the total ieseives.
Similaily, if SP (P1u) ieseive estimates aie aiithmetically summeu, the aggiegate figuie
will %7'$'.8-,(8' the total ieseives.
8
Aggiegation of 2P ieseive estimates shoulu leau to
smallei eiiois, but the magnituue anu sign of these eiiois will uepenu upon the
uiffeience between ,'() anu ,'=-() estimates anu hence the piecise shape of the
unueilying piobability uistiibution (which is iaiely available). In piactice, aggiegation
of 1P estimates is moie common, theieby leauing to unueiestimation of iegional
ieseives.
A compaiison of the uiffeient iesouice uefinitions is piesenteu in Table 2-1 anu in the
foim of a mouifieu 'NcKelvey box' in Figuie 2-1.
9
It shoulu be cleai fiom the above,
howevei, that the use of iesouice anu ieseive teiminology is inconsistent, impiecise
anu in neeu of stanuaiuisation. uiven the eaily-stage piouuction of this iesouice anu
the veiy laige unceitainty in all iesouice estimates, consiueiable oveilap is anticipateu
between 0RR, TRR anu ERR estimates - uespite the conceptual uistinction between
them.
(BJH: SIP. )L=:CQC:=>LE =F: =:CA>LGHGED <@:K OGC <L;GL?:L=>GLBH EB@ C:@G<C;: :@=>AB=:@
#BA:
-FGC=
K:@;C>Q=>GL
)L;H<K:@ EB@
>L
<LK>@;G?:C:K
OGCAB=>GL@
)L;H<K:@ EB@
LG=
:;GLGA>;BHHD
C:;G?:CBJH:
R>=F ;<CC:L=
=:;FLGHGED
)L;H<K:@ EB@
=FB= >@ LG=
C:;G?:CBJH:
R>=F ;<CC:L=
=:;FLGHGED
)L;H<K:@ EB@
=FB= >@ LG=
:9Q:;=:K =G
J:;GA:
C:;G?:CBJH:
%C>E>LBH EB@ >L
QHB;:
Total volume
piesent
! ! ! !
"H=>AB=:HD
C:;G?:CBJH:
C:@G<C;:@
Total volume
iecoveiable
ovei all time
! ! !
(:;FL>;BHHD
C:;G?:CBJH:
C:@G<C;:@
Recoveiable
with cuiient
technology
! !
';GLGA>;BHHD
C:;G?:CBJH:
C:@G<C;:@
Economically
iecoveiable
with cuiient
technology
!
P/WS/WV/
C:@:C?:@
Specific
piobability
of being
piouuceu



8
R. Pike, 'Bave we unueiestimateu the enviionmental challenge.', E'8$%:'#, $'7-'T (2uu6): 26-27,
Soiiell et al., '0il uepletion'.
9
v.E. NcKelvey, 'Nineial iesouice estimates anu public policy', J,'$-F() @F-')8-.8 6u (1972): S2-4u.

21
6>E<C: SIP. 0:@G<C;:@ BLK C:@:C?:@
P`


Natuial gas is geneially iepoiteu on a volumetiic basis in eithei impeiial (cubic feet) oi
metiic (cubic meties) units. In the impeiial system, a piefix of 'N' usually uenotes a
thousanu (so NNcf is a million cubic feet), while in the metiic system 'm' coiiesponus to
a million (so mcm is a million cubic meties). Foi iesouice estimates, the most common
piefixes aie 'B' foi a billion anu 'T' foi a tiillion, both of which aie commonly useu with
cubic meties anu feet. At 6u
o
F (1S.S6
o
C) anu 14.7S psi (1 atmospheie oi 1u1.S2SkPa),
cubic feet can be ueiiveu by multiplying cubic meties by SS.S, i.e. 1 Tcm = SS.S Tcf.
Although the majoiity of existing liteiatuie uses one oi moie of the above categoiies of
iesouices, theie is one impoitant exception: the 0niteu States ueological Seivice. The
0SuS states that it pioviues estimates of "unuiscoveieu" volumes of unconventional
gases in uiffeient geological aieas of the 0niteu States of Ameiica. The 0SuS iepoits uo
not pioviue a cleai uefinition of the teim 'unuiscoveieu', but infoimation containeu in
two 0SuS methouological papeis
11
inuicates that these figuies shoulu be inteipieteu as
"potential auuitions to ieseives". The authois concluue that an estimate of the
iemaining technically iecoveiable iesouices foi the whole of the 0SA may be ueiiveu by
summing the available estimates of the following.
0S pioveu ieseives;
0S infeiieu ieseives;
12


1u
Souice: Nouifieu fiom Ibiu.
11
R.R. Chaipentiei anu T.A. Cook, 'Impioveu 0SuS methouology foi assessing continuous petioleum
iesouices', (Reston, vA: 0niteu States ueological Seivice, 2u1u), 22; }.W. Schmokei, '0S ueological Suivey
Assessment Concepts foi Continuous Petioleum Accumulations, in Petioleum Systems anu ueologic
Assessment of 0il anu uas in the Southwestein Wyoming Piovince, Wyoming, Coloiauo, anu 0tah.', (
Benvei, C0: 0niteu States ueological Suivey, 2uuS).
12
The uefinition of the teim 'infeiieu ieseives' is uncleai as it is useu by uiffeient oiganisations to mean
uiffeient things. The 0SuS in 199S, foi example, useu it to iefei to ieseive giowth in conventional fielus,
while the EIA inuicateu that it most likely coiiesponus to 'piobable ieseives'. The authois piefei this latei
uefinition since it is moie iecent anu moie applicable to unconventional gas iesouices. 'Piobable
ieseives' appeai to be equivalent to 2P minus 1P ieseives. EIA, 'Estimation of ieseives anu iesouices -
appenuix u', in 6@ +$#=' U-:/ L(8#$(: B(./ ()= L(8#$(: B(. <-\#-=. $'.'$7'. $'&%$8 (Washington, BC: 2uu9),
B.L. uautiei anu 0niteu States ueological Suivey, '199S national assessment of 0niteu States oil anu gas

22
the 0SuS mean estimates of potential auuitions to ieseives in known foimations;
anu
mean estimates of unuiscoveieu technically iecoveiable iesouices.
The auuition of contempoianeous estimates of total cumulative piouuction gives an
estimate of the total technically iecoveiable iesouice of the 0SA.
S]P]S -G<C;:@ GO KB=B
The focus of this chaptei is %$-;-)(: estimates of 0uIP, TRR oi ERR foi any of the
unconventional gases - although with a paiticulai focus on shale gas. An oiiginal
estimate foi any countiy oi iegion is one fiom a souice that has eithei ='7':%&'= the
estimate itself using iecogniseu methouologies, oi (=(&8'= the estimate fiom existing
souices. 0iiginal estimates uo not neeu to come fiom inuepenuent oi uistinct
oiganisations - inueeu, seveial inuiviuuals anu oiganisations have piouuceu multiple
estimates. Bowevei, the estimates must be =-DD'$')8 in oiuei to be counteu as oiiginal.
As can be seen in Figuie 2-2, theie aie S6 iepoits pioviuing oiiginal countiy-level
estimates of unconventional gas iesouices, with S8 of these (~7u%) publisheu since the
beginning of 2uu7. The piimaiy motivation foi these stuuies has been the iapiu
uevelopment of 0S shale gas iesouices (Figuie 2-S), with S2 of the S6 iepoits pioviuing
iesouice estimates foi the 0SA anuoi Canaua. Figuie 2-4 pioviues a bieakuown of
estimates by gas type anu iegion, inuicating whethei the iepoits have been peei
ievieweu.
6>E<C: SIS. $<A<HB=>?: L<AJ:C GO C:QGC=@ Q<JH>@F:K QCG?>K>LE GC>E>LBH ;G<L=CDIH:?:H :@=>AB=:@ GO
BLD GO =F: <L;GL?:L=>GLBH EB@:@

Relatively few oiganisations oi inuiviuuals pioviue peiiouic iesouice estimates foi all
thiee of the unconventional gases on a consistent basis. 0ne notable exception is the
EIA, whose Annual Eneigy 0utlooks (AE0) have pioviueu estimates of the iemaining,
technically iecoveiable, unconventional gas iesouices in the 0SA since 1997. Each AE0
iepoits the iemaining iecoveiable iesouices fiom two yeais piioi to publication, so the
fiist estimate of iemaining iecoveiable iesouices is foi 199S. Figuie 2-S uemonstiates
that the estimates of the iemaining technically iecoveiable tight gas anu CBN have
incieaseu by 2S% anu 1S4% iespectively since 199S, while the estimates foi shale gas
have incieaseu by a factoi of 1S. The majoiity of the inciease in tight gas anu CBN
iesouice estimates has occuiieu since 2uu7, with estimateu volumes incieasing by
aiounu Su% anu 1uu% iespectively. Shale gas estimates have incieaseu by 2uu% in the
same timefiame.

iesouices iesults, methouology, anu suppoiting uata ', (Reston, vA: 0niteu States ueological Suivey,
199S).

2S
6>E<C: SIV. '@=>AB=:@ GO C:AB>L>LE C:;G?:CBJH: C:@G<C;:@ OGC <L;GL?:L=>GLBH EB@:@ >L =F: "-* >L
@<;;:@@>?: *LL<BH 'L:CED %<=HGGZ@ OCGA =F: ')*
PV



6>E<C: SIa. [>@=C>J<=>GL GO H>=:CB=<C: QCG?>K>LE GC>E>LBH C:@G<C;: :@=>AB=:@ JD C:E>GLY @G<C;: BLK
EB@ =DQ:
Pa



As inuicateu in Figuie 2-4, a gieat numbei of iepoits have pioviueu estimates foi shale
gas iesouices in Noith Ameiica. Theie is, howevei, a huge vaiiation between these
estimates anu 0S estimates have iisen uiamatically in the past six yeais. Figuie 2-S
illustiates the tienu in 0S shale gas iesouice estimates since 1982. These incieaseu
fiom an aveiage of 1.8 Tcm between 198S anu 2uuS to an aveiage of 18.4 Tcm between
2uu6 anu 2u1u. This iise coinciueu with a ioughly tenfolu inciease in annual shale gas
piouuction ovei the same peiiou. Since the iapiu inciease in the estimateu volume of
iecoveiable iesouices has coinciueu with a uiamatic inciease in uiilling acioss the 0SA
anu theiefoie pioviueu a gieatei knowleuge anu unueistanuing of the iesouice base,
the moie iecent estimates aie likely to piove moie accuiate.

1S
Souice: EIA, 'Annual Eneigy 0utlook', (Washington, BC: 0S Eneigy Infoimation Auministiation,
vaiious). The 1998 anu 1997 AE0s pioviueu estimates of the iemaining ERR while all the otheis
pioviueu estimates of the iemaining TRR.
14
Note: A numbei of iepoits pioviue estimates foi moie than one countiy oi gas type. These aie iepoiteu
sepaiately in each categoiy anu so the absolute numbeis within each chait will not be iuentical.

24
6>E<C: SI^. "- @FBH: EB@ C:@G<C;: :@=>AB=:@ BLK BLL<BH QCGK<;=>GL
P^


S]P]V '@=>AB=:@ GO @FBH: EB@ C:@G<C;:
M'%7/' (-,5+/,(-
This section pioviues a moie uetaileu examination of the estimates maue foi shale gas
iesouices oi shale gas-in-place. It begins with those iepoits that have consiueieu eithei
global shale gas iesouices oi the shale gas potential in a numbei of iegions woiluwiue.
This is followeu by an examination of the estimates that have been maue in Noith
Ameiica, Euiope anu in China. Foi all othei iegions it was founu that only one oi two, if
any, iesouice estimates weie available anu so it was not possible to pioviue any
meaningful compaiisons of these.
A total of Su souices pioviue oiiginal countiy oi iegional-level estimates of shale gas
iesouices (see Table B-1). As inuicateu pieviously, a numbei of souices uo not inuicate
whethei they have incluueu estimates of unuiscoveieu volumes of shale gas in theii
estimates of TRR. We can ueuuce whethei this is likely, howevei, by examining whethei
they only consiuei inuiviuual, uiscoveieu shale plays anuoi make any iefeience to the
potential foi shale gas to be founu outsiue these plays. INTEK
16
estimates that theie aie
1.6 Tcm of unuiscoveieu shale gas iesouices in the 0SA. Bence, it is possible to conveit
estimates of 'uiscoveieu TRR' in the 0SA to estimates of 'full TRR' by auuing in the
INTEK figuie. Theie aie no estimates of unuiscoveieu shale gas outsiue the 0SA since
the focus to uate has been on those shale plays that aie known to exist.
0n a global scale, the estimate maue by Rognei
17
foimeu the basis of neaily all estimates
of the shale gas iesouice base outsiue Noith Ameiica until aiounu 2uu9. As uiscusseu in
moie uetail in Section 2.2, Rognei estimateu the oiiginal gas in place foi each of the
unconventional gases within 11 continental iegions, as shown in Table 2-2. Rognei's

1S
Souice: Piouuction uata fiom 1982-1989 taken fiom Slutz, 'Well completions anu piouuction
challenges'; uata fiom 199u onwaius taken fiom EIA, 'AE0 2u11'. uiaph incluues both TRR anu ERR
iesouice estimates fiom all souices. The 0SuS figuie combines all of its latest iesouice assessments foi
shale plays of vaiious uates but is plotteu at August 2u11, the uate of the most iecent 0SuS assessment of
the Naicellus shale. }.L. Coleman et al., 'Assessment of unuiscoveieu oil anu gas iesouices of the Bevonian
Naicellus shale of the Appalachian basin piovince', (Reston, vA: 0niteu States ueological Suivey, 2u11).
16
INTEK, 'Review of emeiging iesouices: 0.S. shale gas anu shale oil plays', (Washington, BC: 2u11).
17
Rognei, 'Assessment of Woilu Resouices'.

2S
estimate of the global 0uIP foi unconventional gas was 92u Tcm, of which Su% was
shale gas. Rognei neithei pioviueu a bieakuown of 0uIP in any inuiviuual countiies, noi
uiu he inuicate the fiaction of these values that weie likely to be iecoveiable. Bowevei,
numeious oiganisations have ueiiveu technically iecoveiable iesouice estimates by
applying peicentage iecoveiy factois to Rognei's figuies. Some values suggesteu oi
useu incluue 1S% by Nohi anu Evans,
18
1u-SS% by the Nassachusetts Institute of
Technology (NIT)
19
anu 4u% by both ARI
2u
anu the IEA
21
. To put these iecoveiy factois
in context, ARI
22
uses a iange of 1S-SS% foi the iecoveiy of shale gas fiom each
geological aiea analyseu, while iecoveiy fiom conventional gas wells is often aiounu
7u-8u%.
2S

(BJH: SIS. '@=>AB=:@ GO GC>E>LBH @FBH: EB@ >L QHB;: JD 0GEL:C
Sa

0:E>GL %C>E>LBH @FBH: EB@ >L QHB;: M(;AN
Noith Ameiica 1u8.S
Latin Ameiica anu the Caiibbean S9.7
Westein Euiope 14.4
Cential anu Eastein Euiope 1.1
Foimei Soviet 0nion 17.7
Niuule East & Noith Afiica 71.8
Sub-Sahaian Afiica 7.7
Centially Planneu Asia & China 99.4
South Asia 6S.2
0thei Pacific Asia 8.8
Pacific 0ECB u
(G=BH a^a]P

0sing Rognei's 0uIP estimates, a 1S% iecoveiy factoi woulu give a global estimate of
68 Tcm foi the TRR of shale gas, while a 4u% iecoveiy factoi woulu inciease this to
181.S Tcm. Bence, the iange of 1S-4u% in the iecoveiable fiaction of Rognei's 0uIP
coiiesponus to an unceitainty of aiounu 11S.S Tcm on a global scale. This appioximates
to one-thiiu of the Bunuesanstalt fi ueowissenschaften unu Rohstoffe (BuR)'s estimate
of the iemaining global, technically iecoveiable iesouice of conventional gas
(~42S Tcm).
2S


18
S.B. Nohi anu u.N. Evans, 'Shale gas changes N. Ameiican gas piouuction piojections', U-: ()= B(.
0%#$)(: 1u8, no 27 (2u1u).
19
Q. Ejaz, 'The Futuie of Natuial uas Supplementaiy papei SP2.2: Backgiounu mateiial on natuial gas
iesouice assessments, with majoi iesouice countiy ieviews', (Cambiiuge, NT: Nassachusets Institute of
Technology, 2u1u).
2u
v.A. Kuuskiaa, 'Woiluwiue gas shales anu unconventional gas: a status iepoit', (Ailington, vA:
Auvanceu Resouices Inteinational Inc., 2uu9).
21
The IEA uoes not explicitly state the iecoveiy factoi useu foi each of the thiee unconventional gases,
but pioviues figuies fiom which it can be calculateu. IEA, 'Woilu Eneigy 0utlook 2uu9', in V%$:= ")'$;9
U#8:%%W (Paiis: 0iganisation foi Economic Co-opeiation anu Bevelopment, 2uu9).
22
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices: an initial assessment of 14 iegions
outsiue the 0niteu States', (Washington, BC: Auvanceu Resouices Inteinational Inc., 2u11).
2S
C. Besson, 'Resouices to ieseives: oil & gas technologies foi the eneigy maikets of the futuie', (Paiis:
Inteinational Eneigy Agency, 2uuS).
24
Rognei, 'Assessment of Woilu Resouices'.
25
B.}. Kmpel, 'Eneigy Resouices 2uu9: Reseives, Resouices, Availability', (Bannovei, ueimany:
Bunuesanstalt fi ueowissenschaften unu Rohstoffe (BuR) Feueial Institute foi ueosciences anu Natuial
Resouices, 2uu9). 187 Tcm, oi 44% of the total iemaining technically iecoveiable iesouices of

26
A moie iecent iepoit by the Woilu Eneigy Council (WEC) in 2u1u also pioviueu 0uIP
figuies foi iegions similai to those useu by Rognei,
26
although it combineu South Asia,
0thei Pacific Asia anu 0ECB Pacific into one iegion. Some of the estimates pioviueu aie
significantly uiffeient to Rognei's, with the estimateu 0uIP foi Latin Ameiica anu
Centially Planneu Asia & China uecieasing to 1u.6 Tcm anu 1u.S Tcm (a ieuuction of
aiounu 8u% anu 9u% iespectively fiom Rognei's figuies) while the 0uIP estimateu foi
the Foimei Soviet 0nion is 1SS Tcm (an inciease gieatei than eightfolu). Regaiuing
iecoveiy factois, it is mentioneu that "neaily 4u% of this enuowment woulu be
economically iecoveiable", coiiesponuing to a global ERR of aiounu 17u Tcm. uiven
that the costs of extiaction anu maiket conuitions at the time when the iesouice will be
extiacteu is highly unceitain, paiticulaily in aieas wheie theie is cuiiently no shale gas
piouuction, it is likely that the WEC's estimate actually coiiesponus moie closely to TRR
iathei than to ERR.
Two othei iecent inuepenuent iepoits have been unueitaken that estimate technically
iecoveiable shale gas iesouices on a global scale.
27
Neveitheless, even these uo not
attempt to assess all shale plays anu inuicate that theie is limiteu geological infoimation
available foi a numbei of plays anticipateu to holu shale gas.
ARI, foi example, ignoies iegions wheie theie aie laige quantities of conventional gas
ieseives (Russia anu the Niuule East) oi wheie theie is insufficient infoimation to caiiy
out an assessment.
28
Similaily, Neulock et al3 only assess the shale gas potential in six
countiies
29
outsiue Noith Ameiica anu justify the exclusion of unassesseu shales by
suggesting that they aie unlikely to be economically iecoveiable.
Su
Bence, neithei
ieview pioviues a global estimate of technically iecoveiable shale gas iesouices.
ARI piouuceu an eailiei anu much smallei estimate in 2uu9. It noteu that a numbei of
othei shale plays weie likely to contain iesouices but hau not been quantitatively
assesseu, so its estimate was theiefoie anticipateu to "giow with time anu new uata".
S1

The majoiity of the inciease between ARI's estimate in 2uu9 anu 2u11 comes fiom this
inciease in the geogiaphical coveiage of the latei suivey (see Figuie 2-6). Finally, thiee
othei estimates of global shale iesouices have been maue, but these weie piouuceu
some time befoie the iecent inciease in 0S piouuction anu aie pieuominantly baseu
upon expeit juugment.
S2


conventional gas, is classifieu as pioveu ieseives in BP, 'Statistical ieview 2u11'. Note, howevei, that this
'pioveu' figuie coveis all foui types of gas (conventional, tight, CBN anu shale) to uiffeiing uegiees in
uiffeient countiies, uepenuing upon the state of uevelopment of the iesouice.
26
WEC, 'Suivey of Eneigy Resouices: Focus on Shale uas', (Lonuon, 0K: Woilu Eneigy Council, 2u1u).
27
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices', Neulock, }affe anu Baitley, 'Shale uas
anu National Secuiity'.
28
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
29
The nine countiies analyseu aie: the 0niteu States of Ameiica, Canaua, Nexico, Austiia, ueimany,
Polanu, Sweuen, China anu Austialia.
Su
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.
S1
Ibiu.
S2
v.A. Kuuskiaa anu R.F. Neyeis, 'Review of woilu iesouices of unconventional gas' (papei piesenteu at
the fifth IIASA confeience on eneigy iesouices: Conventional anu unconventional woilu natuial gas
iesouices, Laxenbuig, Austiia, 198u); }. Laheiieie, 'Natuial gas futuie supply', in >>J@JS>"V (Paiis,
Fiance: 2uu4); R. Sanuiea, 'ulobal natuial gas ieseives - a heuiistic viewpoint', (Tulsa, 0K: IPC Petioleum
Consultants, Inc., 2uuS).

27
6>E<C: SIb. '@=>AB=:@ GO EHGJBH @FBH: EB@ C:@G<C;:@ JD @G<C;:@ ;GL@>K:C>LE C:E>GL@ G<=@>K: #GC=F
*A:C>;B
VV


N%0,< !+(05"/
As can be seen fiom Figuie 2-S, estimates of the iecoveiable iesouices of shale gas
within the 0SA have been incieasing iapiuly, with the moie iecent iepoits likely to
pioviue moie accuiate estimates. Figuie 2-7 theiefoie piesents the moie iecent
iepoits, chosen heie to be those piouuceu since 2uu8, which pioviue estimates of the
iecoveiable iesouices of shale gas within the 0SA anu Canaua. Theie have been a total
of 18 iepoits pioviuing estimates foi the 0SA anu 12 foi Canaua ovei this peiiou. Some
of these, foi example those by ICF
S4
oi ARI,
SS
aie upuates of oluei iepoits but aie
iepoiteu heie sepaiately. It is noticeable that uespite the vaiiation in iesouice
estimates between these iepoits (even those of similai uates), only thiee of these give a
iange of unceitainty in the values quoteu. Even within this shoit timefiame, the
estimates maue in the past yeai aie highei on aveiage than those maue in 2uu8.

SS
Note: Biffeient stuuies covei uiffeient countiies anu iegions anu none pioviue a tiuly global estimate.
Laheiieie's estimate is 0RR, while Neulock et al.'s estimates aie likely to be closei to ERR. The 0uIP
estimate by Rognei is conveiteu to TRR using 1S% anu 4u% iecoveiy factois anu the WEC's estimate is
conveiteu to ERR using a 4u% iecoveiy factoi.
S4
K.R. Petak, 'Impact of natuial gas supply on CBP uevelopment' (papei piesenteu at the 0S Clean Beat &
Powei Association's (0SCBPA) Spiing CBP Foium, Washington, BC, 2u11).
SS
v.A. Kuuskiaa, '0nconventional gas: an expoitable Noith Ameiican ievolution.', in GC' FC();-);
D#)=(,')8(:. %D ;:%I(: ;(. ,($W'8. ] "#$%&' (. 8C' I(88:';$%#)=^ (Washington, BC: Auvanceu Resouices
Inteinational Inc., 2u1u).

28
6>E<C: SIT. '@=>AB=:@ ABK: @>L;: S``U GO =F: =:;FL>;BHHD C:;G?:CBJH: @FBH: EB@ C:@G<C;:@ >L =F:
"L>=:K -=B=:@ GO *A:C>;B MBJG?:N BLK $BLBKB MJ:HGRN
Vb



H10%:(
In contiast to the 0SA, veiy few estimates aie available of the iecoveiable iesouice of
shale gas within Euiope. Bowevei, since 2uu9, a numbei of iepoits have been publisheu
that pioviue estimates of technically iecoveiable iesouices within Euiope. These aie
piesenteu in Figuie 2-8 anu iange fiom 2.S Tcm to 17.6 Tcm, with a mean of 7.1 Tcm.
Note that ARI's estimate fiom 2uu9 ignoieu a numbei of plays.
S7


S6
Points in yellow coiiesponu to estimates that weie stateu as iefeiiing to economically iecoveiable
iesouices.
S7
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.

29
6>E<C: SIU. *HH :@=>AB=:@ GO =F: =:;FL>;BHHD C:;G?:CBJH: C:@G<C;:@ GO @FBH: EB@ R>=F>L '<CGQ:
VU


3<5$/
Relatively few estimates of the Chinese shale gas iesouice aie available anu even fewei
pioviue an estimate of the TRR oi ERR, piefeiiing insteau to estimate the 0uIP. ARI
S9

estimates an 0uIP of 144.S Tcm anu a TRR of S6.u Tcm, which suggests a iecoveiy
factoi of aiounu 2S%. Since theie is little agieement on this factoi, the authois have
again conveiteu any estimates of 0uIP into TRR using a iange of iecoveiy factois
between 1S% anu 4u%. The iange in the estimate of Zou et al3 iesults fiom applying this
vaiiation in iecoveiy factoi to the iange of 0uIP pioviueu by the authois (28.S-99.1
Tcm).
4u
The Woilu Eneigy Council's estimate is foi 'Centially Planneu Asia' (which
incluues Cambouia, Bong Kong, PBR Koiea, Laos, Nongolia anu vietnam) as well as
China, but foi illustiative puiposes all of the iesouice was assigneu to China. The
vaiiation in cuiiently available estimates foi TRR in China is theiefoie even laigei than
that in Euiope anu Noith Ameiica.

S8
The point in yellow coiiesponus to an estimate that was stateu as iefeiiing to economically iecoveiable
iesouices. The iange foi Rognei's estimate is ueiiveu using a 1S-4u% iecoveiy factoi within Westein anu
Eastein Euiope. values foi Woou Nackenzie anu IBS CERA come fiom Ruuu Weijeimais et al.,
'0nconventional gas ieseaich initiative foi clean eneigy tiansition in Euiope', 0%#$)(: %D L(8#$(: B(.
@F-')F' ()= ");-)''$-); S, no 2 (2u11).
S9
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
4u
Caineng Zou et al., 'ueological chaiacteiistics anu iesouice potential of shale gas in China ', E'8$%:'#,
'A&:%$(8-%) ()= ='7':%&,')8 S7, no 6 (2u1u).

Su
6>E<C: SIc. *HH :@=>AB=:@ GO =F: =:;FL>;BHHD C:;G?:CBJH: C:@G<C;:@ GO @FBH: EB@ R>=F>L $F>LB
aP


S]P]a -FBH: EB@ :@=>AB=:@ >L ;GL=:9=
Table 2-S summaiises the ianges anu mean estimates of the technically iecoveiable
shale gas in the above iegions anu globally. Within each iegion, the shale gas estimates
aie ueiiveu using the souices shown in Figuie 2-7 to Figuie 2-9. As explaineu
pieviously, it is consiueieu that the estimates of shale gas ERR given by ICF
42
anu WEC
4S

aie bettei uesciibeu as TRR anu so theii figuies aie incluueu in the calculation of the
mean iesouice estimates. In auuition, when souices have pioviueu multiple estimates
(e.g. ARIKuuskiaa), only the latest upuate is incluueu in the calculation of the mean
iesouice estimate.
This table also incluues estimates of the iemaining technically iecoveiable iesouices of
conventional gas, CBN anu tight gas helu by each of the iegions. The conventional
estimates come fiom BuR,
44
while the tight anu CBN estimates come fiom a vaiiety of
souices with a uiffeient numbei of iepoits oi aiticles available foi each of the iegions.
As mentioneu in Section 2.1.S, given the focus on the iesouice potential of those shale
plays that aie known to exist, theie have been no estimates of shale gas iesouices fiom
shale plays outsiue the 0SA that aie estimateu, but not known, to exist. It is theiefoie
uifficult to ueteimine what the ielative magnituue of shale gas in unuiscoveieu shale
plays woiluwiue is likely to be compaieu to those in known shale plays. Stevens
4S

inuicates that shale gas plays tenu to oveilie conventional oil anu gas wells. Be theiefoie
concluues that countiies with a histoiy of onshoie oil anu gas piouuction (e.g. the 0SA)
will have a highei uegiee of knowleuge of the shale gas iesouice anu hence less
potential foi unuiscoveieu shale plays compaieu to countiies with ielatively little
histoiy of onshoie piouuction (e.g. most Euiopean countiies). This can be

41
The point in yellow coiiesponus to an estimate that was stateu as iefeiiing to economically iecoveiable
iesouices.
42
Petak, 'Impact of natuial gas on CBP'.
4S
WEC, 'Suivey of Eneigy Resouices'.
44
BuR, 'Reseives, iesouices anu availability of eneigy iesouices: 2u1u', (Bannovei, ueimany:
Bunuesanstalt fi ueowissenschaften unu Rohstoffe (BuR) Feueial Institute foi ueosciences anu Natuial
Resouices, 2u1u).
4S
Paul Stevens, 'The "Shale uas Revolution": Bype anu Reality', (Lonuon: Chatham Bouse (The Royal
Institute of Inteinational Affaiis), 2u11).

S1
uemonstiateu by obseiving that, within the 0SA, estimateu volumes of technically
iecoveiable iesouices of unuiscoveieu shale gas only make up 7% of the total shale gas
TRR.
Neveitheless, theie has been extensive geological mapping of the iocks unueilying
many countiies woiluwiue. Bespite limiteu onshoie uiilling in the 0K, foi example,
vaiious geological stuuies pioviue a complete cioss section of the iocks thioughout the
0K.
46
Theie is theiefoie unlikely to be any unuiscoveieu shale gas plays in the 0K. While
this may not be the case foi all countiies, it suggests that the volumes of gas in cuiiently
unuiscoveieu shale plays will likely be oveishauoweu by volumes in uiscoveieu but
unuevelopeu plays.
(BJH: SIV. 2:BL :@=>AB=:@ GO C:AB>L>LE =:;FL>;BHHD C:;G?:CBJH: C:@G<C;:@ GO ;GL?:L=>GLBH EB@Y
$52Y =>EF= EB@ BLK @FBH: EB@ QCG?>K:K JD =F: :?>K:L;: JB@: M(;AN
aT

0:E>GL $GL?:L=>GLBH (>EF= $52 -FBH:

Lowest
estimate
Nean of
estimates
Bighest
estimate
"L>=:K -=B=:@ GO
*A:C>;B
27.2 12.7 S.7 8.u 2S.S 47.4
$BLBKB 8.8 6.7 2.u 1.4 11.1 28.S
'<CGQ: 11.6 1.4 1.4 2.S 8.9 17.6
$F>LB 12.S 9.9 2.8 4.2 19.2 S9.8
M)AQH>:K C:@= GO RGCHKN (S64.9) (14.6) (1S.6) (S4.7)
,HGJBH aSa]c a^]a S^]^ T]P cT]a PUb]a

As noteu pieviously, the global estimates uo not all covei the same iegions, uo not use
the same uefinitions anu aie baseu on a numbei of uiffeient methouologies anu
assumptions (e.g. foi the iecoveiy factoi), which helps to explain the significant
vaiiation in estimates. The mean estimate foi shale gas is also skeweu by the low
estimates of Sanuiea
48
anu Laheiieie,
49
which aie both ielatively olu anu baseu on
expeit juugment alone. If these aie excluueu, the mean estimate incieases to 1Su Tcm

46
T. Baivey anu }. uiay, 'The unconventional hyuiocaibon iesouices of Biitain's onshoie basins - shale
gas', (Lonuon, 0K: Bepaitment of Eneigy anu Climate Change, 2u11).
47
Souices: Shale gas iepoits in Figuie 2-7, Figuie 2-8 anu Figuie 2-9 as well as the following:BuR,
'Reseives, iesouices anu availability'; F.N. Bawson, 'Cioss Canaua check up unconventional gas emeiging
oppoitunities anu status of activity' (papei piesenteu at the CS0u Technical Luncheon, Calgaiy, AB,
2u1u); EIA, 'Annual Eneigy 0utlook 2u1u with Piojections to 2uSS', (Washington, BC: 0S Eneigy
Infoimation Auministiation, 2u1u); v.A. Kuuskiaa, 'Economic anu maiket impacts of abunuant
inteinational shale gas iesouices', in V%$:=T-=' @C(:' B(. 1'.%#$F' J..'..,')8 (Washington, BC:
Auvanceu Resouices Inteinational 2u11); Kuuskiaa, 'Status iepoit'; S.B. Nohi anu u.N. Evans, 'Long teim
foiecasting of natuial gas piouuction', ")'$;9 E%:-F9 S9, no 9 (2u11); Noniz, }acoby anu Neggs, 'Futuie of
natuial gas'; Potential uas Committee, 'Potential uas Committee iepoits substantial inciease in
magnituue of 0S natuial gas iesouice base', (uoluen: C0: Coloiauo School of Nines, 2u11); Rognei,
'Assessment of Woilu Resouices'; Sanuiea, 'ulobal natuial gas ieseives'; R.u. Smeau anu u.B. Pickeiing,
'Noith Ameiican natuial gas supply assessment', (Chicago, IL: Navigant Consulting, 2uu8); Total, 'Tight
ieseivoiis: Technology-intensive iesouices', (Paiis, Fiance: 2uu6); WEC, 'Suivey of Eneigy Resouices';
Weijeimais et al., '0nconventional gas ieseaich initiative'. Notes: Implieu iest-of-woilu figuies ueiiveu by
subtiacting each mean iegional estimate fiom the mean global estimate.
48
Sanuiea, 'ulobal natuial gas ieseives'.
49
Laheiieie, 'Natuial gas futuie supply'.

S2
anu the lowest global estimate then becomes that pioviueu by Neulock et al3 at 42.9
Tcm.
Su

Focusing on the mean estimates within Table 2-S, the figuies suggest that the 0SA holus
aiounu 2S% of the global TRR of shale gas, while Euiope holus aiounu 1u%. Similai
peicentages aie obtaineu in both iegions if the highest estimates aie compaieu, but the
Euiopean anu 0SA's shaie may be smallei than this in piactice since many iegions aie
excluueu fiom the global estimates.
It is also of inteiest to place global shale gas iesouices into context with the global
iemaining iecoveiable iesouices of conventional gas. The mean estimate given by the
cuiient liteiatuie of the global TRR foi shale gas is aiounu 2S% of the iemaining
iecoveiable iesouices of conventional gas, which incieases to Su% if Sanuiea's anu
Laheiieie's shale gas estimates aie excluueu.
The iemaining global TRR of all natuial gas consists of the sum of the mean estimates of
conventional gas anu the thiee unconventional gases. 0n a global scale, shale gas is
estimateu to make up 16% of the total figuie of S9S.2 Tcm. 0n a iegional basis,
howevei, shale gas can foim a much laigei piopoition of the iemaining TRR. Foi
example, using the mean estimates, shale gas is estimateu to iepiesent 4S% of the
iemaining TRR of natuial gas in China, S9% in Canaua, S8% in Euiope anu SS% in the
0SA. This suggests that the impact of shale gas is likely to be gieatei at the iegional level
than at the global level.
C@C ;(,<%)- E%0 (-,5+/,5$* ,<( 0("%4(0/7'( 0(-%10"(- %E -</'( */-
This section pioviues an oveiview anu ciitique of the methous employeu to estimate the
technically iecoveiable iesouices of shale gas.
Foui bioau appioaches have been useu to estimate iecoveiable volumes of shale gas,
namely: a) expeit juugement; b) liteiatuie ieviewauaptation of existing liteiatuie; c)
bottom-up analysis of geological paiameteis; anu u) extiapolation of piouuction
expeiience. A ciossovei between these appioaches is common, with seveial iepoits
employing anu combining moie than one appioach.
Biffeient iepoits pioviue uiffeient uegiees of explanation of the methous employeu anu
in many cases little oi no infoimation is given - a majoi weakness. Bence, juugment is
fiequently iequiieu when iuentifying anu classifying the appioach that has been taken.
Figuie 2-1u classifies the appioaches useu by each iepoit. Repoits labelleu as 'Nethou
not stateu' pioviue little oi no uesciiption of the methous useu anu pioviue insufficient
infoimation to allow this to be iuentifieu.
Section 2.2.1 pioviues a biief uesciiption anu explanation of each of these appioaches
anu illustiates this by uiscussing the specific appioach taken by thiee iepoits in moie
uetail. Not all the iepoits use an iuentical appioach, howevei, anu uiffeiences such as
the uefinition anu teiminology useu foi ielevant vaiiables, the inclusion oi exclusion of
paiticulai paiameteis, the ieliance upon uiffeient souices of infoimation anu values
chosen foi subjective paiameteis aie common. These uiffeiences aie likely in tuin to
have a significant influence on the iesults. Section 2.2.2 evaluates anu compaies the
methouological iobustness of each appioach; Section 2.2.S pioviues an oveiview of the

Su
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.

SS
iole technology coulu play in incieasing cuiient estimates of technically iecoveiable
shale gas iesouices, while Section 2.2.4 pioviues the conclusion.
6>E<C: SIP` *QQCGB;F:@ <@:K JD BHH C:QGC=@ QCG?>K>LE GC>E>LBH ;G<L=CDIH:?:H @FBH: EB@ C:@G<C;:
:@=>AB=:@
^P


S]S]P [:@;C>Q=>GL GO BQQCGB;F:@
The foui appioaches to estimating iesouice size that aie useu in the liteiatuie aie
biiefly uesciibeu below. The oiuei in which they aie uiscusseu ieflects the ielative
weight that may be given to theii iesults, with the least iobust fiist.
HI:(0, 81)*+($,
The fiist categoiy is useu by only two authois who uo not cite any othei souices oi
inuicate the methou they have useu to uevelop theii iesouice estimate.
S2
The estimates
pioviueu theiefoie appeai not to have been ueiiveu using any iigoious oi iepeatable
methou but aie iathei baseu upon the authois' own opinions of technology anu geology,
anu theiefoie likely to be veiy subjective.
SS

O5,(0/,10( 0(45(&P/)/:,5%$ %E (I5-,5$* '5,(0/,10(
A numbei of iepoit authois iely upon estimates maue by otheis, which aie then
collateu oi auapteu to ueteimine new estimates. Some souices, foi example NIT
S4
anu
Nohi anu Evans,
SS
analyse a numbei of estimates anu use the vaiiation between these
to iuentify a iange of unceitainty foi iegional oi countiy values. 0theis also use a
liteiatuie ieview but augment this uata with auuitional piimaiy ieseaich. Navigant
Consulting,
S6
foi example, conuucteu a suivey of natuial gas piouuceis anu useu this to
pioviue an uppei bounu on its estimates, which it calleu the "maximum iepoiteu"

S1
Note: the EIA AE0s aie only incluueu once.
S2
Laheiieie, 'Natuial gas futuie supply'; Sanuiea, 'ulobal natuial gas ieseives'.
53
This categoiy uiffeis fiom those iepoits classifieu as 'Nethou not stateu', as it is thought that these
estimates have been ueiiveu using one of the foui bioau appioaches uesciibeu; it is not possible to
ueteimine which appioach has been useu, howevei.
S4
Noniz, }acoby anu Neggs, 'Futuie of natuial gas'.
SS
Nohi anu Evans, 'Long teim foiecasting'; Nohi anu Evans, 'Shale gas changes piouuction piojections'.
S6
Smeau anu Pickeiing, 'Noith Ameiican supply assessment'.

S4
estimate foi each shale play. The WEC appeais to have useu a liteiatuie ieview, but
pioviues no uesciiption of its methouology othei than noting that "most cieuible
stuuies" weie useu. It also uoes not pioviue uetails of the liteiatuie iefeiieu to othei
than the names of the oiganisations that piouuceu the estimates.
S7

An alteinative appioach is followeu by Neulock et al3 who inuicate that they use "peei-
ievieweu, scientific assessments of the piopeities of shales to uevelop technically
iecoveiable iesouices". Bowevei, Neulock et al3 uo not specify the piecise appioach
useu anu fail to cite the ielevant peei-ievieweu souices. In auuition, they note that: "A
ieuuction of the technically iecoveiable shale gas iesouice base in aieas with potential
watei constiaints is piimaiily uone because the cost of uevelopment has been ueemeu
piohibitive." In explaining the uiffeience between theiis anu ARI's estimates, Neulock et
al3 also note that the clay content of the shale can constiain iecoveiability. Clay-iich
shales will have lowei piouuction iates anu highei costs anu so aie excluueu fiom theii
estimates of iecoveiable iesouices. Since these constiaints uo not appeai to be
employeu by othei souices estimating TRR, Neulock et al.'s iesouice figuies may
coiiesponu moie closely to ERR.
S8

.%,,%+Q1: /$/'=-5- %E *(%'%*5"/' :/0/+(,(0-
This appioach uses geological knowleuge of the extent anu chaiacteiistics of the shale
iock to estimate the volume of shale gas that is piesent. A iecoveiy factoi is then
applieu to this estimate to piouuce an estimate of the technically iecoveiable (oi
ultimately iecoveiable) iesouices. ARI
S9
employeu this appioach to ueteimine the
volumes of gas that exist in woiluwiue shales foi which theie was little, oi no, uiilling
expeiience oi piouuction uata. Figuie 2-11 summaiises the appioach, inuicating the
geological paiameteis useu at each step in the piocess.
6>E<C: SIPP. -;F:AB=>; C:QC:@:L=B=>GL GO =F: @=:Q@ <@:K >L =F: E:GHGE>;BHIJB@:K BQQCGB;F M@::
(BJH: VIP OGC =:CA>LGHGEDN


S7
WEC, 'Suivey of Eneigy Resouices'.
S8
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.
S9
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
Total shale aiea
Piospective aiea
Bepth, mineialogy,
total oiganic content,
theimal matuiity,
geogiaphical location
Ausoibeu gas Fiee gas
Total gas in
place
Riskeu gas in
place
Technically
iecoveiable
iesouices
uas piessuie, tempeiatuie,
poiosity, shale thickness, gas
satuiation
uas piessuie, total
oiganic content,
theimal matuiity
Factois
incoipoiating
knowleuge of
geology, anu extent
of uevelopment anu
exploiation
Recoveiy
factoi

SS
The fiist step involves ueteimining the total aieal extent of the shale being examineu.
This is next ieuuceu to the 'piospective aiea', which, uepenuing on estimates oi
ueteiminations of vaiious piopeities of the iock, uesciibes the aiea of shale that is
expecteu to contain an appieciably high concentiation of gas to make uevelopment
viable. The geogiaphic location of the shale is also taken into account at this stage, with
shale in offshoie iegions being iemoveu fiom the piospective aiea.
Within shale plays, natuial gas can be stoieu eithei in poie spaces within the iocks
('fiee gas') oi ausoibeu
6u
on to the iocks. Equations can be useu to estimate the volume
of this stoieu gas, which iequiie estimates of vaiious geological paiameteis, such as the
piessuie of the gas in place anu the poiosity of the iocks.
Two fuithei factois aie then ueteimineu that iepiesent the confiuence of the authois in
theii estimates, given theii extent of knowleuge of the geology anu the piioi exploiation
anu uevelopment of the play. These factois aie the 'play success piobability factoi',
which iepiesents the piobability that suitably high flow iates will be achieveu fiom the
play to make uevelopment likely, anu the 'piospective aiea success factoi', which
iepiesents the piobability that theie will not be any geological complications oi
pioblems in the piospective aiea that woulu ieuuce the volumes of gas piesent. Foi the
plays in ARI's iepoit, the play success piobability factoi iangeu fiom 1uu% to Su% with
a mean foi all of the shale plays analyseu of S8%, while the piospective aiea success
factoi iangeu fiom 7S% to 2u% with a mean of Su%. The application of these factois to
the estimateu gas in place yielus an estimate of the 'iiskeu' gas in place. 0sing the above
mean factois of S8% anu Su%, the 'iiskeu' gas in place woulu theiefoie be 29% of the
gas in place. A numbei of othei appioaches use compaiable 'success factois' to ieuuce
volumes of gas that aie estimateu to exist.
Finally, a iecoveiy factoi is estimateu to ieflect the anticipateu fiaction of this volume
that is likely to be technically iecoveiable. The piouuct of the iecoveiy factoi anu the
'iiskeu' gas in place gives an estimate of the technically iecoveiable iesouice. ARI
61

inuicates that the iecoveiy factoi is establisheu on the basis of the shale mineialogy, the
piopeities of the ieseivoii anu the geological complexity. The values chosen typically lie
in the iange 2u-Su%, although factois of SS% anu 1S% aie useu in "a few exceptional
cases".
As can be seen fiom Figuie 2-11, theie aie a laige numbei of paiameteis which must be
estimateu oi calculateu when using geological methous to ueteimine iecoveiable
volumes of gas. These paiameteis iange fiom the aiea anu geogiaphical location
(onshoieoffshoie) of the shale iock, to the total oiganic content (measuieu as a
peicentage of the total weight) of the shale, to the mineials (clayquaitz, etc.) containeu
within the shale. A numbei of these paiameteis aie useu at moie than one stage of the
piocess. Theie aie also some factois, whose estimation, although uepenuent on a
numbei of these paiameteis, is laigely subjective. Examples aie the iecoveiy factoi anu
the two factois foi conveiting the 0uIP estimate into a 'iiskeu' 0uIP estimate. ARI sets
out which factois have been useu in an appenuix; howevei, of the 11 othei souices

60
Ausoibeu gas is gas attacheu to the suiface of the iock.
61
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.

S6
using this appioach, only thiee
62
pioviue figuies foi both TRR anu 0uIP fiom which the
assumeu iecoveiy factois can be ueteimineu.
HI,0/:%'/,5%$ %E :0%)1",5%$ (I:(05($"(
This appioach ielies upon analysing the piouuction expeiience in shales foi which theie
is a sufficiently long histoiy of piouuction anu then extiapolating these iesults to eithei
unuevelopeu aieas of the same shale oi to new shales. Theie aie two geneial methous
employeu. The fiist, commonly applieu at the play level, is to estimate shale gas
volumes, eithei 0uIP oi TRR, by multiplying the estimateu shale play aiea (oi mass) by
an estimateu yielu pei squaie aiea (oi mass). The yielu pei unit aiea is often calleu the
piouuctivity anu measuieu in mcmkm
2
. Foi unuevelopeu shale play aieas, the values
foi such calculations aie typically baseu upon measuiements oi estimates fiom
geologically similai iegions (analogues) wheie moie infoimation is available.
The seconu methou uiffeis in its complexity: the investigateu aiea is split into moie anu
less piouuctive sectois anu moie piecise gas yielus pei aiea aie ueteimineu by using a
gieatei numbei of paiameteis, incluuing the 0RR pei well anu the well spacing
(numbei of wells pei unit aiea). Estimates of the 0RR pei well iequiie the extiapolation
of piouuction fiom cuiiently piouucing wells with the help of uecline cuive analysis -
uiscusseu in moie uetail in Section 2.S.
A key issue foi the extiapolation of piouuction expeiience methou is the valiuity of
taking estimates of well spacing anu the 0RRwell fiom one aiea anu applying these to
a seconu, potentially veiy uiffeient, aiea. 0S shale gas plays that aie cuiiently piouucing
aie veiy heteiogeneous, with piouuction iates between neighbouiing wells vaiying by a
factoi of thiee anu acioss an entiie shale play by a factoi of ten.
6S
It is commonly the
case that some aieas within the shale have significantly highei piouuctivity anu
ultimate iecoveiy than otheis. These aie commonly iefeiieu to as 'sweet spots'. In
auuition, theie also appeais to be significant vaiiation in the piouuctivity of wells
within sweet-spot aieas, although this uistinction paitly uepenus on how sweet spots
aie uefineu.
64
uiven this heteiogeneity, it is impoitant not to assume single values foi
the 0RRwell anu well spacing acioss the whole aiea of a shale play. This is paiticulaily
ielevant when extiapolating histoiical 0RRwell anu well spacing estimates, since these
will only be available fiom the aieas of the shale play that have been uevelopeu fiist anu
which tenu to be the most piouuctive.
Each of the above methous has been useu by two iepoits. The fiist anu simplei methou
was useu by Rognei
6S
anu the 0K's Bepaitment of Eneigy anu Climate Change (BECC).
66

Suipiisingly, given the ieliance that has been placeu upon his woik, Rognei appeais to
have useu a ielatively ciuue appioach on which he pioviueu veiy little infoimation. Be

62
S. Bennings, 'Shale gas iesouices anu uevelopment' (papei piesenteu at the IIR inauguial shale gas
biiefing, Biisbane, 2u1u); C. Theal, 'The shale gas ievolution: The beai maiket balancing act', (2uu9); B.
viuas anu B. Bugman, 'Availability, economics, anu piouuction potential of Noith Ameiican
unconventional natuial gas supplies', (Faiifax, vA: ICF Inteinational, 2uu8).
6S
EIA, 'vaiious AE0s'.
64
v.A. Kuuskiaa, 'Case stuuy #1. Bainett Shale: The stait of the gas shale ievolution', in B(. .C(:'
='7':%&,')8 T%$W.C%& (Beijing, China: 2u1u); R.F. Stiicklanu, B.C. Puivis anu T.A. Blasingame, 'Piactical
Aspects of Reseives Beteiminations foi Shale uas' (papei piesenteu at the Noith Ameiican
0nconventional uas Confeience anu Exhibition, Wooulanus, TX, 2u11).
6S
Rognei, 'Assessment of Woilu Resouices'.
66
Baivey anu uiay, '0nconventional iesouices of Biitain'.

S7
notes simply that: 'the iatio of the 0S estimates foi natuial gas fiom shale foimations to
the in-place shale volume was useu as a guiue to calculate the iegional natuial gas
iesouice fiom fiactuieu shale iesouice potentials...baseu on the assumption that shale
oil occuiiences outsiue the 0niteu States also contain the 0S gas value of 17.7 Tcfut
(gigatonne) of shale-in-place'. Rognei theiefoie appeais to have useu only a single
analogue to estimate woiluwiue shale gas iesouices.
BECC also useu this simplei appioach in oiuei to estimate shale gas iesouices in the 0K.
Noie than one analogue was useu with the Bainett, Antiim anu a 'moie conseivative'
play, iuentifieu as possible analogues foi the thiee shale plays in the 0K. The choice of
analogues significantly affects the iesouice estimates piouuceu, with the piouuctivity of
the most piouuctive analogue play (the Bainett at 7.6 mcmkm
2
) being 1S times gieatei
than that of the least piouuctive analogue play (the 'moie conseivative' play at u.6
mcmkm
2
).
The seconu appioach iequiies substantially moie infoimation fiom aieas that aie
alieauy being uevelopeu, but is likely to be moie ieliable. As a iesult, this appioach has
been useu by two of the main souices pioviuing shale gas iesouice estimates foi the
0SA, namely INTEK foi the EIA
67
anu the 0SuS.
68
The appioach taken by the 0SuS is
uesciibeu in uetail below anu seives to illustiate the types of issues that aie iaiseu. A
map of all 0S shale gas plays anu uetaileu uesciiption of the INTEK methou aie
piesenteu in Annex C.2.
;(,<%)- 1-() 7= ,<( RS M(%'%*5"/' S104(=
As inuicateu above in Section 2.1.1, the 0SuS unueitakes analysis of geological aieas
within the 0SA anu pioviues estimates of the 'potential auuitions to ieseives' foi
unconventional gas fiom those aieas. While it uoes not pioviue an estimate of TRR foi
the whole of the 0SA, such an estimate can be compileu using the following:
0SuS mean estimates of the potential auuitions to ieseives foi all inuiviuual
shale plays;
estimates of total pioveu 0S shale gas ieseives;
69

estimates of 'infeiieu' ieseives of shale gas;
7u

estimates of technically iecoveiable iesouices in unuiscoveieu shale gas plays;
71

anu
cumulative shale gas piouuction.
The appioach taken by the 0SuS is uesciibeu in two methouological papeis,
72
one of
which is a 2u1u upuate of the methou useu pieviously. These two methous uiffei
slightly; the eailiei methou excluues any shale gas that was estimateu to exist in non-
sweet-spot aieas fiom the estimates of 'potential auuitions to ieseives' that weie

67
INTEK, 'Review of emeiging iesouices'.
68
Foi example Coleman et al., 'Assessment of unuiscoveieu oil anu gas'.
69
Available fiom EIA, @C(:' ;(.Y &$%7'= $'.'$7'. (2u11, citeu 22112u11); available fiom
http:www.eia.govunavngng_eni_shalegas_a_EPuu_RSSu1_Bcf_a.htm
7u
Available fiom INTEK, 'Review of emeiging iesouices'.
71
Also available fiom Ibiu.
72
Chaipentiei anu Cook, 'Impioveu 0SuS methouology'; Schmokei, 'Assessment concepts foi continuous
petioleum accumulations'.

S8
piouuceu. In auuition, the eailiei methou iefeis to uiviuing the aiea unuei investigation
into 'cells' with paiticulai uiainage aieas (numbei of cells pei unit aiea) iathei than
wells; howevei, cells anu wells aie essentially iuentical.
7S

Neveitheless, the geneial appioach of both methous is similai: the shale play is split
into inuiviuual aieas anu then estimates aie maue of the aieal extent of each aiea; the
uiainage aiea of wells (oi cells) within those aieas; anu the mean 0RRcell oi 0RRwell
within those aieas.
A fuithei uiffeience between the two 0SuS methous is in the estimation of a 'success
iatio'. In the newei methou, this is estimateu sepaiately foi the sweet-spot anu non-
sweet-spot aieas anu iepiesents the peicentage of wells that the 0SuS estimates will
piouuce at least the minimum 0RRwell. It mouifies the piouuct of the above
paiameteis, tenuing to ieuuce the volume of gas estimateu to be technically
iecoveiable. The eailiei methou also estimateu a factoi similai to the success iatio, but
this was not useu in the volumetiic calculations.
The application of the success iatio (if useu) to the above paiameteis yielus an estimate
of the uiscoveieu technically iecoveiable iesouices. The 0SuS iemoves cumulative
piouuction anu an estimate of gas consiueieu to be ieseives in oiuei to yielu its
estimate of the 'potential auuitions to ieseives'.
The 0SuS peiiouically upuates its iesouice assessments foi inuiviuual 0S shale plays oi
aieas of the plays anu piouuces an enu-of-yeai summaiy combining all of the latest
suiveys it has caiiieu out. When estimating the oveiall TRR foi shale gas in the 0SA
fiom the 0SuS figuies, it is impoitant that within each shale play, the figuies to be
auueu must be contempoianeous with the uate on which the 0SuS caiiieu out its
assessment. 0ne cannot, foi example, simply auu cuiient estimates of pioveu ieseives
to the 0SuS figuies, since volumes of gas that weie not consiueieu ieseives when the
0SuS maue its assessment but aie now incluueu as ieseives woulu be uouble counteu
since they have moveu fiom the 0SuS 'potential auuitions to ieseives' categoiy into the
ieseives categoiy. A similai situation exists with cumulative piouuction. The latest
iesouice assessments aie summaiiseu in Table 2-4. Although a numbei of these
assessments weie piouuceu aftei 2u1u, iecently ieleaseu 0SuS uata
74
suggests that the
olu methouology was useu foi all of these. As uesciibeu above, the eailiei assessment
methouology excluueu volumes of gas estimateu to exist in non-sweet-spot aieas anu so
is likely to unueiestimate the total play TRR.
Since a uetaileu bieakuown of pioveu ieseive figuies is only available fiom 2uu7 anu
only a single aggiegate estimate of 'infeiieu' (i.e. piobable minus pioveu) ieseives is
available, it is not possible to ueiive a iigoious assessment of the 0SuS estimate of the
TRR within each shale play. In the eaily 2uuus, the potential of shale gas piouuction was
not fully iealiseu (as can be seen fiom the low level of iesouice estimates in Figuie 2-S)
anu so the majoiity of shale plays assesseu at that time weie unlikely to have containeu
any pioveu ieseives, with the exception of the Bainett anu Antiim Shales. Theiefoie, foi
those shales which weie assesseu piioi to 2uu7, it is assumeu that pioveu ieseives aie
zeio, except in the Bainett anu Antiim Shales. Foi the Bainett Shale, histoiic estimates

7S
Chaipentiei anu Cook, 'Impioveu 0SuS methouology'.
74
0SuS Naicellus Shale Assessment Team, 'Infoimation ielevant to the 0.S. ueological Suivey assessment
of the Niuule Bevonian Shale of the Appalachian Basin Piovince', (Reston, vA: 0niteu States ueological
Suivey, 2u11).

S9
of pioveu ieseives aie available,
7S
howevei no uata is available foi histoiically pioveu
ieseives in the Antiim Shale anu so we use the eailiest uata available fiom 2uu7. The
fifth anu sixth columns of Table 2-4 theiefoie give an appioximation of
contempoianeously pioveu shale gas ieseives anu cumulative piouuction iespectively.
Summing the mean estimates of the 'potential auuitions to ieseives', pioveu ieseives
anu cumulative piouuction foi each shale play leaus to an estimate of 11 Tcm foi the
total technically iecoveiable iesouice in these plays. To obtain an estimate foi the total
technically iecoveiable shale gas iesouice in the 0SA, estimates of unuiscoveieu
iesouices (1.6 Tcm) anu infeiieu ieseives (u.S6 Tcm) both taken fiom INTEK
76
have
been auueu in. This leaus to an estimate of PV]P (;A,
77
which compaies to a mean
estimate of 2S.S Tcm anu a iange of 8.u-47.4 Tcm fiom the ieview of stuuies piesenteu
in Section 2.2. Bowevei, since the eailiei 0SuS methouology excluueu non-sweet spots,
which aie now expecteu to contain significant volumes of shale gas, it may have
unueiestimateu the potential auuitions to ieseives in those plays.

75
See EIA, 'Bainett shale, Ft Woith Basin, Texas. Wells by yeai of fiist piouuction anu oiientation',
(Washington BC: Bepaitment of Eneigy, 2u11).
76
INTEK, 'Review of emeiging iesouices'.
77
Some, but not all, uouble counting is eliminateu by this piocess.

4u
(BJH: SIa. "-,- :@=>AB=:@ GO @FBH: EB@ C:@G<C;: >L =F: "L>=:K -=B=:@ GO *A:C>;B
TU

0:QGC=
*@@:@@A:L=
KB=:
2BdGC @FBH:
QHBD@ BLBHD@:K
2:BL
:@=>AB=:
QCG?>K:K
M(;AN
/CG?:K
C:@:C?:@ B=
=>A: GO
B@@:@@A:L=e
$<A<HB=>?:
QCGK<;=>GL B=
=>A: GO
B@@:@@A:L=ee
Coleman et al.
(2u11)
2u11 Naicellus shale 2.S9 u.1S u.u1
Bubiel et al.
(2u11)
2u1u
Baynesville anu
Eagle-Foiu
S.62 u.S1 u.uS
Bigley et al.
(2u11)
2u1u Wooufoiu shale u.7u u.18 u.uS
Bouseknecht
et al. (2u1u)
2u1u
Fayetteville anu
Wooufoiu-Caney
u.76 u.2S u.uS
Schenk et al.
(2uu8)
2uu7
Bainett-
Wooufoiu
u.99 u u
Swezey et al.
(2uu7)
2uu7 New Albany u.11 u u
Swezey et al.
(2uuS)
2uu4 Antiim u.21 u.u9 u.u4
Pollastio et al.
(2uu4)
2uuS Bainett u.7S u.1u u.u2
Bigley et al.
(2uuS)
2uu2 Niobiaia u.uS u u
Nilici et al.
(2uuS)
2uu2
Bevonian (0hio)
shale
u.11 u u.u7
(G=BH c]bT P]`T `]ST
S]S]S 2:=FGKGHGE>;BH CGJ<@=L:@@ GO :B;F A:=FGK
This section, which iuentifies some of the stiengths anu weaknesses of the uiffeient
methous, attempts to explain why uiffeiences exist between estimates, anu inuicates
which pioceuuies aie likely to be the most iobust.
O5,(0/,10( 0(45(&P/)/:,/,5%$ %E (I5-,5$* '5,(0/,10(
Stuuies ielying upon liteiatuie ieviews uiaw on infoimation fiom a vaiiety of souices
anu hence a vaiiety of methous of iesouice estimation, thus iemoving some of the
unceitainty ovei the choice of methou. They also appeai moie likely to quantitatively
estimate the unceitainty in theii iesouice figuie. Foi example, on the basis of the
vaiiation in iesouice estimates pioviueu by souices foi the 0SA, Nohi anu Evans
79

inuicate that the 'best' estimate of 0RR foi shale gas in the 0SA is 17.7 Tcm with a 'high'
value of SS.9 Tcm anu a 'low' value of 9.S Tcm.

78
Notes: The boiueis of the shale plays anu assessment units may not always coinciue. Nost ieseive
figuies aie only available at a state level anu so some juugement is iequiieu to assign these to the shale
plays.
* Souice: EIA, 'Bainett shale wells', EIA, @C(:' ;(.Y &$%7'= $'.'$7'. (citeu).
** Souices: Lippman Consulting (taken fiom }.B. Cuitis, 'The Contiibution of Shale uas to Futuie 0.S.
Piouuction: A view of the Resouice Base' (papei piesenteu at the AAPu Annual Convention, Benvei, C0,
2uu9); R. Boughei, 'Natuial gas anu Ameiica's eneigy futuie' (papei piesenteu at the Naicellus shale
lectuie seiies, New Yoik, NY, 2u11).)
79
Nohi anu Evans, 'Shale gas changes piouuction piojections'.

41
0n the othei hanu, iepoits ielying on liteiatuie ieviews aie potentially open to
subjectivity ovei which souices aie to be incluueu anu which aie ielieu on moie heavily.
The extent to which, anu the ieasons foi which, ceitain souices have been favouieu ovei
otheis is iaiely maue cleai. It is also not always cleai how the quoteu liteiatuie has
been useu. NIT foi example, cites ICF, 0SuS anu the National Petioleum Council (NPC)
as the souices useu foi its unconventional gas estimates.
8u
The mean value chosen by
NIT foi 0S shale gas coiiesponus to the values useu by ICF; howevei it is uncleai how
NIT's P1u anu P9u estimates iely upon the 0SuS anu NPC figuies.
.%,,%+Q1: /$/'=-5- %E *(%'%*5"/' :/0/+(,(0-
The geological appioach employs well-known anu well-unueistoou equations to
estimate the volumes of fiee anu ausoibeu gas in place. A numbei of pioblems exist,
howevei.
The fiist, anu peihaps the most impoitant, is the inheient subjectivity in choosing the
iecoveiy factoi to apply to the estimateu gas in place. It was foi this ieason that the
0SuS chose not to use this appioach stating: "the estimation of an oveiall iecoveiy
factoi must sometimes be quite qualitative". ARI
81
attempteu to iemove some of the
subjectivity in its estimates of iecoveiy factois, which lay between 2u% anu Su% in
most ciicumstances, by linking this to the mineialogy of the souice iocks; howevei,
iecoveiy factois of 1S-4u% have been useu by othei authois,
82
while Stiicklanu et al3
8S

iepoit that some iecoveiies can be as low as 1-2%. When the volumes of gas in place
aie so laige, this coiiesponus to a huge iange of unceitainty in the technically
iecoveiable iesouices.
An auuitional pioblem ielates to the estimation of the geological vaiiables iequiieu foi
this methou. It is impoitant to iemembei that uata may only be available foi a subset of
these, anu foi unexploieu shale plays such estimates must necessaiily have laige
confiuence bounus. Bubbeit iemaikeu that foi conventional petioleum iesouice
estimates: "it is easy to show that no geological infoimation exists othei than that
pioviueu by uiilling...that has a iange of unceitainty of less than seveial oiueis of
magnituue."
84
Even when exploiatoiy uiilling has taken place, the iange of unceitainty
may still be wiue. Foi example, it is often uifficult to estimate the gas satuiation
8S
fiom
well-log uata, a key paiametei in the estimation of the gas in place.
86

A thiiu pioblem ielates to the issue of 'sweet spots'. As mentioneu above, theie is
significant heteiogeneity between sweet spots anu non-sweet spots. Simply
extiapolating geological values fiom ceitain aieas within the sweet spot acioss the
entiie extent of the shale is likely to oveiestimate the iesouice potential; segiegating
the shale play aiea is necessaiy to avoiu this. ARI's concept of 'piospective aiea'
inuicates an attempt to uisiegaiu aieas of shale that aie likely to be less piouuctive. The
next step woulu be to uelineate the piospective aiea into sweet-spot anu non-sweet-

8u
Ejaz, 'Backgiounu mateiial on natuial gas iesouice assessments'.
81
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
82
IEA, 'WE0 2uu9'; Kuuskiaa, 'Status iepoit'; Nohi anu Evans, 'Long teim foiecasting'.
8S
Stiicklanu, Puivis anu Blasingame, 'Reseives Beteiminations'.
84
N.K. Bubbeit, 'Techniques of pieuiction as applieu to the piouuction of oil anu gas', in U-: ()= ;(.
.#&&:9 ,%=':-); (Washington, BC: 1982).
85
The gas satuiation is the fiaction of the poiosity of the shales filleu with gas iathei than watei.
86
Bubbeit, 'Techniques of pieuiction'; W.}. Lee anu R. Siule, 'uas-Reseives Estimation in Resouice Plays'
(papei piesenteu at the SPE 0nconventional uas Confeience, Pittsbuigh, PA, 2u1u).

42
spot sectois, but ARI was unable to uo this. The fiequency anu extent of sweet spots anu
the uegiee of vaiiation between sweet spots anu othei aieas iemains unceitain, even in
compaiatively well-uevelopeu shales.
A fouith point is that this appioach uoes not uepenu paiticulaily upon piioi piouuction
expeiience. Biilling is the only ieliable means of assessing the extent anu volumes of
shale gas that exists, as can be seen by the laige numbei of wells that have been uiilleu
outsiue the sweet-spot aieas within the 0SA. This shows that the piouuctivity of these
aieas can vaiy enoimously anu, although uisplaying some coiielation with paiameteis
such as the shale thickness, is not ieally known until uiilling is well unuei way.
87

The final anu most impoitant pioblem is the absence of a iigoious appioach to
unceitainty. While some iepoits mention the unceitainty in values in passing oi give a
iange in final iesouice estimates, no iepoits placeu in this categoiy pioviueu a
thoiough uesciiption of the unceitainties that hau been analyseu oi piesent theii
iesults in the foim of a piobability uistiibution. Theie is no ieason, except potentially
because of an absence of ielevant uata, why the unceitainties in inuiviuual geological
paiameteis (paiticulaily those useu moie than once oi which aie especially unceitain,
such as the aieal extent of the shale), cannot be estimateu, stateu anu accounteu foi.
HI,0/:%'/,5%$ %E :0%)1",5%$ (I:(05($"(
This appioach avoius some of the above pioblems but unfoitunately intiouuces some
moie, one of which is cuiiently somewhat contioveisial. It is fiist inteiesting to note
that the only souice pioviuing a uetaileu methouology, the 0SuS, chose to employ this
appioach.
The key geneial auuitional pioblem intiouuceu iegaius the methous foi estimating the
0RR fiom inuiviuual wells. As explaineu in uetail in Section 2.3, these methous iely upon
mouelling the anticipateu uecline in the iate of piouuction fiom inuiviuual wells.
Biffeient choices aie available foi the 'shape' anu iate of futuie piouuction uecline, anu
the limiteu histoiical expeiience at piesent uoes not constiain these choices especially
well - with uiffeient choices potentially leauing to veiy uiffeient estimates of the 0RR.
As explaineu in Section 2.S theie is concein that cuiient piactice may be oveiestimating
the 0RR foi inuiviuual wells. To the extent that these foim the basis of iegional iesouice
estimates, these too coulu be oveiestimateu.
An auuitional pioblem that applies to the simple analogy-baseu appioach useu by
BECC
88
anu Rognei
89
conceins which analogue to choose. The choice of an analogue is
extiemely impoitant: as noteu BECC's choices of analogues vaiieu by a factoi of ten. The
0SuS suggesteu using a piobabilistic appioach with moie than one analogue to ieuuce
this pioblem,
9u
which appeais to be a sensible appioach given the unceitainties that
exist.
A fuithei pioblem, given both the complexity anu heteiogeneity of the geological
ueteiminants anu the absence of a long histoiy of piouuction uata, is the valiuity of the

87
R.R. Chaipentiei anu T.A. Cook, 'Applying piobabilistic well-peifoimance paiameteis to assessments of
shale gas iesouices' (papei piesenteu at the Ameiican Association of Petioleum ueologists annual
convention anu exhibition, New 0ileans, LA, 2u1u); Kuuskiaa, 'Case stuuy #1. Bainett Shale: The stait of
the gas shale ievolution'.
88
Baivey anu uiay, '0nconventional iesouices of Biitain'.
89
Rognei, 'Assessment of Woilu Resouices'.
9u
Chaipentiei anu Cook, 'Piobabilistic well-peifoimance paiameteis'.

4S
assumptions maue foi the piouuctivity of aieas outsiue those cuiiently being piouuceu.
As mentioneu in Section 2.2.1, histoiic piouuction has focuseu upon sweet spots anu
upon the most piouuctive aieas within those sweet spots. Extiapolating a mean
0RRwell fiom this aiea to the whole of the sweet spot coulu potentially oveiestimate
the iesouice potential. If these estimates aie then extenueu acioss the entiie shale play,
the iesouice potential of the iegion coulu be gieatly oveiestimateu.
The 0SuS attempteu to mitigate this pioblem by mapping a iange of geological factois
anu using these to estimate the possible piouuctivities outsiue the aiea cuiiently being
piouuceu, although it has not, in the assessments it has peifoimeu so fai, attempteu to
estimate the piouuctivity of non-sweet-spot aieas. Neveitheless, its appioach is
ielatively tianspaient anu has the auvantage that unceitainties aie explicitly accounteu
foi.
It is cleai, theiefoie, that caieful uelineation of the shale play is necessaiy to avoiu
oveiestimating piouuctivity in unuevelopeu aieas, but uelineation is itself challenging.
This is paiticulaily ielevant when splitting the shale play into sweet-spot anu non-
sweet-spot aieas. uiven the heteiogeneity even within sweet spots, it is piefeiable to
uefine anu isolate the shale into an even gieatei numbei of aieas of uiffeiing
piouuctivity: a pioceuuie useu by the 0SuS thiough the uiffeientiation of shale plays
into smallei assessment units.
As mentioneu above, INTEK also useu this appioach to ueiive estimates of the TRR in
the 0SA foi the EIA.
91
Its methou is uesciibeu in Annex C which also pioviues a uetaileu
compaiison of these two methous; howevei, a biief examination of theii assessments
foi the Naicellus Shale play is given in Box 2-1.

91
INTEK, 'Review of emeiging iesouices'.

44
5G9 SIP. $GAQBC>@GL GO 2BC;:HH<@ -FBH: QHBD B@@:@@A:L=@
Recently ieleaseu uata
92
fiom the 0SuS allows one to attempt a 'like-with-like' compaiison between the
assessments caiiieu out by the 0SuS
9S
anu INTEK
94
of the Naicellus Shale. The 0SuS estimate is of
"potential auuitions to ieseives" while INTEK's estimate is of "unpioveu uiscoveieu technically
iecoveiable iesouices". Bespite these uiffeient names, both excluue any volumes of pioveu ieseives fiom
theii estimates anu it is assumeu both excluue "infeiieu ieseives". The two estimates shoulu theiefoie be
compaiable.
The authois incluue below only the mean estimates of the uata pioviueu by 0SuS: iepiouucing the
estimates pioviueu woulu iequiie a iigoious hanuling of the ianges it pioviues. Theie aie some eiiois
intiouuceu by this but the oveiall uiffeience between the calculateu value anu quoteu figuie pioviueu by
the 0SuS is only u.4%.
Theie aie two majoi uiffeiences that can be seen in the table below that iesult in the uiffeience between
the 'heauline' figuies of 2.4 Tcm by the 0SuS anu 11.6 Tcm by INTEK. Fiist, the 0SuS excluues shale gas in
non-sweet-spot aieas, which INTEK inuicates makes up S7% its estimate. INTEK's iesouice estimate
within its sweet-spot aiea is still 11u% laigei than 0SuS's, howevei, anu so the seconu majoi uiffeience
can be seen to be the values useu foi 0RRwell. INTEK's 0RRwell is ovei thiee times the piouuctivity
within the Inteiioi assessment unit, the most piouuctive of 0SuS's assessment units. In fact, INTEK's non-
sweet-spot piouuctivity is equivalent to the mean piouuctivity within the sweet-spot aiea of the 0SuS's
most piouuctive assessment unit. Counteiing this to an extent is 0SuS's laigei oveiall sweet-spot aiea,
which is aiounu 9u% gieatei than that useu by INTEK. The two non-sweet-spot aieas aie almost
iuentical.
)#('3 "-,-
*@@:@@A:L= <L>= Folubelt Inteiioi Westein Naigin Total
-R::=I@QG= BC:B
Aiea (km
2
) ST ^PP 2 469 42 84u 7 1S1 ^S ab`
Well spacing (wellskm
2
) S.1 1.7 1.7 2.1
0RRwell (mcmwell) 99.2 S.9 S2.6 S.7
Success factoi 6u% Not useu
$BH;<HB=:K EB@ ?GH<A:
M(;AN
^]`b u.u24 2.S1S u.uS6 S]Vc^
f<G=:K EB@ ?GH<A: M(;AN ^]`b u.u22 2.SuS u.uS8 S]VU^
#GLI@R::=I@QG= BC:B
Aiea (km
2
) SPU SbP 46 9uS 74 114 96 u4S 217 u6u
Well spacing (wellskm
2
) S.1
Not assesseu
0RRwell (mcmwell) S2.6
Success factoi Su%
$BH;<HB=:K EB@ ?GH<A:
M(;AN
b]^c
f<G=:K EB@ ?GH<A: M(;AN b]^c
(G=BH M(;AN PP]b^ S]VU^
S]S]V )AQB;= GO =:;FLGHGED GL C:@G<C;: :@=>AB=:@
The stuuies ievieweu above have focuseu upon estimating the volume of shale gas that
coulu be iecoveieu using cuiiently available technology. As inuicateu in Section 2.1.1,
assessment methous that explicitly allow foi futuie technological auvances aie likely to
leau to substantially laigei estimates of iecoveiable iesouices. 0nly thiee iepoits that
attempt to quantify the effects of futuie technology uevelopment have been iuentifieu,

92
0SuS Naicellus Shale Assessment Team, 'Infoimation ielevant to assessment of Appalachian Basin'.
9S
Coleman et al., 'Assessment of unuiscoveieu oil anu gas'.
94
INTEK, 'Review of emeiging iesouices'.

4S
namely: a 2uu4 iepoit by Kuuskiaa,
9S
a papei by the 0S National Petioleum Council
96

anu a numbei of the EIA AE0s.
97
In each case, technological piogiess is iepiesenteu by
annual peicentage incieases in the 0RRwell.
It is impoitant to note that it was not the intiouuction of 'new' technologies, i.e.
technologies that hau not been employeu elsewheie anu whose potential was unknown,
but the auaptation anu utilisation of existing technologies that has leu to the laige
incieases seen in the 0RRwell iecently (ARI
98
foi example inuicates that the 0RRwell
within the Bainett Shale between 198S anu 199u aveiageu aiounu 11.S-14.1 mcmwell,
but in 2uu7-2uu8 hau incieaseu to aiounu 6S.2 mcmwell). New technological
bieakthioughs can nevei be iuleu out, howevei.
Two technologies iuentifieu by the EIA AE0s, stimulation
99
anu hoiizontal uiilling, aie
now much moie wiuely useu than in 2uuu. It theiefoie seems likely that theie is less
potential foi a step inciease thiough switching fiom veitical wells without stimulation
to hoiizontal wells with stimulation, in auuition to theie now being a bettei
unueistanuing of the cuiient anu futuie potential of these technologies. Theie has also
been a significant bouy of woik analysing the geology of inuiviuual shale plays. 0ne
woulu theiefoie expect shale geology to be now also much bettei unueistoou anu hence
the scope foi futuie impiovements in 0RRwell to be bettei appieciateu. These two
factois suggest that such a step change in 0RRwell as witnesseu between 198S anu the
piesent is less likely to occui again in the futuie.
Bowevei, anothei way to look at the iole of technology is by examining the influence of
changes in shale gas iecoveiy factois. Even a veiy small inciease in aveiage iecoveiy
factois can have veiy significant impacts on estimateu global iecoveiable volumes of
shale gas. Foi example, using ARI's global estimate of shale gas 0uIP of aiounu 7u8.2
Tcm,
1uu
a 1% inciease in iecoveiy factois globally woulu leau to an inciease in global
0RR of 7.1 Tcm - ovei twice the global piouuction of all natuial gas in 2u1u.
1u1

The significant impact that even a small impiovement in technology can have on the
0RR, anu the possibility of majoi futuie technological bieakthioughs, means that
estimates of futuie technological piogiess must always be inteipieteu with
consiueiable caution.
S]S]a -<AABCD
Neaily all of the souices examineu acknowleuge that the estimates they pioviueu aie
liable to change. Bespite this, the majoiity piesent theii iesults as single figuies iathei
than a iange (see foi example Figuie 2-7 to Figuie 2-9). uiven the limiteu piouuction

9S
v.A. Kuuskiaa, 'Natuial gas iesouices, unconventional', in ")F9F:%&'=-( %D ")'$;9, eu. C.}. Clevelanu
(Lonuon: Elseviei, 2uu4).
96
S.A. Boluitch, '0nconventional gas topic papei #29', (Washington, BC: National Petioleum Council,
2uu7).
97
See, foi example, EIA, 'AE0 2u1u'.
98
Kuuskiaa, 'Case stuuy #1. Bainett Shale: The stait of the gas shale ievolution'.
99
Stimulation, also known as hyuiaulic fiactuiing, involves '"pumping fluius" consisting piimaiily of
watei anu sanu...injecteu unuei high piessuie into the piouucing foimation, cieating fissuies that allow
iesouices to move fieely fiom iock poies wheie it is tiappeu'. Ameiican Petioleum Institute, 'Byuiaulic
fiactuiing: unlocking Ameiica's natuial gas iesouices', (Washington, BC: Ameiican Petioleum Institute,
2u1u).
1uu
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
1u1
BP, 'Statistical ieview 2u11'.

46
expeiience with shale gas, the limitations of the iesouice assessment methouologies,
the level of unceitainty associateu with many of the ielevant vaiiables, the high uegiee
of subjectivity involveu anu the huge changes that have occuiieu in 0S estimates ovei
the past few yeais, this gieatly oveiemphasises the ceitainty with which the estimates
shoulu be inteipieteu.
The table below summaiises some of the auvantages anu uisauvantages of the two main
iesouice assessment methouologies. The choice between them will uepenu upon the
extent of uevelopment of the iegion, the level of access to the ielevant uata, anu the
human anu financial iesouices available. While a high-level of unceitainty is inevitable
at this stage of the uevelopment of the iesouice, this can be auuiesseu, oi at least
mitigateu, thiough the use of piobabilistic methous. The absence of such methous is the
piimaiy weakness of the available liteiatuie.
(BJH: SI^. *K?BL=BE:@ BLK K>@BK?BL=BE:@ GO E:GHGE>;BH BLK :9=CBQGHB=>GL BQQCGB;F:@ =G
:@=>AB=>LE @FBH: EB@ C:@G<C;:@
5G==GAI<Q BLBHD@>@ GO E:GHGE>;BH QBCBA:=:C@
'9=CBQGHB=>GL GO QCGK<;=>GL
:9Q:C>:L;:
*K?BL=BE:@ [>@BK?BL=BE:@ *K?BL=BE:@ [>@BK?BL=BE:@
Robust anu well-
establisheu geological
appioach
Limiteu uata anu wiue iange of
unceitainty in many of the
geological paiameteis
No neeu to
assume a
iecoveiy
factoi
Becline iate pioblem foi
0RRwell
Reuuces emphasis on
the use of analogues
Bifficulties in uelineating
sweet-spot aieas

Bifficulties in uelineating
sweet-spot aieas

Subjectivity in choice of
iecoveiy factoi(s)

Subjectivity in choice of
key vaiiables such as
'success factoi'

Not uiiectly baseu on actual
uiilling uata

Estimation of
piouuctivity in
unuevelopeu aieas

Risk of using
inappiopiiate analogues
Within the analysis of geological paiameteis categoiy, ARI's
1u2
iepoit is not only the
most ambitious in scope but also pioviues the most uetaileu uesciiption of the methous
useu. It also attempts to auuiess some of the geneial uisauvantages of the appioach
uiscusseu above. 0ne ciiticism, howevei, is its lack of hanuling of unceitainty.
Within the extiapolation categoiy, the INTEK iepoit is wiuely citeu anu influential, but
has a numbei of impoitant limitations as uesciibeu in Annex C, incluuing: the inaccuiate
uelineation of sweet-spot aieas; the subjective choice of 'success factois'; the ieliance
upon out-of-uate infoimation; anu the inauequate tieatment of unceitainty. The 0SuS
appioach is significantly moie tianspaient anu iobust, but theie aie uifficulties in using
the available 0SuS liteiatuie to estimate the oveiall 0S TRR.
All of the 0SuS assessments weie unueitaken using a methouology that excluueu
iesouices containeu within non-sweet-spot aieas. The absence of suitably
uisaggiegateu ieseive anu piouuction uata also cieates the iisk of uouble counting.
These two effects coulu howevei potentially act in opposite uiiections, the fiist leauing
to an unueiestimate anu the seconu to an oveiestimate of iecoveiable iesouices. The

1u2
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.

47
most commenuable featuie of the 0SuS appioach is the explicit tieatment of
unceitainty, which is one ieason why the iesults may be consiueieu moie ieliable than
those fiom INTEK. Fuitheimoie, ieliability shoulu impiove once upuates using the new
0SuS methouology aie unueitaken foi the shale plays that have not been assesseu foi
some time.
0ne majoi uiawback of both the geological anu extiapolation methous aie theii
sensitivity to a single paiametei, namely the iecoveiy factoi with the geological
appioach anu the assumeu functional foim foi the piouuction uecline cuive with the
extiapolation appioach (see Section 2.3). Both of these paiameteis aie pooily
unueistoou with iegaiu to shale gas piouuction anu iemain contioveisial. It is geneially
accepteu that estimation of the iecoveiy factoi is challenging, but little piogiess
appeais to have been maue iegaiuing its estimation in shale aieas, even when the
geology is ielatively well unueistoou. The contioveisy iegaiuing estimation of the
0RRwell is moie iecent anu the ieasons behinu the uiffeiing assumptions useu by
iepoiting oiganizations aie not well unueistoou. It is foi this ieason that Section 2.3
below examines the issue in moie uetail anu attempts to finu common giounu between
the polaiiseu views. In piinciple, the ieliability of the extiapolation methou shoulu
impiove as piouuction expeiience incieases. Bence, we woulu expect appioaches baseu
upon actual piouuction expeiience to pioviue moie ieliable iesouice estimates in the
meuium teim. At piesent, howevei, the level of unceitainty fiom these methous appeais
to be compaiable to that fiom geological methous. As iecommenueu by Lee anu Siule,
1uS

futuie stuuies that seek to ueiive mean estimates of the TRR foi a iegion, shoulu use as
many uiffeient appioaches as possible.
uiven these multiple limitations, it is essential to auuiess anu iepoit on the level of
unceitainty in the estimates, whichevei appioach is auopteu. The failuie of the majoiity
of the existing liteiatuie to uo this is a majoi limitation. To uate, only the 0SuS has
hanuleu unceitainty in a iigoious mannei, but theie is no ieason why othei stuuies
coulu not uo so.
C@D T("'5$( "104( /$/'=-5- /$) ,<( (-,5+/,5%$ %E 0("%4(0/7'( 0(-%10"(-
Piouuction fiom shale gas wells ueclines continuously anu iapiuly within a month oi
two of initial piouuction (IP) (see schematic in Figuie 2-12). Estimating the futuie iate
of piouuction uecline is theiefoie cential, both to foiecasting futuie piouuction anu to
estimating the 0RR of the well - a key ueteiminant of piofitability. Appiopiiate
methouologies foi foiecasting futuie uecline iates aie theiefoie neeueu to uevelop
iobust estimates of these two vaiiables.

1uS
Lee anu Siule, 'Reseives Estimation'.

48
6>E<C: SIPS. )HH<@=CB=>?: ;FBC= GO =DQ>;BH K:;H>L: >L @FBH: EB@ QCGK<;=>GL

Such methouologies, teimeu ='F:-)' F#$7' ()(:9.-. (BCA), aie well-establisheu anu
wiuely useu.
1u4
Bowevei, the appiopiiateness of specific methouologies foi shale gas
plays has been questioneu, with suggestions that futuie uecline iates have been
unueiestimateu, anu both well longevity anu ultimate iecoveiy oveiestimateu.
1uS
These
inuiviuual well 0RR estimates foim a key input into the extiapolation of piouuction
expeiience appioach foi estimating the iegional 0RR of shale gas uesciibeu in Section
2.S. Bence, if the 0RRwell is being oveiestimateu, theie is a iisk that the iegional 0RR
will be oveiestimateu also. Bowevei, othei commentatois contest this inteipietation
anu point to the impiessive iecent histoiy of shale gas piouuction as eviuence that
futuie estimates aie iealistic.
1u6
While the ioots of this uisagieement lie in the technical
assumptions unueipinning uecline cuive analysis, the economic impoitance of shale gas
has leu to a veiy public anu politiciseu uebate.
1u7

In biief, BCA involves statistically fitting a hypeibolically ueclining cuive to a time seiies
of histoiical piouuction uata fiom a well. This fitteu cuive can then be extiapolateu to
ueiive the futuie piouuction estimate oi 0RR foi that well. The typical hypeibolic
equation useu involves thiee key teims: the initial piouuction iate; the initial uecline
iate; anu a constant teimeu I, which uefines the iate at which uecline iate aiiests (see

1u4
Ram u. Agaiwal et al., 'Analyzing Well Piouuction Bata 0sing Combineu-Type-Cuive anu Becline-Cuive
Analysis Concepts', in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (New 0ileans, LA: 1998); }.}. Aips,
eu., J)(:9.-. %D K'F:-)' +#$7'.3 E'8$%:'#, G'FC)%:%;9 (Bouston, Texas: Society of Petioleum Engineeis,
194S); N.}. Fetkovich, 'Becline Cuive Analysis 0sing Type Cuives', @E" 0%#$)(: %D E'8$%:'#, G'FC)%:%;9 u6
(198u); B. Ilk et al., 'Integiating Nultiple Piouuction Analysis Techniques To Assess Tight uas Sanu
Reseives: Befining a New Paiauigm foi Inuustiy Best Piactices', in +>E+Z@E" B(. G'FC)%:%;9 @9,&%.-#,
M[[R 0%-)8 +%)D'$')F', eu. Society of Petioleum Engineeis (Calgaiy, Albeita: 2uu8).
1uS
A.E. Beiman, 'Shale uas-Abunuance oi Niiage. Why The Naicellus Shale Will Bisappoint Expectations'
(papei piesenteu at the ASP0 0SA 2u1u Woilu 0il Confeience, Washington, BC, 171u11 2u1u).
1u6
W.A. Featheiston et al., 'Eneigy Sectoi: NYT Shale uas Allegations Seem Exaggeiateu', in 6X@
>)7'.8,')8 1'.'($FC (New Yoik: 0BS, 2u11).
1u7
Beiman, 'Shale uas-Abunuance oi Niiage. Why The Naicellus Shale Will Bisappoint Expectations';
}ohn Bizaiu, 'Bebate ovei shale gas uecline fiies up', 2-)()F-(: G-,'. 2u1u; Featheiston et al., 'NYT
Allegations Exaggeiateu'; I. 0ibina, 'Insiueis Sounu an Alaim Amiu a Natuial uas Rush', L'T _%$W G-,'.
2u11.

49
Annex A). Both initial piouuction anu initial uecline can be measuieu fiom a shoit
piouuction expeiience. The appiopiiate I constant, howevei, is significantly less ceitain
until seveial yeais piouuction expeiience is available. The impact of incieasing I is to
inciease the piouuction iate to which the fitteu cuive is asymptotically appioaching.
Theiefoie a highei I constant leaus to highei estimates of 0RR foi that well. Typically I
vaiies between u anu 1, but the initial piouuction fiom wells with a high initial uecline
iate (such as shale gas) can be appioximateu by hypeibolic cuives with I constants
gieatei than unity. At piesent, it iemains uncleai whethei subsequent piouuction iates
fiom these wells will iemain consistent with these fitteu cuives. Bence, the 'coiiect' I
constant foi such wells has become a focus of contioveisy.
Baseu on both simulateu anu empiiically obseiveu well behavioui, some authois have
suggesteu that assuming I > 1 iesults in iesouice estimates that aie 2-1uu times gieatei
than the 'ieasonable' values ueiiveu fiom completeu wells oi othei estimation
techniques.
1u8
Shale gas companies cuiiently active in the foui main 0S shale gas plays
have useu hypeibolic uecline cuives with I constants of between 1.4 anu 1.6.
1u9
Analysis
of 19S7 hoiizontal wells in Bainett, Fayetteville Wooufoiu, Baynesville anu Eagle Foiu
shale plays
11u
suggests that I constants above 1 may be appiopiiate foi unconventional
gas in some instances, though I constants such as the 1.4 to 1.6 inuicateu above aie not
suppoiteu. uuiuelines fiom SPE iuentify a possible iange foi the I constant of between u
anu 1.S foi shale gas, but suggest that a conseivative uecline iate (lowei I) be useu to
ueiive pioveu ieseive estimates. A moie optimistic uecline iate (highei I) may be useu
foi pioveu anu piobable (2P) ieseives.
111

Ciitics of the use of uecline iates in shale gas have suggesteu that opeiatois may assume
oveily optimistic I constants
112
baseu upon only limiteu piouuction expeiience. In an
analysis of 44 wells with ovei 12-months piouuction expeiience in the Baynesville
shale,
11S
a hypeibolic cuive was fit to the aveiage piouuction with a I constant of 1.1.
This iesulteu in a mean 0RR estimate foi the 44 wells of 18S mcmwell. Some have
aigueu that this estimate is optimistic anu it has been shown that cuives with a iange of
uiffeient I constants fit the uata compaiably well (see Annex A). Foi example, a
hypeibolic cuive with a I constant of u.S woulu give a mean 0RR estimate of only 8S
mcmwell. It has alieauy been seen that, unuei some ciicumstances, a I constant of
ovei 1 may be estimateu. Bowevei, it can be shown that the sensitivity of 0RR estimates
to I incieases with the assumeu value of I, suggesting that small vaiiations in I wheie I
>1 have moie impact on 0RR estimates than similai vaiiations in I wheie I 1.
Shale gas analyst Aithui Beiman examineu the implications of this analysis foi shale gas
economics anu suggesteu that a well with an estimateu 0RR of 8S mcm (the outcome foi

1u8
L. Nattai, 'Piouuction Analysis anu Foiecasting of Shale uas Reseivoiis: Case Bistoiy-Baseu Appioach',
in @E" @C(:' B(. E$%=#F8-%) +%)D'$')F', eu. Society of Petioleum Engineeis (Foit Woith, TX: 2uu8); }.A.
Rushing et al., 'Estimating Reseives in Tight uas Sanus at BPBT Reseivoii Conuitions: 0se anu Nisuse of
an Aips Becline Cuive Nethouology', in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%), eu. Society of
Petioleum Engineeis (Anaheim, CA: 2uu7).
1u9
Chesapeake Eneigy, 'Institutional investoi anu analyst meeting', (2u1u).
11u
}ason Baihly et al., 'Shale uas Piouuction Becline Tienu Compaiison 0vei Time anu Basins' (papei
piesenteu at the SPE Annual Technical Confeience anu Exhibition, Floience, Italy, 2u1u).
111
Society of Petioleum Engineeis, 'uuiuelines foi Application of the Petioleum Resouices Nanagement
System'.
112
Beiman, 'Shale uas-Abunuance oi Niiage. Why The Naicellus Shale Will Bisappoint Expectations'.
11S
Chesapeake Eneigy, 'Investoi anu analyst meeting'.

Su
b=u.S in the case of aveiage Baynesville piouuction uecline) is likely to iequiie a gas
piice of ~$7 pei thousanu cubic feet (Ncf), which compaies to cuiient 0S gas piices of
only ~$S.S.
114
This uebate has subsequently been exploieu by the piess, with aiticles in
the 2-)()F-(: G-,'. anu the L'T _%$W G-,'. uiscussing the aigument ovei I constants
anu the iange of opinion ovei the economic viability of shale gas in the 0SA.
11S
These
aiticles have in tuin piompteu iesponse fiom some analysts uefenuing the futuie
piofitability of shale piouuction in the 0SA.
116
Bowevei, even fiom this uefensive
position, it is highlighteu that a gas piice of between $S.S anu $6 pei Ncf of gas is
iequiieu to suppoit shale gas piouuction in most of the 0S iegions.
A iecent analysis of 8 7uu hoiizontal wells in the Bainett Shale
117
lenus some suppoit to
a moie optimistic position. This analysis gioups wells by the numbei of yeais they have
been in piouuction anu uses non-lineai iegiession to finu the best fit uecline cuive foi
each gioup. The iesults suggest hypeibolic uecline with I values ianging fiom 1.S to 1.6,
with a mean of 1.S. This leaus to a mean 0RRwell of S6.6 mcm when extiapolating
piouuction ovei an assumeu Su-yeai lifetime. The same analysis also shows that oluei
wells peifoim bettei (i.e. uecline less iapiuly) anu speculates that this may be uue both
to newei wells taigeting pooi quality iock anuoi to ieuuceu spacing between wells.
'Re-stimulation' of wells leaus to highei piouuction in the shoit teim, but it is too eaily
to tell whethei this also leaus to highei ultimate iecoveiy.
In summaiy, if I constants aie oveiestimateu, the 0S shale gas ieseive is likely to be
oveistateu by stuuies ielying upon the extiapolation of histoiical piouuction expeiience
(e.g. the 0SuS). But the empiiical eviuence iemains equivocal at piesent anu seveial
moie yeais of piouuction expeiience is likely to be iequiieu befoie any fiim juugement
can be maue. In the inteiim, continueu contioveisy can be anticipateu.
C@F .(-, (-,5+/,(-L "</0/",(05-5$* ,<( 1$"(0,/5$,=
S]a]P '@=>AB=:@ GO @FBH: EB@ C:@G<C;:@
Biawing togethei the above, Table 2-6 pioviues a iange of estimates of the technically
iecoveiable shale gas iesouices within 1S global iegions. In some iegions it was not
possible to pioviue a cential estimate uue to the absence of sufficient infoimation. It is
also impoitant to note the numeious anu impoitant caveats to these estimates,
summaiiseu in the table anu in the following section. The ieasons foi choosing these
paiticulai estimates anuoi mannei in which they weie ueiiveu aie inuicateu in the
table. Since all estimates iefei to technically iecoveiable iesouices, they take no account
of economic viability oi any othei constiaints on iesouice iecoveiy. Bence, theie is no
guaiantee that these iesouices will be piouuceu.
As uiscusseu in Section 2.2, iesouice estimates baseu upon the extiapolation of
piouuction expeiience aie likely to be moie iobust. Bowevei, with veiy limiteu
piouuction expeiience in the majoiity of the woilu's iegions, it is moie appiopiiate at

114
0n 1S Becembei 2u11, Bloombeig.com stateu that the NYNEX Beniy Bub 1N futuie was $S.11, the
Beniy Bub Spot was $S.u8, anu the New Yoik City uate Spot was $S.SS. These piices aie all pei million
BT0, which when conveiteu to Ncf become $S.u2, $S.uu anu $S.24 iespectively.
11S
Bizaiu, 'Bebate'; 0ibina, 'Insiueis Sounu Alaim'.
116
Featheiston et al., 'NYT Allegations Exaggeiateu'.
117
Li Fan et al., 'The Bottom-Line of Boiizontal Well Piouuction Becline in the Bainett Shale' (papei
piesenteu at the SPE Piouuction anu 0peiations Symposium, 0klahoma City, 0A, 2u11).

S1
this stage to incoipoiate estimates fiom stuuies that use a iange of methouologies. Since
expeiience with piouuction anu iesouice estimation is giowing iapiuly, it is also
impoitant to use the most iecent estimates. 0iganisations that have pioviueu multiple
estimates foi single iegions (e.g. KuuskiaaARI
118
anu the EIA
119
) have consistently, anu
often significantly, incieaseu theii estimates ovei time.
As shown in Table 2-6, it was only possible to obtain high, best anu low estimates of
iecoveiable iesouices foi foui iegions - namely, Canaua, 0SA, China anu 0thei
ueveloping Asia. Foi these iegions, the high estimate is, on aveiage, 2Su% of the best
estimate, while the low estimate is S1% of the best estimate. In the 0SA, the
coiiesponuing figuies aie 2Su% anu 64%. This seives to uemonstiate that the iange of
unceitainty in these estimates is extiemely laige, even foi the 0SA. uiven the
compaiative absence of piouuction expeiience in most othei iegions of the woilu, the
iesouice estimates shoulu be tieateu with consiueiable caution.
(BJH: SIb. '@=>AB=:@ GO @FBH: EB@ C:@G<C;:@ M(;AN
4>EF 5:@= +GR #G=:@W@G<C;:@
*OC>;B 29.S ARI
12u

*<@=CBH>B 6.S
Aveiage of Neulock et al3
121
anu ARI. Cannot assume that estimate
fiom ARI is the 'high' estimate as this is iepoiteu as a conseivative
assessment
$BLBKB 28.S 12.S 4.7
0nly estimates fiom 2u1u anu aftei have been chosen
Bigh: Bighest estimate pioviueu in Skippei
122

Best: mean of seveial stuuies
12S
(ICF estimate assumeu to be TRR)
Low: Neulock et al.
$F>LB S9.8 21.2 1.6
Bigh: All of 'Centially planneu Asia' fiom Rognei
124
with 4u%
iecoveiy factoi
Best: Aveiage of Neulock et al. anu ARI
Low: All of 'Centially planneu Asia' fiom WEC
12S
with 1S%
iecoveiy factoi

118
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'; Kuuskiaa, 'Economic anu maiket
impacts'; v.A. Kuuskiaa, 'uas shales uiive the unconventional gas ievolution' (papei piesenteu at the
Washington eneigy policy confeience: the unconventional gas ievolution, Washington, BC, 2u1u);
Kuuskiaa, 'uas iesouices, unconventional'; Kuuskiaa, 'An expoitable Noith Ameiican ievolution.'; v.A.
Kuuskiaa, '0nconventional gas: Resouice potential estimates likely to change', U-: ()= B(. 0%#$)(: 1uS, no
SS (2uu7); Kuuskiaa, 'Status iepoit'; Kuuskiaa anu Neyeis, 'Review of woilu iesouices'; v.A. Kuuskiaa
anu T. van Leeuwen, 'Economic anu maiket impacts of abunuant shale gas iesouices, in ulobal Leaueis
Foium: 'The natuial gas ievolution: 0.S. anu global impacts'', (Ailington, vA: Auvanceu Resouices
Inteinational Inc., 2u11).
119
EIA, 'Annual Eneigy 0utlook 2uu8 with Piojections to 2uSu', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2uu8); EIA, 'AE0 2u1u'; EIA, 'AE0 2u11'; S.A. }ikich anu A.S. Popa, 'Bypeibolic Becline
Paiametei Iuentification 0sing 0ptimization Pioceuuies, (papei piesenteu at the SPE Eastein Regional
Neeting, Noigantown, Wv, 2uuu).
12u
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
121
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.
122
K. Skippei, 'Status of global shale gas uevelopments, with paiticulai emphasis on Noith Ameiica', in >>1
-)(#;#$(: .C(:' ;(. I$-'D-); (Biisbane: 2u1u).
12S
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'; K. Bowney, 'Fueling Noith Ameiica's
eneigy futuie: The unconventional natuial gas ievolution anu the caibon agenua - Executive summaiy',
(Cambiiuge, NA: IBS CERA, 2u1u); Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'; Noniz,
}acoby anu Neggs, 'Futuie of natuial gas'; Petak, 'Impact of natuial gas on CBP'; Skippei, 'Status of global
shale gas uevelopments'.
124
Rognei, 'Assessment of Woilu Resouices'.
12S
WEC, 'Suivey of Eneigy Resouices'.

S2
4>EF 5:@= +GR #G=:@W@G<C;:@
$:L=CBH
BLK -G<=F
*A:C>;B
S4.7 ARI
'B@=:CL
'<CGQ:
PSb

4.S Aveiage of Neulock et al3 anu ARI foi Polanu
6GCA:C
-G?>:=
"L>GL
61.2 2.7
Bigh: WEC with 4u% iecoveiy factoi
Low: Rognei with 1S% iecoveiy factoi
)LK>B 1.8 ARI
8BQBL u No souices iepoit any shale gas to be piesent in }apan
2>KKH:
'B@=
28.7 2.8
Bigh: whole of Rognei's NENA iegion with 4u% iecoveiy factoi.
Low: half of WEC NENA iegion (as assumeu by ARI) with 1S%
iecoveiy factoi
2:9>;G 11.6 Aveiage of Neulock et al3 anu ARI
%=F:C
K:?:HGQ>LE
*@>B
22.1 1.S
WEC iepoiteu 0ECB Asia anu '0thei Asia' collectively cannot be
useu
Bigh: Rognei '0thei Pacific Asia' anu 'Centially Planneu Asia'
iegions with 4u% iecoveiy factoi minus best estimate of China
fiom above
Low: '0thei Pacific Asia' only (as assume all of Rognei's 'Cential
Planneu Asia' is China) anu assuming a 1S% iecoveiy factoi. This
is similai to estimate foi Pakistan only fiom ARI
-G<=F
3GC:B
u No souices iepoit any shale gas to be piesent in South Koiea
"L>=:K
-=B=:@ GO
*A:C>;B
47.4 2u.u 1S.1
0nly estimates fiom 2u1u anu aftei have been chosen
Bigh: highest estimate available - ICF
127
(assumeu to be TRR)
Best: mean of thiee estimates fiom each categoiy juugeu to be
most suitable
128

Low: lowest estimate available - 0SuS
g:@=:CL
'<CGQ:
PSc

11.6
Aveiage of Neulock et al. anu ARI foi Sweuen anu ueimany, anu
ARI anu BECC
1Su
foi the 0K. ARI foi Fiance, the Netheilanus,
Noiway anu Benmaik anu Neulock et al. foi Austiia
S]a]S $GLO>K:L;: >L ;<CC:L= :@=>AB=:@ BLK ;GL;H<@>GL@
This section summaiises some of the main finuings fiom the pieceuing sections, anu
assesses whethei anu to what extent these iesouice estimates aie likely to change in the
futuie.
The focus of this chaptei has been on %$-;-)(: estimates of unconventional gas iesouices
- anu especially shale gas iesouices - foi uiffeient countiies anu iegions. 0iiginal
estimates aie uefineu as those that have been uevelopeu using iecogniseu
methouologies oi ueiiveu by auapting figuies fiom existing souices. This ciiteiion

126
Incluuing Albania, Bosnia-Beizegovina, Bulgaiia, Cioatia, Czech Republic, Bungaiy, Naceuonia,
Nontenegio, Polanu, Romania, Seibia (Kosovo), Slovenia, Slovakia
127
Petak, 'Impact of natuial gas on CBP'.
128
Kuuskiaa, 'Economic anu maiket impacts'; Neulock, }affe anu Baitley, 'Shale uas anu National
Secuiity'. As well as 0SuS.
129
Incluuing Austiia, Belgium, Cypius, Benmaik, Finlanu, Fiance, ueimany, uieece, Icelanu, Iielanu, Italy,
Luxembouig, Nalta, the Netheilanus, Noiway, Poitugal, Spain, Sweuen, Switzeilanu, 0niteu Kinguom.
1Su
Baivey anu uiay, '0nconventional iesouices of Biitain'.

SS
excluues the iesouice estimates publisheu in an influential stuuy by the IEA.
1S1
The IEA
takes most of its shale gas iesouice estimates uiiectly fiom ARI,
1S2
while foi the Niuule
East the estimates aie baseu upon the seminal stuuy by Rognei
1SS
assuming a 2u%
iecoveiy factoi. Rognei is also the souice of the IEA tight gas anu CBN iesouice
estimates, assuming a 4u% anu 2S% iecoveiy factoi iespectively. Whethei such
ieliance upon Rognei is ieasonable is uiscusseu below.
0nly within Noith Ameiica, anu pieuominantly the 0SA, aie any shale gas iesouices
consiueieu pioveu ieseives anu these compiise only a small piopoition of the
estimateu technically iecoveiable iesouices.
1S4
It is thus veiy impoitant not to confuse
ieseives with iesouices. As inuicateu above, iesouice estimates aie inheiently
unceitain anu all the moie so foi a iesouice that is at such an eaily stage of
uevelopment. Noieovei, this unceitainty is compounueu by the use of impiecise oi
ambiguous teiminology. This often iesults fiom employing teiminology that has been
ueiiveu foi conventional hyuiocaibons but is not necessaiily appiopiiate foi
unconventional iesouices (e.g. 'unuiscoveieu iesouices'). Bence, unceitainty coulu be
ieuuceu by moie caieful anu consistent use of teims anu uefinitions oi, bettei still, the
uevelopment of an appiopiiate stanuaiu such as the SPEPRNS.
Foui geneial methous have been useu to geneiate iesouice estimates of shale gas,
namely: expeit juugement; liteiatuie ieview; bottom-up assessment of geological
paiameteis anu extiapolation of piouuction expeiience. These have been uesciibeu in
uetail anu the stiengths anu weaknesses of each uiscusseu. While the extiapolation of
piouuction expeiience is potentially the most iobust methouology, it ielies upon uata
that is unavailable foi most iegions of the woilu. While analogues can be useu, the
iesults aie sensitive to the paiticulai analogue that is chosen.
With the cuiient state of uevelopment of the liteiatuie, the uiffeiences in iesouice
estimates between institutions using a similai methouological appioach aie as
significant as the uiffeiences between those using uiffeient appioaches. Foi example,
looking at estimates of the 0S TRR, the uiffeiences between the estimates of the 0SuS
anu INTEK
1SS
within the extiapolation categoiy aie as gieat as between Neulock et
al.
1S6
(liteiatuie ieview), 0SuS (extiapolation) anu ICF
1S7
(geological). A piimaiy souice
of these uiffeiences is the unceitainty ovei the iecoveiy factoi anu the 0RRwell.
Bence, emphasis neeus to be placeu on constiaining these paiameteis to a gieatei

1S1
IEA, 'uoluen age'. Nost of the IEA shale gas iesouice estimates weie taken uiiectly fiom ARI, while the
Niuule Eastein estimates weie baseu upon Rognei assuming 2u% iecoveiy factoi. The tight gas iesouice
estimates foi all iegions, anu the CBN iesouice estimates foi Noith Ameiica anu AsiaPacific, weie all
taken fiom Rognei assuming 4u% anu 2S% iecoveiy factois iespectively. The IEA also pioviues a CBN
iesouice estimate foi Eastein EuiopeEuiasia, but it is not cleai how this was ueiiveu. The figuie of 8S
Tcm woulu iequiie a 7S% iecoveiy factoi to coiielate to Rognei's estimate of CBN 0uIP. Alteinatively, an
0uIP of S4u Tcm woulu be iequiieu if a 2S% iecoveiy factoi is assumeu - which is significantly gieatei
than any othei estimate of global CBN 0uIP. Auvanceu Resouices Inteinational, 'Woilu shale gas
iesouices', Rognei, 'Assessment of Woilu Resouices'.
1S2
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
1SS
Rognei, 'Assessment of Woilu Resouices'.
134
Pioveu ieseives iepoiteu by the EIA foi 2uu9 aie 1.7 Tcm anu so compiise only 9% of the best
estimate of TRR given in Table 2-6. EIA, @C(:' ;(.Y &$%7'= $'.'$7'. (citeu).
1SS
INTEK, 'Review of emeiging iesouices'.
1S6
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'.
1S7
K.R. Petak, B. Fiitsch anu E.B. viuas, 'Noith Ameiican Niustieam Infiastiuctuie Thiough 2uSS - A
Secuie Eneigy Futuie', (ICF Inteinational, 2u11).

S4
uegiee than at piesent anu on incoipoiating piobabilistic techniques to captuie theii
inheient unceitainty.
Theie is an absence of iigoious stuuies foi a numbei of key iegions acioss the woilu.
This incluues Russia anu the Niuule East, which aie estimateu to holu potentially veiy
laige iesouice volumes (Table 2-6). While Rognei
1S8
anu the Woilu Eneigy Council
1S9

pioviue inuepenuent estimates foi these iegions, they pioviue veiy little infoimation on
theii methouology anu theii methous aie potentially flaweu. Foi example, Rognei useu
a single analogue fiom the 0SA to estimate iecoveiable iesouices acioss the whole
woilu. But since subsequent 0S expeiience has uemonstiateu a wiue vaiiation, both
within anu between shale plays, the choice of a uiffeient analogue coulu have leu to veiy
uiffeient iesults. The WEC pioviues no iefeiences foi the liteiatuie ielieu upon foi its
stuuy. This makes ieliance on othei stuuies piefeiable whenevei possible, although in
many iegions Rognei anu the WEC aie the only souices that aie available.
As mentioneu above, the estimates piouuceu by bottom-up geological assessments aie
veiy sensitive to the assumeu iecoveiy factoi. While it is geneially accepteu that
estimating iecoveiy factois is challenging, little piogiess appeais to have been maue in
establishing such factois foi shale, even when the geology is well unueistoou.
0nceitainty ovei this factoi, which is cuiiently estimateu to be between 1S% anu 4u%
foi shale gas piouuction, makes an accuiate estimate of TRR veiy uifficult - even
assuming the 0uIP can be establisheu with any confiuence.
In a similai mannei, many of the estimates piouuceu by extiapolation methous aie
sensitive to the assumeu 0RRwell anu hence to the choice anu paiameteiisation of the
ielevant uecline cuives. The application of uecline cuive analysis to shale gas
piouuction is contesteu, with no consensus on how quickly the iate of piouuction
uecline will slow. 0f paiticulai concein is the fact that a small change in assumptions in
these analyses may have a laige effect on the estimateu 0RR of a well anu hence on the
estimateu 0RR foi a iegion. It is theiefoie impoitant to focus attention on iefining these
techniques anu ueveloping compiehensive assessments of theii accuiacy. A significant
amount of woik has been conuucteu in iecent yeais into iefining extiapolation
methous, but fuithei woik is neeueu to piove these new methous anu establish them as
best piactice if genuine impiovement is to be achieveu.
It is impoitant to note that while bottom-up estimates aie unceitain, they aie infoimeu
by some level of histoiical expeiience anu aie often bounueu at the inuiviuual well oi
play level. This may limit the unceitainty ielative to that foi top-uown estimates of
iegions oi countiies wheie theie is limiteu oi no histoiical expeiience anu wheie the
estimates of 0RR oi TRR may be sensitive to small changes in assumptions.
Anothei unceitainty influencing shale gas estimates is the piactice of simply uelineating
shale play aieas into moie anu less piouuctive aieas. Splitting a shale play into only
these two aieas implies that compaiable piouuction iates anu 0RRwell will be
expeiienceu acioss the whole of these aieas. This assumption belies the tiue
heteiogeneity of shale plays. In auuition, piouuction to uate has focuseu upon aieas
with the highest piouuctivity anu 0RRwell. Assuming that compaiable piouuction
iates will be expeiienceu acioss the iemainuei of the play is likely to leau to
oveiestimates of the TRR. The laige aieal extent of many shale plays means that

1S8
Rognei, 'Assessment of Woilu Resouices'.
1S9
WEC, 'Suivey of Eneigy Resouices'.

SS
inauequate uelineation coulu a have laige effect on the iesults, although this souice of
unceitainty shoulu ieuuce as uiilling continues anu the extent to which uiffeient aieas
can be gioupeu togethei becomes moie obvious.
A ielateu unceitainty is the valiuity of assumptions foi 0RRwell anu well spacing in
aieas outsiue those fiom which piouuction is cuiiently taking place. Even though
assumptions foi these aieas aie necessaiy to estimate the iesouice potential of the
whole shale play, the level of confiuence in these assumptions is much lowei than that
foi uevelopeu aieas.
Theie is also unceitainty ovei the impact that technology will have on incieasing
cuiient estimates of TRR. Pievious foiecasts of the potential impact of technological
impiovements faileu to anticipate the inciease in 0RRwell that has occuiieu since the
198us. The technologies cuiiently being useu foi shale gas extiaction aie now bettei
unueistoou, having been much moie wiuely stuuieu anu utiliseu than pieviously. In
auuition, shale geology is now much bettei unueistoou, suggesting that potential
impiovements in technology can now be bettei chaiacteiiseu. Neveitheless,
technological piogiess, even if only leauing to a small inciease in 0RRwell oi iecoveiy
factoi, can have a significant impact on the estimateu ultimately iecoveiable iesouices
anu it is impossible to iule out futuie majoi technological bieakthioughs.
Finally, the potential foi shale gas in as yet unuiscoveieu basins is likely to be low but
piobably not insignificant anu iequiies fuithei investigation.
In conclusion, theie aie multiple anu substantial unceitainties in assessing the
iecoveiable volumes of shale gas at both the iegional anu global level. Even in aieas
wheie piouuction is cuiiently taking place, theie iemains significant unceitainty ovei
the size of the iesouice anu consiueiable vaiiation in the available estimates. Foi
unuevelopeu iegions wheie less ieseaich has been conuucteu, one estimate of
iesouices may be all that is available anu the iange of unceitainty cannot be
chaiacteiiseu. Foi seveial iegions of the woilu theie aie no estimates at all, but this
uoes not necessaiily mean that such iegions contain only insignificant iesouices.
Theiefoie, given the absence of piouuction expeiience in most iegions of the woilu, anu
the numbei anu magnituue of unceitainties uesciibeu above, cuiient iesouice
estimates shoulu be tieateu with consiueiable caution.

S6
V -FBH: BLK =>EF= EB@ K:?:HGQA:L= OGC '<CGQ:

B3 GC%)C(#.'$ !H-)-); 6)-7'$.-89 %D <'%I')/ JG5

This chaptei pioviues a technical oveiview of shale gas uevelopment in Euiope. The
state of the ait anu futuie uiilling, hyuiaulic fiactuiing anu piouucing technologies foi
shale gas wells aie uiscusseu. The cost impact of some of these technologies is evaluateu
anu futuie potential impiovements aie explaineu. The uata geneiateu can be useu to
suppoit mouels to evaluate shale gas uevelopment scenaiios.
D@? U$,0%)1",5%$ ,% 1$"%$4($,5%$/' */- ,("<$%'%*=
Conventional gas anu unconventional gas aie two teims that aie wiuely useu in the
inuustiy. It is not the piouuceu gas that uistinguishes the categoiies. It is the iock that
makes the uiffeience. The most impoitant piopeity to mention heie is the peimeability
of the souice iock anu seconuly, but less impoitant, its poiosity.
Peimeability is the measuie of a ieseivoii's capacity to tiansmit fluius.
1

Poiosity can be iegaiueu the measuie of a iock's fluiu stoiage capacity. Poiosity is
uimensionless.
2

V]P]P $GL?:L=>GLBH EB@
Conventional gas is typically founu in ieseivoiis with peimeabilities gieatei than 1
milliuaicy (mB) anu can be extiacteu via tiauitional techniques. A laige piopoition of
the gas piouuceu globally to uate is conventional anu is ielatively easy anu inexpensive
to extiact. By contiast, unconventional gas is founu in ieseivoiis with ielatively low
peimeabilities (less than 1 mB) anu theiefoie cannot be extiacteu via conventional
methous.
V]P]S [:O>L>=>GL GO @FBH: BLK =>EF= EB@ BLK ;GBHIJ:K A:=FBL:
Theie aie seveial types of unconventional gas iesouices that aie piouuceu touay, but
the thiee most common types aie tight gas, coal-beu methane anu shale gas. uiven the
low peimeability of the ieseivoiis yieluing such gas, the gas must be uevelopeu via
special techniques, incluuing fiactuie stimulation, in oiuei to be piouuceu
commeicially.
S

S</'( */-
A gas shale is an oiganically-iich shale foimation, which in the classical uefinition can be
both the souice iock anu cap iock of an oil oi gas ieseivoii. The piouuction of shale gas
seemeu to be impossible because gas is so tightly confineu within the shale iock matiix.
Bowevei, some yeais ago, technologies anu pioceuuies weie uevelopeu that alloweu
inuustiy to economically piouuce shale gas.

1
Taiek Ahmeu, 1'.'$7%-$ ");-)''$-); Q()=I%%W, Fouith euition eu. (Builington, NA: uulf Piofessional
Publishing, 2u1u).
2
Ibiu.
S
S Legs Resouices, 'An Intiouuction to Shale uas', (Isle of Nan: 2u11).

S7
Shale is a seuimentaiy iock that is pieuominantly compiiseu of consoliuateu clay anu
silt-sizeu paiticles. Compaction of the clay paiticles occuis uuiing post-ueposition as
auuitional mateiials accumulate above these paiticles, iesulting in the foimation of thin,
laminateu layeis. Laminateu layeis aie foimeu because clay giains align as a iesult of
compaction. The thin layeis that make up shale iesult in a iock with limiteu hoiizontal
anu veitical peimeability.
4
uas can be soibeu on to oiganic mateiial oi can exist as fiee
gas in natuial fiactuies anu micio poiosity.
G5*<, */-
Tight gas iefeis to natuial gas piouuceu fiom ieseivoiis that have veiy low poiosity
anu peimeability. Such ieseivoiis aie usually sanustone, although caibonate iocks can
also be tight gas piouuceis. The stanuaiu inuustiy uefinition foi a tight gas ieseivoii is a
iock with matiix poiosity of 1u% oi less anu peimeability of u.1 milliuaicy oi less,
exclusive of fiactuie peimeability.
S

3%/'Q7() +(,</$(
Coals aie seuimentaiy iocks containing moie than Suwt% oiganic mattei, wheieas
shales contain less than Suwt% oiganic mattei. Nethane is eithei geneiateu by bacteiial
(biogenic gas) oi geochemical (theimogenic gas) piocesses uuiing buiial. The gas can
be stoieu by multiple mechanisms, incluuing as fiee gas in micio-poies anu soibeu gas
on the inteinal suifaces of the oiganic mattei. Neaily all coal-beu gas is consiueieu to be
soibeu gas, wheieas shale gas is a combination of those two mechanisms.
Coal-beu gas ieseivoiis contain an oithogonal fiactuie set calleu cleats that aie
oiientateu peipenuiculai to the beuuing anu pioviue the piimaiy conuuit foi fluiu flow.
uas uiffuses fiom the matiix into the cleats anu flows to the wellboie. In shale gas
ieseivoiis, gas is sometimes piouuceu thiough moie peimeable sanu oi silt layeis,
inteibeuueu with the shale thiough natuial fiactuies oi fiom the shale matiix itself.
In coal-beu ieseivoiis, the key paiameteis contiolling the amount of gas in place
incluue coal-beu thickness, coal composition, gas content anu gas composition. Coal
composition iefeis to the amount anu type of oiganic constituents in the coal, which has
a significant effect on the amount of gas that can be soibeu. uas contents in coal seams
vaiy wiuely (1 to >2Smton) anu aie a function of composition, theimal matuiity,
buiial anu uplift histoiy, anu the auuition of migiateu theimal anu biogenic gas.
Piouuction iates aie mainly influenceu by the coal-beu's peimeability, which is in the
oiuei of milliuaicies oi tens of milliuaicies.
Shale gas ieseivoiis typically aie thickei, anu have lowei soibeu anu fieei gas in the
poie space. In auuition, shale gas ieseivoiis usually have much lowei peimeabilities,
commonly in the nanouaicy iange.
Both aie not uensity-stiatifieu, uo not contain a gas-watei contact anu may be spieau
ovei a veiy laige geogiaphic aiea. The challenge is not to finu gas but to finu aieas that
will piouuce gas commeicially. See Table S-1 foi the most ciitical ieseivoii evaluation
paiameteis.

4
}. Baniel Aithui et al., 'Evaluating Implications of hyuiaulic fiactuiing in Shale uas Resevoiis', in @E"
J,'$-F(. "`E ")7-$%),')8(: ()= @(D'89 +%)D'$')F' (San Antonio, TX: 2uu9 ).
S
Leslie Baines, 'Tight uas', U-: ()= B(. >)7'.8%$ 2uu6.

S8
(BJH: VIP. -<AABCD GO ;C>=>;BH KB=B <@:K =G BQQCB>@: ;GBHIJ:K BLK @FBH: EB@ C:@:C?G>C@
*LBHD@>@ 0:@<H=@
uas content
Pioviues volumes of uesoibeu gas (fiom coal samples placeu in canisteis), iesiuual gas
(fiom ciusheu coal) anu lost gas (calculateu). The sum of these is the -)S.-8# gas
content of a given coal seam.
Rock-
evaluation
pyiolysis
Assesses the petioleum-geneiative potential anu theimal matuiity of oiganic mattei in
a sample. Beteimines the fiaction of oiganic mattei alieauy tiansfoimeu to
hyuiocaibons anu the total amount of hyuiocaibons that coulu be geneiateu by
complete theimal conveision.
Total oiganic
caibon
Beteimines the total amount of caibon in the iock incluuing the amount of caibon
piesent in fiee hyuiocaibons anu the amount of keiogen.
uas
composition
Beteimines the peicentage of methane, caibon uioxiue, nitiogen anu ethane in the
uesoibeu gas. 0seu to ueteimine gas puiity anu to builu composite uesoiption
isotheims.
Coie
uesciiption
visually captuies coal biightness, banuing, cleat spacing, mineialogy, coal thickness
anu othei factois. Pioviues insights about the composition, peimeability anu
heteiogeneity of a coal seam.
Soiption
isotheim
A ielationship, at constant tempeiatuie, uesciibing the volume of gas that can be
soibeu to a suiface as a function of piessuie. Besciibes how much gas a coal seam is
capable of stoiing anu how quickly this gas will be libeiateu.
Pioximate
analysis
Pioviues the peicentage of ash, moistuie, fixeu caibon anu volatile mattei. 0seu to
coiiect gas contents anu soiption isotheims to an ash-fiee basis, coiiect the isotheims
foi moistuie anu ueteimine the matuiity of high-iank coals.
Nineialogical
analyses
Beteimines bulk mineialogy using petiogiaphy anuoi X-iay uiffiaction anu clay
mineialogy using X-iay uiffiaction anuoi scanning election micioscopy.
vitiinite
ieflectance
A value inuicating the amount of inciuental light ieflecteu by the vitiinite maceial. This
technique is a fast anu inexpensive means of ueteimining coal matuiity in highei iank
coals.
Caloiific
value
The heat piouuceu by combustion of a coal sample. 0seu to ueteimine coal matuiity in
lowei iank coals.
Naceial
analysis
Captuies the types, abunuance anu spatial ielationships of vaiious maceial types.
These uiffeiences can be ielateu to uiffeiences in gas-soiption capacity anu biittleness,
which affect gas content anu peimeability.
Bulk uensity
Relationships between bulk uensity anu othei paiameteis (such as ash content anu
gas content) can be useu to establish a bulk-uensity cut-off foi counting coal anu shale
thicknesses using a bulk-uensity log.
Conventional
logs
Self-potential, gamma iay, shallow anu ueep iesistivity, miciolog, calipei, uensity,
neution anu sonic logs. 0seu to iuentify coals anu shales, anu to ueteimine poiosity
anu satuiation values in shales.
Special logs
Image logs to iesolve fiactuies anu wiieline spectiometiy logs to ueteimine -)S.-8# gas
content.
Piessuie-
tiansient
tests
Piessuie builu-up oi injection fall-off tests to ueteimine ieseivoii piessuie,
peimeability, skin factoi anu to uetect fiactuieu ieseivoii behavioui.
SB seismic
0seu to ueteimine fault locations, ieseivoii uepths, vaiiations in thickness anu lateial
continuity, anu coalshale piopeities.


S9
Biilling in shallow coal-beu methane ieseivoiis is often uone with unueibalanceu
peicussion uiilling, which has the auvantage of a high uiilling iate anu neaily no
foimation uamage.
Foi coal-beu ieseivoiis, coileu tubing oi multiple caseu-hole fiactuie stimulations aie
conuucteu on thin inuiviuual seams by use of gelleu fluius with sanu as the pioppant.
Watei is usually flusheu at iates of Sbblmin.
6

V]P]V ,:L:CB=>GL GO ;GL=B;= @<COB;: >L =F: @FBH:
0nfiactuieu shales typically have peimeabilities in the oiuei of u.u1 to u.uu1
miciouaicies. This low natuial peimeability is a limiting factoi in piouucing the gas
iesouice; howevei, natuial fiactuies aie key souices of flow paths. They uevelop when
oveibuiueneu piessuie is ieuuceu as a iesult of the eiosion of oveilying iock
foimations anuoi othei tectonic activities.
7

The lack of sufficient peimeability, oi in othei woius the lack of a flow path, can be
oveicome by uiilling hoiizontal wells anu hyuiaulic fiactuiing in oiuei to expanu the
contact aiea anu inciease the flow into the well.
8

D@C T(E5$5,5%$ %E -,/,(Q%EQ,<(Q/0, -</'( */- ,("<$%'%*=
The combination of two technological auvances, namely 'hoiizontal uiilling' anu
'hyuiaulic fiactuiing', mainly uiove the bieakthiough in shale gas piouuction in the
0SA.
9

V]S]P [C>HH>LE
As alieauy stateu, hoiizontal uiilling is one of the keys that maue unconventional gas
economically viable.
1u

Since the thickness of the pay zone is often insufficient, hoiizontal wells aie uiilleu
within each shale layei.
11
Figuie S-1 compaies a veitical anu a hoiizontal well that aie
piouucing fiom a shale foimation.

6
Cieties B. }enkins anu Chailes N. Boyei, 'Coalbeu- anu Shale-uas Reseivoiis', 0%#$)(: %D E'8$%:'#,
G'FC)%:%;9 Febiuaiy (2uu8).
7
Aithui et al., 'Evaluating Implications of hyuiaulic fiactuiing in Shale uas Resevoiis'.
8
Bon R. Watson et al., '0ne-Tiip Nultistage Completion Technology foi 0nconventional uas Foimations',
in +>E+Z@E" B(. G'FC)%:%;9 @9,&%.-#, M[[R 0%-)8 +%)D'$')F' (Calgaiy, Albeita: Society of Petioleum
Engineeis, 2uu8).
9
ALL Consulting, 'Nouein Shale uas uevelopment in the 0niteu States - a piimei', (Tulsa, 0K: ALL
Consulting, 2uu9).
1u
Ibiu.
11
Naik Zoback, Saya Kitasei anu Biau Copithoine, 'Auuiessing the Enviionmental Risks fiom Shale uas
Bevelopment', in X$-'D-); E(&'$ (Washington, BC: Woiluwatch Institute, 2u1u).

6u
6>E<C: VIP. &:C=>;BH ?@] FGC>\GL=BH R:HH ;GAQBC>@GL
PS


In auuition to hoiizontal uiilling, uiilling fiom paus is a fielu uevelopment stiategy that
can ieuuce the suiface footpiint, enviionmental uistuibance, logistical issues, etc.
1S

0S uiilling activity highlights the impoitance of hoiizontal uiilling technology. In the
Bainett Shale, the numbei of hoiizontal wells uiilleu has incieaseu fiom 76 in Naich
2uu1 to 1 81u in August 2uu7 (see Figuie S-S). 0n the othei hanu, veitical wells have
uecieaseu fiom 2 uu1 to 1S1 in the same time peiiou.
14

The latest uata fiom the 0SA shows that, ovei the peiiou 2uuS-2u1u, the peicentage of
hoiizontal iigs has incieaseu fiom 1u% to S8% of the total iig count.
1S

V%05W%$,/' )05''5$* ,("<$%'%*=
In oiuei to uiill within the hoiizontal layeis, uiiectional uiilling technology is applieu.
This is conventionally uone by using stanuaiu uown-hole motois. New uevelopments
also utilise uiiectional uiilling automation oi iotaiy steeiable systems.
As can be seen fiom Figuie S-2, a typical well is uiilleu neaily veitically (uepenuing
upon the situation) fiom suiface uown to the kick-off point (K0P). At the K0P, the
tiajectoiy staits ueviating fiom the veitical with builu iates of about 1uSum to
2uSum. In piactice this means that the K0P is about 1uum to 2uum veitically above
the hoiizontal section. In the 0SA the length of the hoiizontal section of the well is
between 1 uuum to 2 uuum on aveiage. Boiizontal lengths of up to 6 uuum have been
iepoiteu.
16


12
Chief 0il anu uas, VC9 H#:8-&:' Q%$-a%)8(: V'::. D$%, F')8$(:-a'= T':: &(=. .C%#:= I' #.'= D%$ 8C'
H($F'::#. @C(:' (West viiginia Suiface 0wnei's Rights 0iganization, 2u12, citeu u4uS2u12); available
fiom http:www.wvsoio.oigiesouicesmaicellushoiiz_uiilling.html
1S
Kiisanne L. Euwaius et al., 'Naicellus Shale Byuiaulic Fiactuiing anu 0ptimal Well Spacing to Naximize
Recoveiy anu Contiol Costs', in @E" Q9=$(#:-F 2$(F8#$-); G'FC)%:%;9 +%)D'$')F' (Wooulanus, TX: Society
of Petioleum Engineeis, 2u11); Floience uny, 'Can 0nconventional uas be a uame Changei in Euiopean
Naikets.', (0xfoiu: 0xfoiu Institute foi Eneigy Stuuies, 2u1u).
14
S Legs Resouices, 'Intiouuction to Shale uas'.
1S
Abu N. Sani anu Efe A. Ejefouomi, 'Boiizontal Wells Biilling Activity in South Texas 0nconventional uas
Resouices anu Nicio-seismic Byuiaulic Fiactuiing Nontioiing Application to Reuuce Risk anu Inciease
the Success Rate', in @E"ZKB@ @(#=- J$(I-( @'F8-%) G'FC)-F(: @9,&%.-#, ()= "AC-I-8-%) (Al-Khobai, Sauui
Aiabia: Society of Petioleum Engineeis 2u11).
16
Sanueep }anwaukai et al., 'Innovative Besign Rotaiy Steeiable Technologies 0veicome Challenges of
Complex Well Piofiles in a Fast uiowing 0nconventional ResouiceWooufoiu Shale', in @E"Z>JK+

61
6>E<C: VIS. (DQ>;BH R:HHJGC: =CBd:;=GCD
PT



State-of-the-ait technologies cuiiently in use incluue uown-hole motois, often utiliseu
in conjunction with uiiectional uiilling automation oi iotaiy steeiable systems (RSS).
A uownhole motoi, as shown in Figuie S-S, mainly consists of two paits connecteu
thiough a joint that peimits the lowei enu to be uiiecteu by some uegiees, allowing
uiiectional uiilling. The iotational eneigy useu to tuin the motoi, anu hence the uiill bit
connecteu to it, is pioviueu by the uiilling fluiu. To enable uiiectional contiol,
paiameteis such as stanu pipe piessuie anu toique aie closely anu constantly
monitoieu. Finally, to get feeuback as to whethei the wellboie being uiilleu matches the
planneu tiajectoiy, measuiement-while-uiilling tools (NWB) aie useu.
18


K$-::-); +%)D'$')F' ()= "AC-I-8-%) (Amsteiuam, the Netheilanus: Society of Petioleum Engineeis, 2uu9);
Sanueep }anwaukai et al., 'Bainett Shale Biilling anu ueological Complexities - Auvanceu Technologies
Pioviue The Solution', in >JK+Z@E" K$-::-); +%)D'$')F' (0ilanuo, FL: Society of Petioleum Engineeis,
2uu8); New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS on the 0il, uas anu
Solution Nining Regulatoiy Piogiam ', (Albany, NY: New Yoik State Bepaitment of Enviionmental
Conseivation, 2uu9); Benny Poeujono et al., 'Case Stuuies in the Application of Pau Biilling Besign in the
Naicellus Shale', in @E" "(.8'$) 1';-%)(: H''8-); (Noigantown, Wv: Society of Petioleum Engineeis,
2u1u); }unichi Sugiuia anu Steve }ones, 'Rotaiy Steeiable System Enhances Biilling Peifoimance on
Boiizontal Shale Wells', in >)8'$)(8-%)(: U-: ()= B(. +%)D'$')F' ()= "AC-I-8-%) -) +C-)( (Beijing: Society of
Petioleum Engineeis, 2u1u); S. Zaigaii anu S. B. Nohaghegh, 'Fielu Bevelopment Stiategies foi Bakken
Shale Foimation', in @E" "(.8'$) 1';-%)(: H''8-); (Noigantown, Wv: Society of Petioleum Engineeis,
2u1u).
17
geology.com, H-)'$(: 1-;C8.Y X(.-F -)D%$,(8-%) (I%#8 ,-)'$(:/ .#$D(F'/ %-: ()= ;(. $-;C8. (2u12, citeu 1S
Naich 2u12).
18
Bakei Bughes INTEQ, K$-::-); ");-)''$-); V%$WI%%WY J K-.8$-I#8'= <'($)-); +%#$.' (Bouston, TX:
Bakei Bughes INTEQ, 199S); William C. Lyons, V%$W-); B#-=' 8% K$-::-); "\#-&,')8 ()= U&'$(8-%)., Fiist
Euition eu. (Builington, NA: uulf Publishing, 2u1u); B.R. Notahhaii, u. Baielanu anu }.A. }ames, 'Impioveu
Biilling Efficiency Technique 0sing Integiateu PBN anu PBC Bit Paiameteis', 0%#$)(: %D +()(=-()
&'8$%:'#, G'FC)%:%;9 49, no 1u (2u1u); Schlumbeigei Ltu., U-:D-':= B:%..($9Y b@8''$(I:' H%8%$

62
0ne option foi incieasing hoiizontal uiilling efficiency anu impioving uiiectional
contiol is utilising uiiectional uiilling automation technology. A iocking motion is
applieu fiom the top wheie the toique measuiement is monitoieu, hence bieaking the
uiag uown the hole anu using the toique as a feeuback to contiol motion.
19

6>E<C: VIV. 4GC>\GL=BH KC>HH>LE =:;FLGHGED
S`


In piinciple, RSS pioviues the same contiol of wellboie tiajectoiy; howevei, no
uiiectional uiilling automation technology is iequiieu to oveicome uiag, anu thus
cuiveu sections can be uiilleu fastei anu moie accuiately. Bespite these significant anu
highly uesiieu auvantages, uownhole motois aie founu to be moie piactical uue to theii
lowei cost.
21

T05''5$* E0%+ :/)-
In shale uiilling, it is becoming incieasingly common to use a single pau, as in Figuie
S-4, to uevelop as much subsuiface aiea as possible fiom one spot. 0ne suiface location
can be useu foi multiple wells. Pau uiilling incieases the opeiational efficiency of gas
piouuction anu ieuuces infiastiuctuie costs, lanu use anu enviionmental impacts.
22


(Schlumbeigei Ltu, 2u11, citeu 27 Naich 2u12); available fiom
http:www.slb.comiesouicespublicationsoilfielu_ieviewoiioiiuu2u1u1a.aspx
19
Eiic Naiula, Naic Baci anu Baniel Wiight, 'Case Bistoiy Summaiy: Boiizontal Biilling Peifoimance
Impiovement Bue to Toique Rocking on 8uu Boiizontal Lanu Wells Biilleu foi 0nconventional uas
Resouices', in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (New 0ileans, LA: Society of Petioleum
Engineeis, 2uu9).
2u
Eiic Naiula anu Naic Baci, '0nueistanuing Toique: The Key to Sliue Biilling Biiectional Wells', in
>JK+Z@E" K$-::-); +%)D'$')F' (Ballas, TX: Society of Petioleum Engineeis, 2uu4).
21
Steve }ones, }unichi Sugiuia anu Steve Baiton, 'Finuing optimal balance in iotaiy steeiable systems',
UDD.C%$' H(;(a-)' 68, no 9 (2uu8).
22
S Legs Resouices, 'Intiouuction to Shale uas'.

6S
6>E<C: VIa. 2<H=>IR:HH QBK K:?:HGQA:L=
SV


The footpiint of a pau usually ianges fiom 12 uuum (1uum x 12um) to 2u uuum.
Wells aie often placeu next to each othei at uistances of between 7m anu 8m. A typical
pau incluues upwaius of 6 wells, with up to 24 being iepoiteu.
24

The wells aie uiilleu paiallel in the shale foi a uistance of about 2uum to Suum, with a
hoiizontal length of about 1 uuum to 2 uuum.
The uiffeience in total suiface footpiint between veitical anu hoiizontal wells is shown
in Table S-2.
(BJH: VIS. (:LI@_<BC:IA>H: =G=BH @<COB;: K>@=<CJBL;: GO ?:C=>;BH BLK FGC>\GL=BH R:HH@
S^

-QB;>LE GQ=>GL 2<H=>IR:HH ba` B;C:@ ->LEH: R:HH a` B;C:@
Numbei of paus 1u 16u
Total uistuibance- uiilling phase Su acies (S ac. pei pau) 48u acies (S ac. pei pau)
% Bistuibance - uiilling phase u.78 7.S
V]S]S 4DKCB<H>; OCB;=<C>LE
Byuiaulic fiactuie stimulation, oi 'fiacking', is a piocess that is useu to cieate a laige
numbei of fiactuies in the iock, in oiuei to allow the natuial gas tiappeu in shales to
move to the wellboie. Fiacking can both inciease piouuction iates anu inciease the
total amount of gas that can be iecoveieu. Pump piessuie causes the iock to fiactuie
anu watei caiiies sanu ('pioppant') into the hyuiaulic fiactuie to piop it open, allowing

2S
Ruth Woou et al., 'Shale gas: a piovisional assessment of climate change anu enviionmental impacts',
(Nanchestei: Tynuall Centie, 0niveisity of Nanchestei, 2u11).
24
Tiavis uaiza et al., 'uyio uuiuance Techniques anu Telemetiy Nethous Piove Economical in 0nshoie
Nultiwell Pau Biilling 0peiations in the Piceance Basin', in >JK+Z@E" K$-::-); +%)D'$')F' ()= "AC-I-8-%)
(New 0ileans, LA: Society of Petioleum Engineeis, 2u1u); uny, '0nconventional uas'; N.N. Reynolus anu
B.L. Nunn, 'Bevelopment 0puate foi an Emeiging Shale uas uiant Fielu - Boin Rivei Basin, Biitish
Columbia, Canaua', in @E" 6)F%)7')8-%)(: B(. +%)D'$')F' (Pittsbuigh, PA: Society of Petioleum Engineeis,
2u1u).
2S
New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS'.

64
the flow of gas. Whilst watei anu sanu aie the main components of hyuiaulic fiactuie
fluiu, chemical auuitives aie often auueu in small concentiations.
26

6>E<C: VI^. &:C=>;BH R:HH BLK FGC>\GL=BH R:HH OCB;=<C: ?>:R@

3%$4($,5%$/' E0/",105$* E'15)
Table S-S illustiates that the chemicals useu can have a iange of toxicities. Foi instance,
sanu, polyaciylamiue, guai gum anu hyuioxyethyl cellulose aie ielatively benign
mateiials. Acius anu bases may cause an iiiitant iesponse upon ueimal oi inhalation
exposuie, but moie acute iesponses aie possible. Chionic toxicity has been associateu
with some iuentifieu chemicals, such as ethylene glycol, glutaialuehyue anu N,N-
uimethyl foimamiue.
Natuially occuiiing metals also exeit vaiious foims of toxicity even at low
concentiations.
27

(BJH: VIV. *L :9BAQH: GO =F: ?GH<A:=C>; ;GAQG@>=>GL GO FDKCB<H>; OCB;=<C>LE OH<>K
/CGK<;=
;B=:EGCD
2B>L >LEC:K>:L= /<CQG@: %=F:C ;GAAGL <@:@
Watei
Appioximately
99.S% watei anu
sanu
Expanu fiactuie anu
uelivei sanu
Lanuscaping anu manufactuiing
Sanu
Allows the fiactuies to
iemain open so the gas can
escape
Biinking watei filtiation, play sanu,
conciete anu biick moitai
%=F:C Appioximately u.S%
Aciu
Byuiochloiic aciu
oi muiiatic aciu
Belps uissolve mineials
anu initiates ciacks in the
iock
Swimming pool chemical anu
cleanei
Antibacteiial
agent
ulutaialuehyue
Eliminates bacteiia in the
watei that piouuces
coiiosive by-piouucts
Bisinfectant, steiilisei foi meuical
anu uental equipment
Bieakei
Ammonium
peisulfate
Allows a uelayeu
bieakuown of the gel
0seu in haii colouiing, as a
uisinfectant anu in the manufactuie
of common householu plastics
Coiiosion
inhibitoi
N,N-uimethyl
foimamiue
Pievents the coiiosion of
the pipe
0seu in phaimaceuticals, aciylic
fibies anu plastics
Ciosslinkei Boiate salts
Naintains fluiu viscosity as
tempeiatuie incieases
0seu in launuiy ueteigents, hanu
soaps anu cosmetics

26
S Legs Resouices, 'Intiouuction to Shale uas'.
27
Enviionmental Piotection Agency, 'Biaft Plan to Stuuy the Potential Impacts of Byuiaulic Fiactuiing on
Biinking Watei Resouices ', (Washington, BC: Enviionmental Piotection Agency, 2u11).

6S
/CGK<;=
;B=:EGCD
2B>L >LEC:K>:L= /<CQG@: %=F:C ;GAAGL <@:@
Fiiction
ieuucei
Petioleum uistillate
'Slicks' the watei to
minimise fiiction
0seu in cosmetics incluuing haii,
make-up, nail anu skin piouucts
uel
uuai gum oi
hyuioxyethyl
cellulose
Thickens the watei in
oiuei to suspenu the sanu
Thickenei useu in cosmetics, bakeu
goous, ice cieam, toothpaste, sauces
anu salau uiessings
Iion contiol Citiic aciu
Pievents piecipitation of
metal oxiues
Foou auuitive, foou anu beveiages,
lemon juice ~7% citiic aciu
Clay
stabilisei
Potassium chloiiue
Cieates a biine caiiiei
fluiu
0seu in low-souium table salt
substitute, meuicines anu Iv fluius
pB aujusting
agent
Souium oi
potassium
caibonate
Naintains the effectiveness
of othei components, such
as ciosslinkeis
0seu in launuiy ueteigents, soap,
watei softenei anu uishwashei
ueteigents
Scale
inhibitoi
Ethylene glycol
Pievents scale ueposits in
the pipe
0seu in householu cleanseis, ue-
icei, paints anu caulks
Suifactant Isopiopanol
0seu to inciease the
viscosity of the fiactuie
fluiu
0seu in glass cleanei, multi-suiface
cleanseis, antipeispiiant,
ueouoiants anu haii coloui

(BJH: VIa. #B=<CBHHD G;;<CC>LE @<J@=BL;:@ =FB= ABD J: OG<LK >L FDKCG;BCJGLI;GL=B>L>LE
OGCAB=>GL@
(DQ: GO ;GL=BA>LBL= '9BAQH:@
Foimation fluiu Biine
uases
Natuial gas (e.g. methane, ethane), caibon uioxiue, hyuiogen
sulphiue, nitiogen, helium
Tiace elements Neicuiy, leau, aisenic
Natuially occuiiing iauioactive
mateiial
Rauium, thoiium, uianium
0iganic mateiial
0iganic acius, polycyclic aiomatic hyuiocaibons, volatile anu semi-
volatile oiganic compounus

The 0S Enviionmental Piotection Agency (EPA) anticipates that an initial uatabase
seaich anu ianking of high, low anu unknown-piioiity chemicals will be completeu foi a
2u12 inteiim iepoit. Auuitional woik using high-thioughput scieening tools is expecteu
to be available in a 2u14 iepoit, as well as the uevelopment of chemical-specific
Piovisional Peei Revieweu Toxicity values (PPRTvs) foi high-piioiity chemicals.
28

It must be pointeu out that the fiactuiing fluiu composition piesenteu heie ieflects the
fluius useu in the 0SA; howevei, in Euiope this composition coulu be uiffeient, with
hazaiuous elements eliminateu oi theii concentiations ieuuceu.
;1',5Q-,/*( E0/",105$*
Bue to the length of the lateial section, it is usually not possible to maintain sufficient
uownhole piessuie to stimulate its entiie length in a single event. Thus, in shale gas
wells, stimulation is achieveu by isolating poitions of the lateial anu peifoiming
tieatments in multiple stages.

28
Ibiu.

66
Each fiactuie stage is peifoimeu within an isolateu inteival of the lateial, wheie a
clustei of peifoiations is cieateu using a peifoiation tool to establish communication
between the foimation anu the wellboie. The fiactuie stages aie isolateu with packeis.
In the aiea of Eagle Foiu Shale, the iange of fiactuiing stages is between 12 anu 21
stages pei hoiizontal well, with an aveiage of 17 stages pei well.
29

!',(0$/,54( E0/",105$* E'15)-
Fluius foi fiactuiing opeiations that uo not iequiie high-puiity fiesh watei as a base aie
being uevelopeu. vaiious components that allow foi the ieuse of fiactuiing flowback
watei have been uevelopeu, such as salt compatible, nano-paiticle fiiction ieuuceis;
neutial pB iion contiols; blenueu anu taigeteu scale contiols; aqueous biomass
contiols; anu low-toxicity clay stabiliseis.
Su

Alteinative chemicals have been cieateu to ieplace toxic 2-butoxyethanol, which have a
fai supeiioi enviionmental piofile anu peifoim even bettei in well flowback
enhancement.
S1

Apait fiom this, liquefieu petioleum gas anu foam fluius aie being uevelopeu anu
utiliseu.
Liquefieu petioleum gas (LPu) is a mixtuie of petioleum gases existing in a liquiu state
at ambient tempeiatuie anu moueiate piessuie. 0nce the well tieatment is complete,
the piopane anu natuial gas in the LPu iemains in eithei a multi-phase oi a single
vapoui phase at foimation conuitions.
S2

Foam fluius aie essentially two-phase fluius that consist of an innei phase, which is
eithei liquiu (N2) oi vapouigaseous (C02), anu an outei phase, which is piimaiily
composeu of a saline-watei mixtuie with eithei a suifactant oi gallant.
SS

!',(0$/,54( E0/",105$* +(,<%)-
Channel fiactuiing is claimeu to pioviue significantly highei fiactuie conuuctivity,
bettei fiactuie cleanup, lowei piessuie loss within the fiactuie anu longei effective
fiactuie half-length. The iuea is basically to substitute the homogeneous pioppant pack
in the fiactuie with a heteiogeneous stiuctuie containing a netwoik of open channels
(Figuie S-6). The fiactuie is helu open by uisciete conglomeiations of piopping

29
Seigio Centuiion, 'Eagle Foiu Shale: A Nultistage Byuiaulic Fiactuiing, Completion Tienus anu
Piouuction 0utcome Stuuy 0sing Piactical Bata Nining Techniques', in @E" "(.8'$) 1';-%)(: H''8-);
(Columbus, 0B: Society of Petioleum Engineeis, 2u11).
Su
N.E. Blauch, 'Beveloping Effective anu Enviionmentally Suitable Fiactuiing Fluius 0sing Byuiaulic
Fiactuiing Flowback Wateis', in @E" 6)F%)7')8-%)(: B(. +%)D'$')F' (Pittsbuigh, PA: Society of Petioleum
Engineeis, 2u1u).
S1
}onathan }. Wylue anu Bill 0'Neil, 'Enviionmentally Acceptable Replacement of 2-Butoxyethanol with a
Bigh Peifoimance Alteinative foi Fiactuiing Applications', in @E" >)8'$)(8-%)(: @9,&%.-#, %) U-:D-':=
+C',-.8$9 (Wooulanus, TX: Society of Petioleum Engineeis, 2u11).
S2
Eiic B. Tuuoi et al., '1uu% uelleu LPu Fiactuiing Piocess: An Alteinative to Conventional Watei-Baseu
Fiactuiing Techniques', in @E" "(.8'$) 1';-%)(: H''8-); (Chaileston, Wv: Society of Petioleum Engineeis,
2uu9).
SS
A. Kumai et al., 'Piospects of Foam Stimulation in 0il anu uas Wells of Inuia', in G$-)-=(= ()= G%I(;%
")'$;9 1'.%#$F'. +%)D'$')F' (Poit of Spain, Tiiniuau: Society of Petioleum Engineeis, 2u1u).

67
mateiials. The open channels act as low-iesistance paths foi the flow of ieseivoii
fluius.
S4

6>E<C: VIb. 0:QC:@:L=B=>GL GO =F: L:R OCB;=<C>LE BQQCGB;F R>=F C:@Q:;= =G B ;GL?:L=>GLBH OCB;=<C:

Byuia-jetting (Figuie S-7) iepiesents anothei notable alteinative fiactuiing piocess.
Tensile failuie of the iock occuis at the jetting point without exposing the wellboie to
bieakuown piessuies. This enables piecise contiol of the location of the fiactuie
initiation. Nultiple fiactuies can be cieateu by simply moving the jetting tool.
SS

6>E<C: VIT. 4DKCBhd:= Q:COGCB=>GL BLK QCGQQBL= QH<E K>?:C@>GL =G OCB;=<C: A<H=>QH: >L=:C?BH@Y
?:C=>;BHHD BLK FGC>\GL=BHHD

.(-, :0/",5"(- 5$ &/,(0 +/$/*(+($,
Watei useu foi uiilling anu making up fiac fluius can come fiom suiface watei bouies,
giounuwatei, municipal poitable watei supplies, oi flowback watei fiom a pieviously
fiactuieu well.

S4
N. uillaiu et al., 'A New Appioach to ueneiating Fiactuie Conuuctivity', in @E" J))#(: G'FC)-F(:
+%)D'$')F' ()= "AC-I-8-%) (Floience, Italy: Society of Petioleum Engineeis, 2u1u).
SS
ulenua Wylie, Nike Ebeihaiu anu Nike Nullen, 'Tienus in 0nconventional uas', U-: ` B(. 0%#$)(: 1uS,
no 47 (2uu7 ).


68
The watei iequiieu foi uiilling a typical shale gas well ianges fiom 2 Suu to 4 uuu m.
The volume neeueu to fiactuie a well iange is fiom 8 7uum to 14 Suum.
S6

0nce the fiac job is finisheu, the piessuie is ieleaseu. Then, flowback anu piouuceu
watei (Su% to 7u% of the fluiu injecteu), which typically contains veiy high levels of
total uissolveu solius (TBS) anu othei constituents (possibly incluuing heavy metals anu
natuially occuiiing iauioactive mateiials) ietuins to the suiface.
S7

Flowback may be uiiecteu to tanks oi lineu pits anu centialiseu impounuments foi
management. These impounuments shoulu pioviue stiuctuial integiity anu have a
natuial oi aitificial linei uesigneu to pievent uownwaiu flow. They shoulu also be
placeu at an appiopiiateu uistance fiom suiface watei to pievent oveiflows fiom
ieaching the suiface watei.
S8

ueneially, the TBS concentiation of flowback anu piouuceu watei is highei than the
uesiieu TBS iange foi new fiac fluius. Thus, theimal uistillation can be useu, oi the
flowback anu piouuceu watei can be blenueu with fiesh watei, to ieuuce TBS
concentiation anu othei constituents.
S9

0peiatois must manage flowback anu piouuceu watei in a cost-effective mannei that
complies with iegulatoiy iequiiements. The piimaiy options aie:
Injection unueigiounu thiough a uisposal well (not possible unuei E0 law);
Bischaige to a neaiby suiface-watei bouy (peimission anu tieatment aie
iequiieu);
Baul to a municipal wastewatei tieatment plant (limitations uue to issues
with TBS tieatment);
Baul to a commeicial inuustiial wastewatei tieatment facility (limiteu to
allow TBS uischaiges without violating suiface watei quality);
Reuse foi a futuie fiac job, eithei with oi without tieatment.
4u

Bisposal options aie uepenuent on the availability of suitable zones anu the possibility
of obtaining peimits foi injection into these zones; the capacity of commeicial anuoi
municipal watei tieatment facilities; anu the ability of eithei opeiatois oi such plants to
successfully obtain suiface-watei uischaige peimits.
41

Nunicipal sewage tieatment facilities must have a state-appioveu pietieatment
piogiamme foi accepting any inuustiial waste. Facilities must also notify appiopiiate
iegulatoiy authoiities of any new inuustiial waste they plan to ieceive, anu ceitify that
theii facility is capable of tieating the pollutants that aie expecteu to be in that
inuustiial waste. They aie geneially iequiieu to peifoim ceitain analyses to ensuie they
can hanule the waste without pioblems to ensuie that watei quality stanuaius aie

S6
}ohn A. veil, 'Watei Nanagement Technologies 0seu by Naicellus Shale uas Piouuceis', (Washington,
BC: Bepaitment of Eneigy, 2u1u).
S7
Ibiu.
S8
Ameiican Petioleum Institute, 'Watei Nanagement Associateu with Byuiaulic Fiactuiing', in JE>
B#-=()F' K%F#,')8 (Washington, BC: Ameiican Petioleum Institute, 2u1u).
S9
veil, 'Watei Nanagement Technologies'.
4u
Ibiu.
41
Ameiican Petioleum Institute, 'Watei Nanagement'.

69
maintaineu at all times. Thus, it may be iequiieu that opeiatois pioviue infoimation
peitaining to the composition of the fluiu.
42

In Figuie S-8, watei consumption among uiffeient inuustiies is piesenteu. 0sing an
initial uiilling iate of 2uu wells in a one-yeai peiiou with an aveiage consumptive watei
use of 12 Suu mpei well woulu yielu a volume of 2Su uuu mof watei, which woulu be
consumptively useu foi natuial gas uevelopment on an annual basis.
4S

6>E<C: VIU. $GL@<AQ=>?: RB=:C <@:@ >L =F: [:HBRBC: 5B@>L

Although the watei iequiieu foi hyuiaulic fiactuiing is only paitially iecoveieu
(contiaiy to othei inuustiial uses), such watei is typically a small peicentage of the
watei use in any shale basin. While othei inuustiies use watei on a continuous basis,
hyuiaulic tieatment only iequiies watei foi shoit peiious.
44

(BJH: VI^. gB=:C <@: JD @:;=GC >L @FBH: EB@ JB@>L@
-FBH: QHBD
/<JH>;
@<QQHD
)LK<@=C>BH
BLK
A>L>LE
/GR:C
E:L:CB=>GL
)CC>EB=>GL +>?:@=G;Z -FBH: EB@
(G=BH
RB=:C
<@: MJH]
AiWDCN
5BCL:== 82.7u% 4.Su% S.7u% 6.Su% 2.Su% u.4u% 1.77
6BD:==:?>HH: 2.Su% 1.1u% SS.Su% 62.9u% u.Su% u.1u% S.u7
4BDL:@?>HH: 4S.9u% 27.2u% 1S.Su% 8.Su% 4.uu% u.8u% u.S4
2BC;:HH<@ 11.97% 16.1S% 71.7u% u.12% u.u1% u.u6% 1S.S1

uiven the constiaints on both unueigiounu injection anu uischaige in the 0SA, seiious
investments will be neeueu to auvance tieatment technologies that enable companies to
ieuse fluius foi subsequent fiactuiing jobs. Recycling watei minimises both the oveiall
amount of watei useu foi fiactuiing anu the amount that must be uisposeu of. Nany
watei tieatment piocesses aie cuiiently being investigateu that coulu potentially be
useu on a laige scale with the ultimate goal of ueveloping a closeu-loop system.
4S


42
Ibiu.
4S
}. Baniel Aithui anu Baviu }. Bockelmann, 'Analysis 0f Belawaie Rivei Basin Commission Pioposeu
(Aiticle 7) Natuial uas Bevelopment Regulations', (Tulsa, 0K: ALL Consulting, 2u11).
44
}.B. Aithui anu B.}. Coughlin, 'Cumulative Impacts of Shale-uas Watei Nanagement: Consiueiations anu
Challenges', in @E" J,'$-F(. "`E Q'(:8C/ @(D'89/ @'F#$-89/ ()= ")7-$%),')8(: +%)D'$')F' (Bouston, TX:
Society of Petioleum Engineeis, 2u11).
4S
Zoback, Kitasei anu Copithoine, 'Enviionmental Risks fiom Shale uas'.

7u
V]S]V 2GL>=GC>LE
Bue to the fluius in each fiactuiing tieatment containing a uiffeient subset of chemicals
anu because some of these chemicals coulu be hazaiuous in sufficient concentiations,
baseline watei testing conuucteu at each site might play an impoitant iole in ensuiing
that possible exposuie is uetecteu. This woulu help to limit the enviionmental anu
health iisks poseu by fiactuiing fluius in the case of contamination. Nonitoiing coulu
also play an impoitant iole iegaiuing the suiface footpiint of uiilling activities, the safe
tianspoit anu uisposal of uiilling fluius anu cuttings, anu aii anu noise pollution.
;5"0%-(5-+5" E0/",10( +%$5,%05$*
Niciofiactuies inuucing sheai-slip oi micioseismic events that geneially have
magnituues of less than 1.S on the Richtei scale (see Figuie S-9) have about as much
eneigy as that ieleaseu by a bowl of milk uioppeu fiom chest height to the flooi. Bue to
the small magnituues of these events, which iepiesent micio-eaithquakes about one-
millionth the size of tiemois that might be uetecteu by inhabitants of a populateu aiea,
opeiatois must ueploy ultiasensitive seismometeis in neaiby wells in oiuei to uetect
them.
46

6>E<C: VIc. [>@=C>J<=>GL GO ABEL>=<K:@ GO A>;CG@:>@A>; :?:L=@ >L 5BCL:== -FBH:

Nicioseismic mapping (NSN) pioviues insight into the uevelopment of fiactuie
piopagation anu the mechanisms by which this is occuiiing, peimitting the ieal-time
analysis of fiactuie tieatments anu theieby ieuucing iisks anu challenges.
A hyuiaulic fiactuie inuuces an inciease in the foimation stiess piopoitional to the net
fiactuiing piessuie, as well as an inciease in poie piessuie uue to fiactuie fluiu leak-off.
Laige tensile stiesses aie geneiateu aheau of the ciack's tip, thus geneiating laige
amounts of sheai stiess. Poie piessuie anu foimation stiess incieases affect the
stability of the planes of weakness suiiounuing the hyuiaulic fiactuie, causing these
planes of weakness to unueigo sheai slippage anu emit seismic eneigy, which is
uetectable as compiessional (P) anu sheai (S) waves by ieceiveis placeu in a neaiby
well.
In iecent yeais, NSN has become a ciitical technology foi imaging, quantifying anu
evaluating fiactuie geometiy uynamics. It also pioviues useful infoimation on the
fiactuie azimuth (which is beneficial foi well spacing anu in-fill uiilling piogiammes)
anu gives goou inuications iegaiuing the hyuiaulic fiactuie complexity, which helps in
the estimation of the volume of the ieseivoii that has been stimulateu. Nicioseismic
mapping has also been vital in obseiving the inteiaction oi communication of the

46
Ibiu.

71
cieateu fiactuies with othei fiactuies anu with geohazaius that can be uetiimental to
the piouuctivity of the wellboie.
NSN has been useu in conjunction with wellboie images, iesistivity logs anu sonic logs
to chaiacteiise uiffeient geological inteivals in ielation to natuial fiactuies, inuuceu
fiactuies neai the wellboie anu stiess contiast iegions. This helps to iuentify the
appiopiiate peifoiation location anu spacing, as well as the best fiactuie stimulation
staging anu technique to ueploy (Figuie S-1u).
47

6>E<C: VIP`. (DQ>;BH FDKCB<H>; OCB;=<C: AGL>=GC>LE ;GLO>E<CB=>GL@ OGC FGC>\GL=BH =C:B=A:L= R:HH@

6>E<C: VIPP. 2BQ ?>:R GO FDKCB<H>; OCB;=<C:
>L=:C@:;=>LE B QC:I:9>@=>LE OB<H=
aU


6>E<C: VIPS. +G;B=>GL BLK GC>:L=B=>GL GO =F:
OB<H= >K:L=>O>:K JD A>;CG@:>@A>;
AGL>=GC>LE
ac


;%$5,%05$* %E -10E/"( '(/#/*(-
The tiauitional gas uetection systems available touay aie baseu on two main concepts,
which aie calleu sniffing technologies:
Point uetectois, wheie the gas has to be in physical contact with the uetectoi;

47
Sani anu Ejefouomi, 'Boiizontal Wells Biilling Activity in South Texas 0nconventional uas Resouices
anu Nicio-seismic Byuiaulic Fiactuiing Nontioiing Application to Reuuce Risk anu Inciease the Success
Rate'.
48
Ibiu.
49
Ibiu.

72
0pen path uetectois, wheie the gas has to be within a pieuefineu path of
infiaieu light to be uetecteu.
Both uetection concepts aie baseu on LEL (lowei explosive level) measuiements.
Bowevei, in outuooi installations, the gas clouu fiom a gas leak often eithei uilutes oi
uiifts away in the winu befoie it ieaches the gas uetection point.
Anothei gas leak uetectoi utiliseu is an ultiasonic gas leak uetectoi, which is baseu on
aiiboine ultiasounu emitteu fiom the gas leak. It gives an instant alaim as soon as the
leak is uetecteu. Bowevei, if the hole thiough which the gas leaks is too laige, the
piessuie uiop acioss the hole will be too small anu no ultiasounu will be uetecteu.
Su

Byuiocaibon piocessing facilities aie equippeu with gas uetection system with sensois.
Theie aie two types of uetectois: 1) flammable gas uetectois, which uetect leakages of
flammable gas exceeuing 2u% LEL of concentiation; anu 2) toxic gas uetectois, which
uetect leakages of B2S exceeuing 1u ppm.
S1

R$)(0*0%1$) E'%& +%$5,%05$*
Bistiibuteu tempeiatuie sensing (BTS) is a methou foi uownhole leak uetection, wheie
the theimal piofile can be instantaneously uetecteu along the entiie wellboie in ieal-
time. This allows the piecise iuentification of when anu wheie theimal events occui. An
encloseu fibie-optic cable is ueployeu into the well to allow a continuous, ieal-time
snapshot of the well's tempeiatuie piofile.
S2

0thei methous aie spinneis, tempeiatuie logs, uownhole cameias, theimal-uecay logs
anu noise logs. It is iathei uifficult to uetect small leaks with these tools, because small
leaks iesult in velocity anu tempeiatuie changes that may be less than the iesolution of
these logging tools. Noise logs can uetect fluiu movement but must be useu in a
stationaiy moue anu moie uistant noise souices may confuse inteipietation. Bownhole
cameias can be useful in finuing a vaiiety of leaks but iequiie the wellboie to be filleu
with optically cleai fluiu.
Foi the uetection of small leaks, ultiasonic leak-uetection is useu. It is known that leaks,
iegaiuless of phase, will piouuce an ultiasonic fiequency when active. The sensoi is
capable of uetecting the sounu geneiateu by a leak thiough vaiious meuia encounteieu
in a uownhole enviionment.
SS

In August 2uu9, the EPA ieleaseu the iesults of a site investigation neai Pavillion,
Wyoming, 0SA: EPA founu elevateu levels of aisenic, methane, petioleum hyuiocaibons
anu othei chemicals in uiinking watei wells. The piesence of 2-butoxyethanol, a known

Su
Naitin T. 0lesen, 'Can the Petiochemical Inuustiy Feel Safe with Tiauitional uas Leak Betection.',
(Balleiup, Benmaik: Innova uassonic).
S1
Faies Al Nansouii anu Nohammau Aftab Alam, 'Souices of Byuiocaibon Leaks & Spills in 0pstieam 0il
Inuustiies - Its Potential Reasons & Pieventive Neasuies', in @E" >)8'$)(8-%)(: +%)D'$')F' %) Q'(:8C/
@(D'89/ ()= ")7-$%),')8 -) U-: ()= B(. "A&:%$(8-%) ()= E$%=#F8-%) (Nice, Fiance: Society of Petioleum
Engineeis, 2uu8).
S2
}.Y. }ulian et al., 'Bownhole Leak Beteimination 0sing Fibei-0ptic Bistiibuteu-Tempeiatuie Suiveys at
Piuuhoe Bay, Alaska', in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (Anaheim, CA: Society of
Petioleum Engineeis, 2uu7).
SS
}.E. }ohns et al., 'Applieu 0ltiasonic Technology in Wellboie-Leak Betection anu Case Bistoiies in Alaska
Noith Slope Wells', @E" E$%=#F8-%) ` U&'$(8-%). 24, no 2 (2uu9).

7S
constituent in hyuiaulic fiactuiing fluius, was confiimeu by EPA. EPA will continue the
investigation.
S4

In }anuaiy 2uu9, theie weie seveial iepoits of methane gas migiating to the suiface anu
at least one iepoit of a uiinking watei well explouing in Bimock, Pennsylvania, 0SA.
SS

Bowevei, as inuicateu in the iepoits, the causes of contamination weie pooi well
integiity, suiface spills, etc, iathei than fiacking.
In oiuei to pioviue moie accuiate anu continuous unueigiounu flow monitoiing,
sniffing well technology is cuiiently being uevelopeu. These aie basically slim-hole
wells that aie uiilleu to the giounuwatei level. Sensois aie iun in, so that they can
monitoi unueigiounu conuitions piioi to uiilling foi base-line measuiements, uuiing
fiacking anu uuiing piouuction until the enu of the well's life. These wells can also be
useu foi iunning micioseismic geophones.
D@D H4/'1/,5%$ %E ,("<$5"/' /$) %:(0/,5%$/' /--1+:,5%$- E%0 -</'( */-
)(4('%:+($, -"($/05%- 5$ H10%:(
In the following subsection, we uiscuss the uevelopment of shale gas fielus in Euiope
anu the ielateu cost scenaiios. These scenaiios may be useu to show the impact of
technological uevelopments on the oveiall uevelopment of shale gas in Euiope as pait of
a technological gap analysis. They aie baseu on the souices citeu anu the authoi's own
assessment of futuie uevelopments in Euiope. (Foi a ieview of how otheis have
attempteu to quantify the impact of technological impiovements on shale gas
extiaction, see Section 2.2.S.)
V]V]P 6>:HK K:?:HGQA:L= QBK @>\>LE BLK R:HH ;GLO>E<CB=>GL @;:LBC>G
In oiuei to evaluate the iequiiements foi the numbei of wells to be uiilleu in a given
fielu, assumptions on the geometiical uistiibution of the well paus fiom which the wells
aie uiilleu have to be maue.
The size of the aiea which can be ieacheu fiom one pau location uepenus on the
uiiectional ieach of the wells being uiilleu, which in ietuin leaus to a ceitain well
uensity pei uiilling pau.
Typical uiilling uensities in shale gas uevelopments leau to one well being uiilleu pei
u.16 to u.6S km
2
baseu on the expeiience fiom the 0SA.
S6

0n the basis of this assumption, the uevelopment of a fielu with the size of 1 uuu km
2

woulu iequiie about 1 S4u to 6 2Su wells to be uiilleu. An aveiage scenaiio of u.4 km
2

coveiage pei well woulu leau to 2 Suu wells. The iequiieu equipment capacity (numbei
of uiilling iigs anu fiactuiing units) uepenus on the aveiage length of the wellboie,
uiilling anu fiactuiing efficiency, anu the piojecteu total fielu uevelopment uuiation.
If a pau is uesigneu to allow 2S to S6 wells to be uiilleu, such an aveiage scenaiio woulu
leau to the constiuction of about 7u to 1uu uiilling paus in the fielu.
Theie aie vaiiations to these values foi the fiist complex uevelopments planneu in
Euiope. Foi example, 0Nv in Austiia is cuiiently planning to uiill 2S ueep uiiectional

S4
Riveikeepei Inc., 'Inuustiial uas Biilling Repoitei - vol. 4', (0ssining, NY: Riveikeepei Inc., 2uu9).
SS
Ciaig Nichaels, }ames L. Simpson anu William Wegnei, 'Fiactuieu Communities: Case Stuuies of the
Enviionmental Impacts of Inuustiial uas Biilling', (0ssining, NY: Riveikeepei Inc., 2u1u).
S6
Stig-Aine Kiistoffeisen, B(. @C(:' E%8')8-(: -) 6W$(-)' (lulu.com, 2u1u).

74
wells with veitical ieseivoii sections pei pau, with a well uensity of one well pei km
2
.
Complex, ueep wells may take up to 18u uays of uiilling time initially.
X1,10( :/) -5W5$* )(4('%:+($,-
The aiea to be coveieu fiom one pau may be extenueu by uiilling longei hoiizontal well
sections foi each well. Lateials up to S km in length, foi example, woulu extenu the
theoietical ieach fiom one pau to 1uu km
2
. Extenueu ieach wells may be uiilleu to
uepaituies of 1u km anu moie, but theii feasibility is limiteu by the ability to complete
anu hyuiaulically fiactuie these long wellboies. The iequiieu aieal uensity of wells will
set the limit of the numbei of paus iequiieu foi a fielu uevelopment. In auuition, the size
of a pau will be limiteu by the numbei of wells that can be uiilleu fiom a single pau.
The consequence of uiilling longei uepaituie wells is a gieatei aveiage length pei well,
thus not uiiectly ieuucing uiilling time. Noie wells aie iequiieu pei pau to ieach the
same aieal uensity but the impact on the enviionment will be ieuuceu by the use of
moie concentiateu suiface infiastiuctuie.
V]V]S [C>HH>LE BLK ;GAQH:=>GL ;BQB;>=D @;:LBC>G
The scenaiio outlineu heie explains the typical well constiuction time bieakuown anu
uefines impiovement potential. The capacity to uiill is uefineu by the aveiage numbei of
meties which a iig can uiill pei uay, calculateu by uiviuing the total length of the well by
the numbei of uays iequiieu to uiill, case anu cement the well.
The uiilling anu completion capacity is uiiectly ielateu to the uiilling efficiency, which is
expiesseu in the ability to complete as many wells as possible in the shoitest possible
time.
6>E<C: VIPV. [:?:HGQA:L= GO KC>HH>LE Q:COGCABL;: >L '<CGQ:
^T



S7
Ketil Anueisen et al., 'Case Bistoiy: Automateu Biilling Peifoimance Neasuiement of Ciews anu
Biilling Equipment', in @E"Z>JK+ K$-::-); +%)D'$')F' (Amsteiuam, The Netheilanus: Society of Petioleum
Engineeis, 2uu9).

7S
T05''5$* /$) "%+:'(,5%$ %:(0/,5%$/' /-:(",-
0ne key element in uiilling capacity management is the mitigation of uiilling pioblems
anu the ieuuction of opeiational inefficiency. The total potential impiovement in this
aiea may be quantifieu as up to Su% of oveiall uiilling time.
6>E<C: VIPa. g:HH KC>HH>LE BLK ;GAQH:=>GL =>A: JC:BZKGRL
^U

!"#$%&'()* ,(-*
.#/0!"#$%&'()*
,(-*
123'
,(-*
Total Well Duration
4/)(5(62* 7#5'
,(-*

The time iequiieu to uiill a well may be bioken uown into the following categoiies:
/CGK<;=>?: =>A: M/(N is uefineu as the bit-on-bottom time, wheie the hole is uiilleu. PT
may be impioveu by using bettei bit technology oi finuing bettei opeiating paiameteis
to enhance peifoimance. ueneially PT may iange fiom as low as 1u% to above 4u% of
oveiall well constiuction time.
#GLIQCGK<;=>?: =>A: M#/(N compiises the time iequiieu foi solving pioblems that
cause ueviations fiom the plan. NPT may be within a iange of 1S-2S % of oveiall well
constiuction time anu iepiesents one of the majoi impiovement potentials foi uiilling
peifoimance.
)L?>@>JH: HG@= =>A: M)+(N is uefineu as the uiffeience between actual opeiation uuiation
anu a best piactice oi benchmaik peifoimance. ILT may be within a iange of 1S-2S % of
oveiall well constiuction time anu iepiesents anothei majoi impiovement potential foi
uiilling peifoimance.
6HB= =>A: M6(N compiises the time iequiieu foi opeiations not uiiectly implieu in
uiilling, e.g. iunning casing, tiipping the uiill stiing in anu out of hole, etc. FT may be
impioveu by managing the ciitical path anu optimising opeiating pioceuuies. These
keep NPT anu ILT as low as possible.
In oiuei to tianslate uiilling peifoimance to useable figuies, the uiilling peifoimance
statistics fiom Figuie S-1S aie useu. The aveiage well constiuction time foi a well of
about S uuu m total uepth (incluuing an aveiage 1 Suu m hoiizontal section) shoulu be
in the iange of:
62.S uayswell foi low peifoimance, assuming an aveiage iate of penetiation
of about 8u muay as ieacheu in the yeais 1989 to 1998;
4S uayswell as meuium peifoimance, a level at about 1uu muay;
S8 uayswell as a high -peifoimance" scenaiio, wheie the aveiage
peifoimance of the yeais 2uuu to 2uu6 is attaineu - appioximately 1Su
muay.
Futuie well constiuction peifoimance taigets can be ieacheu by utilising existing
savings potential in teims of NPT anu ILT. This coulu be accomplisheu by means of the
inuustiialisation of the fielu uevelopment piocess anu specialisation, in combination
with puipose-built well uesigns, which aie uiscusseu in the next section. The

S8
Beimann Spoeikei, ueihaiu Thonhausei anu Eiic Naiula, 'Rigoious Iuentification of 0nplanneu anu
Invisible Lost Time foi value Auueu Piopositions Aimeu at Peifoimance Enhancement', in @E"Z>JK+
K$-::-); +%)D'$')F' (Amsteiuam, The Netheilanus: Society of Petioleum Engineeis, 2u11).

76
uevelopment of new uiilling technologies, with a focus on compact iig uesigns, minimal
enviionmental footpiint combineu with a high uegiee of automation, will be key
enableis to achieve these peifoimance taigets in teims of cost, but moie impoitantly, in
teims of enviionmental compliance.
T05''5$* /$) "%+:'(,5%$ &('' )(-5*$ /-:(",-
0ne key element foi the efficient uevelopment of shale gas iesouices is puipose-
uesigneu wells, which have the potential to auu significant cost savings to a fielu
uevelopment campaign.
Exploiation oi scouting wells can be leanei in uiametei anu size, anu specifically
uesigneu to finu geological infoimation. If puipose-built equipment is useu (foi
example, using slim-hole uiilling technology foi exploiation) savings potentials of up to
Su% of well cost may be iealiseu.
HY15:+($, 715')5$* "/:/"5,=
A key element of effective shale gas fielu uevelopment in Euiope is the ability to
inciease the uiilling anu fiactuiing equipment builuing capacity. The cuiient Euiopean
lanu iig count is appioximately 7u iigs of uiffeient specifications.
S9
The majoiity of
these iigs aie baseu on tiauitional technology.
(BJH: VIb. 5BZ:C 4<EF:@ RGCHKR>K: C>E ;G<L=
b`

[:;:AJ:C S`PP $FBLE: #G?:AJ:C S`PP +B@= D:BC
+BLK %OO@FGC: (G=BH +BLK %OO@FGC: (G=BH +BLK %OO@FGC: (G=BH
Noith Ameiica 2 44u 4S 2 48S -1S 2 46u S8 2 498 2 u84 24 2 1u8
Euiope 7u 42 112 -1u 74 48 122 S6 49 1uS
Niuule East 26S 41 Su4 -4 269 S9 Su8 2S6 S1 267
Afiica 48 S1 79 -7 SS S1 86 SS 26 79
Latin Ameiica S49 89 4S8 16 SSS 87 422 S1S 72 S8S
Asia Pacific 1S1 96 247 u 1Su 97 247 1S7 12S 282
gGCHK (G=BH V VSP VaS V bbV IS` V VaV Va` V bUV S Ucc VST V SSb


S9
Eneigy Biggei, "#$%&'() 1-; +%#)8 K(8( !2'I3 M[NM5 (Eneigy Biggei, 2u12, citeu 27 Naich 2u12);
available fiom http:www.eneigyuiggei.comiig-countseuiopean-iig-counts.aspx; 0pstieam, 1-; E#:.'
(0pstieam, 2u12, citeu 27 Naich 2u12); available fiom
http:www.upstieamonline.commaiketuataiigmaiket.view=iigpulsewoiluiigcount
6u
Bakei Bughes Inc., >)8'$)(8-%)(: 1%8($9 1-; +%#)8 (Bakei Bughes Inc., 2u12, citeu 27 Naich 2u12);
available fiom http:files.shaieholuei.comuownloausBBI17492u9798xuxSSuS8u982E17SS-B2EB-
4BC7-9629-2462B7A6E8B8Inteinational_Rig_Count_Febiuaiy_2u12.xlsx

77
(BJH: VIT. 5BZ:C 4<EF:@ C>E ;G<L= '<CGQ:
[:;:AJ:C S`PP $FBLE: #G?:AJ:C S`PP +B@= D:BC
+BLK %OO@FGC: (G=BH +BLK %OO@FGC: (G=BH +BLK %OO@FGC: (G=BH
Albania 4 u 4 u 4 u 4 1 u 1
Austiia 2 u 2 u 2 u 2 S u S
Bulgaiia 2 u 2 u 2 u 2 u u u
Cioatia u u u u u u u u u u
Czech 1 u 1 u 1 u 1 2 u 2
Benmaik u S S 1 u 2 2 2 u 2
Fiance 1 u 1 u 1 u 1 u u u
ueimany S u S -1 6 u 6 7 u 7
uieece u u u u u u u u u u
uieenlanu u u u -1 u 1 1 u u u
Bungaiy 1 u 1 u 1 u 1 2 u 2
Icelanu u u u u u u u u u u
Italy 2 2 4 -S S 2 7 S 1 4
Lithuania 1 u 1 u 1 u 1 u u u
Netheilanus u 4 4 2 u 2 2 2 S 7
Noiway u 1u 1u -9 u 19 19 u 19 19
Polanu 11 u 11 1 1u u 1u 6 1 7
Poitugal u u u u u u u u u u
Romania 1u u 1u u 1u u 1u 1S u 1S
Sakhalin (R0) S 7 1u 1 S 6 9 2 2 4
Slovakia 1 u 1 u 1 u 1 1 u 1
Spain (1) u 1 1 -1 1 1 2 1 u 1
Switzeilanu u u u -1 1 u 1 1 u 1
Tuikey 24 1 2S u 2S 2 2S 1u 1 11
0niteu Kinguom 2 14 16 1 2 1S 1S u 2u 2u
'<CGQ: T` aS PPS IP` Ta aU PSS ^b ac P`^

Full-scale shale gas fielu uevelopment will iequiie the uesign anu constiuction of new
uiilling iigs. Assuming a fielu uevelopment scenaiio of 2 Suu wells, with an aveiage well
length of S uuu meties, it woulu iequiie uiilling 12.S million meties of hole (aveiage
ieseivoii uepth S uuu meties, with an assumeu builu section anu a hoiizontal section of
about 1 Suu meties). With an aveiage peifoimance scenaiio, as outlineu above, 11S 6uu
uiilling uays will be iequiieu, which equates to about SS4 iig yeais (assuming S4u
piouuctive uiilling uays a yeai). Thiity iigs will woik foi about 11 yeais in this
paiticulai fielu. Each pau (2S to S6 wells) woulu see uiilling activities foi about S.S to S
yeais.
If Su such fielus weie to be uevelopeu in Euiope, Suu iigs woulu woik foi SS yeais,
iespectively. Two hunuieu anu fifty iigs woulu woik foi 66 yeais. These values only
holu if all iigs woulu be available immeuiately fiom the stait of the campaign.
In oiuei to builu this iequiieu iig fleet within a ieasonable time, the capacity to
manufactuie 2u iigs pei yeai woulu leau to 2S yeais of fleet builuing. To achieve a
ieasonable timefiame, a builuing capacity of Su to 4u iigs pei yeai woulu be iequiieu.

78
Similai numbeis apply foi fiactuiing units.
Z(0-%$$(' 715')5$* "/:/"5,=
Assuming the above scenaiios foi a laige-scale uevelopment of shale gas in Euiope, a
significant inciease of human iesouices is iequiieu. A typical iig ciew touay consists of
five people pei shift plus supeivisois, iig mechanic anu electiician. Assuming thiee
shifts pei uay, a total of about Su people is iequiieu to iun a iig. 0sing the above
numbei of Suu iigs opeiating, about 1S uuu people woulu be iequiieu to man the iig
ciews. In auuition, a similaily laige numbei of seivice company peisonnel will be
iequiieu foi opeiational tasks. With equipment manufactuiing, suppliei peisonnel etc.,
it can be expecteu that moie than 1uu uuu jobs woulu have to be uiiectly oi inuiiectly
cieateu anu the iequiieu tiaining pioviueu.
V]V]V [C>HH>LE =:;FLGHGED BLK ;G@= @;:LBC>G
>5* ,("<$%'%*=
Besiues the impiovement of the uiilling piocess as such, innovative uiilling technology
utilising manufactuiing piinciples (inuustiialiseu uiilling) anu a high uegiee of
automation will leau to a moie efficient technology.
A key aspect of this iequiiement is the uevelopment anu utilisation of uiilling iigs with
the smallest possible enviionmental footpiint combineu with the highest possible
efficiency.
6>E<C: VIP^. 0>E KC>HH>LE >L (F: 4BE<: M#+N

6>E<C: VIPb. 0>E HG;B=>GL ;HG@: =G B FG@Q>=BH

Examples show that such technology is alieauy paitly ueployeu utilising Euiopean
engineeiing anu manufactuiing know-how (see Figuie S-1S anu Figuie S-16 above).
61
It
is possible touay to uiill in uensely populateu aieas if state-of-the-ait technology is useu
anu the emissions anu enviionmental footpiint aie minimiseu.
Concepts of lightweight uiilling equipment (foi example, aluminum oi composite uiill
pipes as well as casings) have the potential to ieuuce the iequiieu lifting capacity, thus
enabling the use of significantly smallei iigs. Bole size iequiiements have to be
ievieweu, as smallei hole sizes ieuuce the consumption of muu, cement anu casing,
which in ietuin ieflects a significant savings potential.

61
Eiic Quinlan et al., 'The Impact of Rig Besign anu Biilling Nethous on the Enviionmental Impact of
Biilling 0peiations', in JJK" L(8-%)(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (Bouston, TX: 2u11).

Well
Location

79
This uevelopment shoulu go hanu in hanu with the specialisation of the uiilling
machine. Paits of the well constiuction anu fielu uevelopment shoulu be manageu by
ueuicateu equipment, e.g. suiface section uiilling iigs, hoiizontal well uiilling iigs, etc.
6>E<C: VIPT. 6>:HK K:?:HGQA:L= R>=F ;:L=CBH>@:K O<L;=>GL@ BLK C>E @Q:;>BH>@B=>GL
!"#$
%&$'( !"#$ *
+&, *
+&, !
+&, -
+&, .
+&, /
+&, %
+&, 0
+&, 1
+&, 2
+&, 3
+&, 4
+&, 5
+&, *
+&, -
+&, 1
6789:&;, +&,
69<="7$ 18'$ .<&''&;, +&,
18<&>8;:"' .<&''&;, +&,
?$7@";&7#
/'$7:<&7&";
-8AB";C ?";
D88'B9#@$<
58,&#:&7#
-8AB";C
58,&#:&7#
6$<E&7$ -8AB";C
69B$<&;:$;($;: FB$< <&, :CB$G
%&$'( !"#$ !
F8B:&8;"'G
+&,
%'$$:

>5* -5,( "%$-,01",5%$
As iig anu fiactuiing opeiations will span ovei multiple yeais on inuiviuual uiilling
paus, new concepts of constiucting iig sites shoulu be auopteu. Biilling paus will
iequiie a ceitain size as they aie useu to uiill a laige numbei of wells. The iig site, as
well as the iig itself, shoulu be embeuueu in the enviionment in the least intiusive way.
Wellheau installations anu othei peimanent suiface installation shoulu iueally be
moveu sub-suiface. Rigs may be completely houseu in oiuei to avoiu noise emissions
anu light emissions uuiing the night.
Well sites shoulu possibly have access to the powei giiu to avoiu the use of uiesel-
geneiateu powei on-site. Noise woulu theieby be ieuuceu anu powei coulu be useu
fiom enviionmentally fiienuly souices. The iig site may be constiucteu as a moie oi
less peimanent installation anu fully houseu wheie uiilling activities on a pau aie to
span ovei multiple yeais. This allows foi the uevelopment of completely new iig sites
anu iig concepts as a small inuustiial plant, iathei than a conventional iig site.
The means to ieuuce tiuck tiips to anu fiom the iig site have to be founu; foi example,
thiough the use of pipelines to supply the iig with fluius. Closeu-loop systems shoulu be
investigateu, which offei the possibility of the ieinjecting foimation watei anu cuttings
into suitable foimations.
T50(",5%$/' )05''5$* ,("<$%'%*=
Biiectional anu hoiizontal wells touay aie uiilleu with a uown-hole motoi oi a iotaiy
steeiable system. 0sing the iotaiy steeiable system, the uiill stiing anu the bit aie
iotateu simultaneously uuiing the uiilling piocess.

8u
Foi technological ieasons, the muu motoi can be useu eithei in a 'sliuing' oi in a
'iotating' moue. In the iotating moue, the uiill stiing anu the uown-hole motoi with the
bit aie iotateu, but to inciease oi ueciease the hole inclination (= angle measuieu fiom
veitical), the assembly has to be useu in a sliuing moue, which means that only the
uown-hole motoi anu the bit iotate.
In longei, ueviateu oi hoiizontal sections, the fiiction boiehole, which iesults fiom the
uiill stiing lying on the bottom of the boiehole, cieates technical pioblems with well
path contiol.
In oiuei to oveicome these fiiction pioblems, alteinative oi auuitional systems weie
uevelopeu, namely axial oscillation technology,
62
fiiction-ieuucing oscillation
technology
6S
anu uiiectional uiilling automation,
64
all aiming in a 'quasi iotateu' uiill
stiing, as in the iotating moue of a muu motoi.
T%&$<%'( "%++1$5"/,5%$ /$) +(/-10(+($, -=-,(+-
In oiuei to enable a high level of iig automation anu to mitigate non-piouuctive time,
the means to link uown-hole measuiement systems with suiface iig automation system
have to be uevelopeu anu implementeu. The eaily iecognition of uownhole pioblems
will leau to alaims anu allow the iig ciew oi futuie iig contiol systems to take
mitigation measuies.
Technological uevelopments, which will leau to such impiovements, will have to take
place in the aiea of heavy machineiy automation, autonomous machines, machine
leaining, high-tempeiatuie anu high-piessuie electionics anu sensoi systems.
Such technologies will allow foi a significantly ieuuceu NPT anu ILT, anu leau to the
iequiieu peifoimance impiovements. Conveiteu to a laige-scale Euiopean shale gas

62
Ahmeu Al-Zain, Abuulwafi Al-uambei anu Rifat Saiu, 'Smait Combination of Technology Tools Resulteu
in Successful Rigless Stimulation on a Tii-Lateial Well, Case Stuuy', in @E"ZKB@ @(#=- J$(I-( @'F8-%)
G'FC)-F(: @9,&%.-#, ()= "AC-I-8-%) (Al-Khobai, Sauui Aiabia: Society of Petioleum Engineeis, 2u11); A.
Al Ali, S. Baiton anu A. Nohanna, '0nique Axial 0scillation Tool Enhances Peifoimance of Biiectional
Tools in Extenueu Reach Applications', in X$(.-: UDD.C%$' +%)D'$')F' ()= "AC-I-8-%) (Naca, Biazil: Society
of Petioleum Engineeis, 2u11); Fianklin Baez anu Steve Baiton, 'Beliveiing Peifoimance in Shale uas
Plays: Innovative Technology Solutions', in @E"Z>JK+ K$-::-); +%)D'$')F' ()= "AC-I-8-%) (Amsteiuam, The
Netheilanus: Society of Petioleum Engineeis, 2u11); Fianklin Baez, Steve Baiton anu Aief Alali, 'Biilling
Peifoimance Impiovement in Shale uas Plays 0sing a Novel a Novel Biilling Agitatoi Bevice', in L%$8C
J,'$-F() 6)F%)7')8-%)(: B(. +%)D'$')F' ()= "AC-I-8-%) (Wooulanus, TX: Society of Petioleum Engineeis,
2u11); }ohn E. NcCoimick anu TzuFang Chiu, 'The Piactice anu Evolution of Toique anu Biag Reuuction:
Theoiy anu Fielu Results', in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (Benvei, C0: Society of
Petioleum Engineeis, 2u11).
6S
Caniig Biilling Technology Ltu., 1U+?>Gc (Caniig Biilling Technology Ltu., 2u12, citeu 27 Naich 2u12);
available fiom http:www.caniig.comuefault.asp.v_ITEN_IB=2uS; Colin uillan et al., 'Applying
Piecision Biill Pipe Rotation anu 0scillation to Sliue Biilling Pioblems', in @E"Z>JK+ K$-::-); +%)D'$')F'
()= "AC-I-8-%) (Amsteiuam, The Netheilanus: Society of Petioleum Engineeis, 2uu9); Colin uillan et al.,
'Applying Computei Baseu Piecision Biill Pipe Rotation anu 0scillation to Automate Sliue Biilling
Steeiing Contiol', in +()(=-() 6)F%)7')8-%)(: 1'.%#$F'. +%)D'$')F' (Albeita, Canaua: Society of
Petioleum Engineeis, 2u11).
64
Naiula anu Baci, '0nueistanuing Toique: The Key to Sliue Biilling Biiectional Wells'; Eiic Naiula et al.,
'Fielu Pioof of the New Sliuing Technology foi Biiectional Biilling', in @E"Z>JK+ K$-::-); +%)D'$')F'
(Amsteiuam, Netheilanus: Society of Petioleum Engineeis, 2uuS); Naiula, Baci anu Wiight, 'Case Bistoiy
Summaiy: Boiizontal Biilling Peifoimance Impiovement Bue to Toique Rocking on 8uu Boiizontal Lanu
Wells Biilleu foi 0nconventional uas Resouices'.

81
uevelopment initiative, a 1u% inciease of efficiency can be equateu to Su iigs opeiating
foi Su yeais, oi t4S billion in potential cost savings (at cuiient uiilling spieau cost).
T05''5$* "%-,
The following cost items foim the majoi elements of uiilling-ielateu cost foi typical lanu
iig opeiations in Euiope. As a geneial iule, the total cost can be estimateu to iange
between t7S uuu anu t126 uuu pei uay as the spieau cost (oveiall well cost uiviueu by
numbei of uiilling uays). This cost is the sum of a numbei of key cost items, which aie
given in gieatei uetail below. Cost items can be split into iig site cost, uepth-baseu cost
anu uay iate-baseu cost. As can be seen, the uiilling cost is uiiven by uay iates, which
highlights the impoitance of impioving uiilling efficiency in teims of uiilling uuiation.
0>E @>=: ;G@=
The iig site cost pei well is a function of pau size anu numbei of wells uiilleu pei pau.
Constiuction costs in Euiope can be estimateu to be thiee to five times highei than in
the 0SA uue to iigoious iegulations conceining suiface watei piotection anu waste
management. Rigs site costs foi shale gas may have to incluue the cost foi builuing
complete housing foi the iigs anu the equipment foi noise anu light piotection. This
may be paiticulaily necessaiy foi iig sites wheie activities will span ovei a consiueiable
peiiou of time.
[BD CB=: ;G@=
The iig cost is typically chaigeu as a uay iate seivice with iig iates foi ielevant size iigs
ianging fiom t1S uuu to t28 uuu uepenuing on the iig capacity. The iig cost has a
stiong peisonnel anu maintenance cost component, which has the potential to be
ieuuceu by automation anu the highest equipment quality stanuaius, as well as iigoious
maintenance piogiammes.
The uiiectional uiilling cost is a uay iate seivice, which is available at uiffeient levels of
complexity, ianging fiom t1u uuu to t1S uuu. Seivice incluues uiiectional uiilling
equipment iental as well as seivice peisonnel. If veitical uiilling is possible in thick
ieseivoiis, the cost may be significantly ieuuceu to basic measuiement seivices.
0tilising iotaiy steeiable system technology may moie than uouble typical iates.
Alteinative uiiectional uiilling technologies, as uesciibeu above, have the potential to
significantly lowei uiilling costs, meaning that the quality levels of iotaiy steeiable
systems can be achieveu in the 'most likely' scenaiios useu in this stuuy.
The evaluation cost is the cost to peifoim foimation evaluation anu othei measuiement
seivices uuiing the well constiuction piocess. This cost stiongly uepenus on the type of
measuiements peifoimeu anu is typically baseu on seivice uay iates foi inuiviuual
tools, especially when useu as a logging-while-uiilling seivice.
[:Q=F JB@:K ;G@=
$B@>LEY ;:A:L=>LE BLK R:HHF:BK ;G@=@ constitute a significant cost item, which is hole-
size anu wellboie-length uepenuent. This cost is typically uominateu by mateiial costs
(e.g. foi steel oi bulk volumes of muu mateiial), wheie the cost uepenus on the quantity
useu pei well anu the maiket piice. 0veiall, this cost item contiibutes to 2u-Su% of the
total well cost.
The A<K ;G@= may be split into a) bulk mateiial costs, with base fluiu; anu b) auuitives
anu the muu seivice cost. Nuu cost may vaiy between t4uu anu t2 uuu pei m
S


82
uepenuing on the type of muu. Nuu seivice cost is uepenuent on the numbei of
peisonnel involveu. A uecisive factoi in pieuicting muu cost is the ability to ieuse muu
foi multiple wells, which in ietuin uepenus on the ability to iecycle a maximum muu
volume.
The J>= ;G@= has lost its foimei significance ovei the yeais anu may only contiibute a
few pei cent to the total well cost.
The :?BH<B=>GL ;G@= coveis peifoiming foimation evaluation anu othei measuiement
seivices uuiing the well constiuction piocess. This cost stiongly uepenus on the type of
measuiements peifoimeu.
The RB@=: BLK RB=:C ABLBE:A:L= ;G@= is the cost ielateu to managing waste anu
watei, which is uepenuent on the volume useu anu the type of waste geneiateu. The
waste management cost is ielateu to hole uiametei anu wellboie (cuttings) volume, anu
thus linkeu to the muu volume iequiieu.
Foi the uiilling anu uevelopment costs of shale gas iesouices in the 0SA, please iefei to
the table below.
(BJH: VIU. $GAQBC>@GL GO KC>HH J>= O>LK>LE BLK K:?:HGQA:L= ;G@= Q:C P ``` ;<J>; O::= :_<>?BH:L=
M2;O:N M=FC::ID:BC B?:CBE:N OGC K>OO:C:L= "- GQ:CB=GC@
b^

[C>HH J>= 6X[ ;G@= Q:C 2;O: MVID:BC B?:CBE:N
0ltia Petioleum $u.7S
Quicksilvei Resouices $1.1S
XT0 Eneigy $1.67
Range Resouices $1.89
Cabot 0il & uas $1.99
E0u Resouices $2.1u
EnCana $2.12
Southwestein Eneigy Company $2.21
Bevon Eneigy $2.44
Apache $2.SS
Benbuiy Resouices $2.92
Newfielu Exploiation $S.u8
Foiest 0il $S.66
Noble Eneigy $4.u9
St. Naiy Lanu & Exploiation $4.Su
Pioneei Natuial Resouices $4.41
Cimaiex Eneigy $4.42
Swift Eneigy $6.u8
Anauaiko Petioleum $6.u9
Chesapeake Eneigy $6.18
X1,10( )(4('%:+($,- 5$ )05''5$* "%-,
The impiovement of uiilling efficiency may contiibute to a uiilling cost ieuuction of 2u
to 4u% by mitigating ILT anu NPT, which is uiiectly ieflecteu in bettei oveiall uiilling
peifoimance. This will be possible by intiouucing manufactuiing-type piinciples to
laige well constiuction campaigns.

6S
Southwestein Eneigy Company, 2%$, RS? (0S Secuiities anu Exchanges Commission, 2uu9, citeu 27
Naich 2u12); available fiom http:investoi.shaieholuei.comswnsecfiling.cfm.filingIB=7SS2-u9-8

8S
Auuitional contiibutions fiom iig automation anu alteinative uiilling technologies (foi
example, uiiectional uiilling anu evaluation) have the potential to auu savings of
anothei 1u-2u% of the oveiall uiilling cost.
These savings can potentially go hanu in hanu with a ieuuction of well constiuction
elements, such as the cost foi casing, cementing anu the well heau, if novel well uesigns
aie useu anu steps towaius the specialisation of well uesigns aie taken. Foi specific
cases, auuitional ieuuctions of uiilling costs of up to Su% may be expecteu.
V]V]a 6CB;=<C>LE =:;FLGHGED BLK ;G@= @;:LBC>G
X0/",105$* ,("<$%'%*=
The key issues ielateu to hyuiaulic fiactuiing aie the management of watei, the use of
chemicals, aii pollution, the potential of inuuceu seismic activity as well as suiface anu
giounuwatei contamination.
Clean fiactuiing technologies, wheie potentially haimful chemical auuitives aie not
useu as pait of the fiactuiing fluiu, aie being investigateu by the authoi. Such
technologies combine closeu-loop fluiu systems with simple fluiu iecipes using watei,
viscosifiei anu pioppant only. Watei tieatment anu iecycling is peifoimeu by means of
technologies useu in uiinking-watei tieatment. The cost of such fluius shoulu
tentatively be below the cost of cuiient fiactuiing fluiu technology, but at the same time
may leau to ieuuceu fiactuiing efficiency. The investigation of effects of clean fiactuiing
fluius on fiactuie efficiency anu ultimate piouuction is a topic of cuiiently on-going
ieseaich.
In oiuei to monitoi the uevelopment of fiactuies, impioveu technologies foi mouelling,
monitoiing anu continuously impioving the fiactuie piocess shoulu be uevelopeu. In
teims of ieseaich anu uevelopment it is necessaiy to combine the mechanical behavioui
of the iock with fluiu-flow phenomena anu chemical ieactions that take place when
fiactuiing fluiu contacts the foimation. 0ltimately such an unueistanuing will leau to
the uefinition of the iueal hyuiaulic fiactuie to maximise piouuction, thus optimising
cost.
New fiacking technologies aie being applieu in the 0SA that may yielu significant time
savings. 0ne paiticulai technology claims to ieuuce fiactuiing job uuiations fiom foui
to five uays to some ten houis foi jobs with up to 6u fiactuie stages, wheie foui stages
aie pumpeu simultaneously. In auuition, this technology piomises to significantly
ieuuce the volume of fiactuiing fluiu useu.
66

X0/",105$* "%-,
The fiactuiing cost is uiiven by the cost of fiactuiing units, the volume of watei anu
pioppant, as well as the volume of fiactuiing auuitives useu. The cost is typically
expiesseu in teims of cost pei fiactuiing stage oi fiactuiing job. Theie is no laige-scale
expeiience with shale gas type fiactuiing in Euiope. Cost figuies given heie aie ueiiveu
fiom 0S examples.
The aveiage costs foi hyuiaulic fiactuiing in the 0SA is between $S.S million anu S.7
million assuming ten fiactuie stages pei well.

66
Packeis Plus, d#-FW21J+ (Packeis Plus, 2u12, citeu 27 Naich 2u12); available fiom
http:www.packeisplus.compiouuctsquickfiac.php

84
A well with ten fiactuiing stages piouuces 2S uuu bbl of back flow. Numbeis foi
uisposal anu tieatment costs aie in the iange of $7.S pei bbl.
Inuustiy analysts have assumeu $1.S6 million foi one tiansveise fiactuie anu $7u uuu
pei each auuitional fiactuie inteival foi economic analysis.
67

In Boin Rivei Basin, Biitish Columbia, Canaua, fiactuiing costs weie estimateu aiounu
$Suu uuu pei stage.
68

In the cost scenaiio piesenteu in this iepoit, hyuiaulic fiactuiing costs foi Euiope aie
uiviueu into a fixeu cost element anu a stage-baseu cost. A value of t2Su uuu to
tSSu uuu has been useu pei stage. Nobilisation anu uemobilisation, as well as watei
supply costs anu watei uisposal costs, with the management of backflow watei
(t2Su uuu), aie estimateu to be between tSuu uuu anu t7uu uuu pei well.
The scenaiio consiueis laige-scale fiactuie jobs, which have not yet been peifoimeu in
Euiope.
X1,10( )(4('%:+($,- 5$ E0/",105$* "%-,
Investigations of fiactuiing efficiency using piouuction logging in the 0SA showeu that
in the cases investigateu, 7u% of the piouuction came fiom only Su% of the
peifoiations of a well.
69
This inuicates that theie is heteiogeneity in the piouuctivity of
uiffeient foimation inteivals. As a consequence, technology has to be uevelopeu to
iuentify the zones of highest piouuctivity foi fiactuiing. Such technology will uepenu on
a ueep geo-mechanical unueistanuing of the ieseivoii in teims of the physical
piopeities of the iock anu the local stiess fielu in the ielevant iegion neai the wellboie.
The iecent uevelopments of multipoit fiactuiing technology allows suiface-pumpeu
fiactuie stages to be ieuuce fiom 8 to 1S stages, with a paiallel ieuuction in fluiu
volumes useu.
If such technology coulu be successfully ueployeu, a significant ieuuction in fiactuiing
cost coulu be achieveu by less fiactuiing stages, iueally with only a small ieuuction in
piouuction. Combining moie efficient fiactuie stage location selection with highly
efficient fiactuie technology (see above) has the potential to significantly ieuuce the
enviionmental impact of fiactuiing, as well as the cost.
V]V]^ 6>:HK K:?:HGQA:L= >LOCB@=C<;=<C: BLK EB@ QCG;:@@>LE BLK =C:B=A:L=
@;:LBC>G
G("<$%'%*=
The pau-baseu uevelopment of shale gas fielu infiastiuctuie will leau to such
infiastiuctuie being moie concentiateu. Suiface installations shoulu iueally be moveu
subsuiface wheie it is possible to avoiu an impact on the enviionment in teims of
visibility, noise, etc. uas piocessing anu tieatment shoulu be manageu in centialiseu
facilities.

67
Watson et al., '0ne-Tiip Nultistage Completion Technology foi 0nconventional uas Foimations'.
68
Euiopean Eneigy Exchange Au, @8$%, G'$,-),($W8 (Euiopean Eneigy Exchange Au, citeu 27 Naich
2u12); available fiom http:www.eex.comue
69
u. Wateis et al., '0se of Boiizontal Well Image Tools to 0ptimize Bainett Shale Reseivoii Exploitation',
in @E" J))#(: G'FC)-F(: +%)D'$')F' ()= "AC-I-8-%) (San Antonio, TX: Society of Petioleum Engineeis,
2uu6).

8S
3%-,
It can be expecteu that infiastiuctuie costs in Euiope will be highei than in the 0SA.
This is baseu on the highei cost of laboui, geogiaphic situation, population uensity anu
enviionmental iegulations. Foi typical conventional fielu uevelopments, the
infiastiuctuie cost may be consiueieu to be equal to the uiilling anu completion cost,
which may also be useu as a fiist initial appioach foi mouelling shale gas fielu
uevelopments.
Bue to the investment-intensive natuie of shale gas uiilling anu fiactuiing, anu the
highly concentiateu infiastiuctuie, it may be consiueieu to assume lowei cost figuies in
ielation to uiilling anu completion. Actual cost values will highly uepenu on the local
situation anu the availability of existing infiastiuctuie, e.g. in aieas with a hyuiocaibon
exploiation anu piouuction histoiy. In this chaptei, the cost is estimateu to be Su% of
the uiilling anu completion cost.
The numbeis in the table below outline lifting costs foi a numbei of shale gas opeiatois
in the 0SA. They can be put in ielation to the uiilling anu uevelopment cost in Table S-8
to calculate a cost iatio.
(BJH: VIc. $GAQBC>@GL GO H>O=>LE ;G@= Q:C 2;O: GO QCGK<;=>GL M=FC::ID:BC B?:CBE:N OGC K>OO:C:L= "-
GQ:CB=GC@
T`

+>O=>LE ;G@= Q:C 2;O: GO QCGK<;=>GL MVID:BC B?:CBE:N
Southwestein Eneigy Company $u.88
Noble Eneigy $1.12
Chesapeake Eneigy $1.16
0ltia Petioleum $1.17
E0u Resouices $1.19
EnCana $1.2S
Range Resouices $1.24
Pioneei Natuial Resouices $1.S7
Bevon Eneigy $1.SS
XT0 Eneigy $1.S4
Newfielu Exploiation $1.6u
Foiest 0il $1.6S
Cimaiex Eneigy $1.7S
Cabot 0il & uas $1.7S
Anauaiko Petioleum $1.77
Apache $1.78
Quicksilvei Resouices $1.84
St. Naiy Lanu & Exploiation $1.87
Swift Eneigy $1.88
Benbuiy Resouices $2.S6
V]V]b ,B@ QCGK<;=>GL @;:LBC>G OCGA @FBH: K:?:HGQA:L=@
0n aveiage, piouuction oi ultimate iecoveiy is assumeu, baseu on typical 0S figuies
(with 1 cubic foot = u.u28 cubic meties).
71
The assumption maue in the scenaiio

7u
Southwestein Eneigy Company, 2%$, RS? (citeu).

86
calculation in the next section is baseu on the values uepicteu in Table S-1u anu Table
S-11. The most likely scenaiio useu heie consiueis an ultimate iecoveiy of S7 mcm oi
u.68 million NWh. The piouuction piofile foi a typical well is not uiscusseu heie. 0nly
commeicial uevelopment will uemonstiate how long the piouuctive life of a well can be
sustaineu in Euiope befoie the well ieaches its economic limit. Cuiient examples fiom
the 0SA inuicate an economic limit at a piouuction iate of 1uu Ncf pei uay, but
piouuction histoiies haiuly exceeu ten yeais (Bainett Shale). The economic limit is
uefineu as the piouuction iate at well opeiating cost bieak-even. Bowevei, optimistic
piojections may ieach thiee to foui uecaues (see Figuie 4-S).
(BJH: VIP`. (:;FL>;BHHD C:;G?:CBJH: @FBH: EB@ C:@G<C;:@ OGC =F: "-*
TS

/HBD
(:;FL>;BHHD
C:;G?:CBJH:
C:@G<C;:
*C:B M@_] A>H:@N *?:CBE: '"0
,B@ M(;ON
%>H
M55%N
+:B@:K "LH:B@:K
,B@
M5;OWR:HHN
%>H
M25%WR:HHN
Naicellus 41u.S4 ... 1u 622 84 271 1.18 ...
Big Sanuy 7.4 ... 8 67S 1 994 u.SS ...
Low Theimal Natuiity 1S.SS ... 4S 844 u.S ...
uieatei Siltstone 8.46 ... 22 914 u.19 ...
New Albany 1u.9S ... 1 6uu 41 9uu 1.1 ...
Antiim 19.9S ... 12 uuu u.28 ...
Cincinnati Aich 1.44 ... NA u.12 ...
Total Noitheast 472.uS ... 1u1 6SS 128 272 u.74 ...
Baynesville 74.71 ... S S74 S 426 S.S7 ...
Eagle Foiu 2u.81 ... 1 u9u S ...
Floyu-Neal & Conasauga 4.S7 ... 2 429 u.9 ...
Total uulf Coast 99.99 ... 7 u9S S 426 2.99 ...
Fayettsville S1.96 ... 9 uuu 2.u7 ...
Wooufoiu 22.21 ... 4 7uu 2.98 ...
Cana Wooufoiu S.72 ... 688 S.2 ...
Total Niu-Continent S9.88 ... 14 S88 2.4S ...
Bainett 4S.S8 ... 4 u7S 2 S8S 1.42 ...
Bainett Wooufoiu S2.1S ... 2 691 S.u7 ...
Total Southwest 7S.S2 ... 6 766 2 S8S 1.8S ...
Billiaiu-Baxtei-Nancos S.77 ... 16 416 u.18 ...
Lewis 11.6S ... 7 Su6 1.S ...
Williston-Shallow
Niobiaian
6.61 ... NA u.4S ...
Nancos 21.u2 ... 6 S89 1 ...
Total Rocky Nountain 4S.uS ... Su S11 u.69 ...
(G=BH +GR:C aU "L>=:K
-=B=:@
7Su.S8 ... 16u 41S S6 u81 1.u2 ...

71
Robeit B. Kenneuy, 'Shale uas Challenges Technologies 0vei the Asset Life Cycle', (Washington, BC:
0niteu States Eneigy Association, 2u1u).
72
INTEK, 'Review of emeiging iesouices'. Bowevei, see Chaptei 2 foi the weaknesses in the methouology
of this stuuy.

87
(BJH: VIPP. (:;FL>;BHHD C:;G?:CBJH: @FBH: G>H C:@G<C;:@ OGC =F: "-*
/HBD
(:;FL>;BHHD
0:;G?:CBJH:
0:@G<C;:
*C:B M@_] 2>H:@N *?:CBE: '"0
,B@
M(;ON
%>H
M55%N
+:B@:K "LH:B@:K
,B@
M5;OWR:HHN
%>H
M25%WR:HHN
Eagle Foiu
...
S.SS S S2S
...
Suu
Total uulf Coast
...
S.SS S S2S
...
Suu
Avalon & Bone Spiings
...
1.S8 1 S1S
...
Suu
Total Southwest
...
1.S8 1 S1S
...
Suu
Bakken
...
S.S9 6 S22
...
SSu
Total Rocky Nountain
...
S.S9 6 S22
...
SSu
NonteieySantos
...
1S.42 1 7S2
...
SSu
Total West Coast
...
1S.42 1 7S2
...
SSu
(G=BH +GR:C aU "L>=:K
-=B=:@
...
2S.94 12 91u
...
46u

Liquiu piouuction fiom gas shale is steauily incieasing anu plays a key iole in shale gas
economics in the 0SA, as uepicteu in Figuie S-18 below.
7S

6>E<C: VIPU. +>_<>K QCGK<;=>GL OCGA @FBH: EB@ QHBD@ >L (:9B@

V]V]T -<AABCD BLK ;GL;H<@>GL@
In the following pages, a mouel foi the potential uevelopment of shale gas in Euiope is
outlineu, coveiing the minimum, most likely anu maximum scenaiios of the key
vaiiables contiibuting to the cost of shale gas (incluuing potential liquiu piouuction)
tianslateu to tNWh as the bottom line. It is not the objective of this chaptei to
estimate gas piice scenaiios. 0thei souices aie useu as a iefeience.
74


7S
Evaluate Eneigy Ltu., Q%T G'A(. @C(:' B(. E$%=#F'$. ($' 1(,&-); #& <-\#-=. E$%=#F8-%) (Evaluate
Eneigy Ltu., 2u12, citeu 27 Naich 2u12); available fiom http:www.oil-blog.comby-sectoishale-gas-
by-sectoitexas-shale-gas-piouuceis-iamping-liquius-piouuction
74
Euiopean Eneigy Exchange Au, @8$%, G'$,-),($W8 (citeu).

88
Noie infoimation about the inuiviuual cost elements can be founu in the iespective
chaptei iefeiences column in the tables below.
(BJH: VIPS. (DQ>;BH R:HH ;GLO>E<CB=>GL@
(DQ>;BH g:HH
$GLO>E<CB=>GL@

+GR 2G@=
H>Z:HD
4>EF "L>= GO
A:B@<C:
[:@;C>Q=>GL GO
AGK:H ;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK K:Q:LK:L;>:@
S uuu S uuu 7 uuu m Aveiage well
length
S.S.1 The wellboie length will uepenu
on the local geological situation
anu ieseivoii uepth. It will also
uepenu on the length of the
hoiizontal hole sections (if
iequiieu).
S8S 641 898 m
S
Nuu volume pei
well
S.S.S Bole size is assumeu to be an
aveiage 12.2S inch hole ovei the
entiie wellboie length. Baseu on
this hole size assumption, the total
muu volume is assumeu to be 1.S
hole volumes on aveiage
(wheieas a factoi 2 woulu
typically be useu with accuiate
hole size numbeis).

The typical well configuiations ieflect a iange of wellboie length scenaiios as they may
be uiilleu foi uiffeient geological situations. Foi the cost scenaiios outlineu below the
'most likely' well configuiation scenaiio was consiueieu to establish a numbei of cost
scenaiios.

89
(BJH: VIPV. (DQ>;BH C>E @>=: ;GLO>E<CB=>GL@
(DQ>;BH C>E @>=: ;GLO>E<CB=>GL@
+GR 2G@=
H>Z:HD
4>EF "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
S Suu uuu 4 uuu uuu S uuu uuu t Constiuction
cost pei pau
S.S.1 Estimateu cost pei pau
consiueiing a conciete iig
site, suiface watei
management system, etc.
Pau may have to be
maintaineu foi S to 1S yeais
foi uiilling anu the following
piouuction. Auuitional cost
is consiueieu foi housing of
the iig anu equipment
components to minimise
noise anu light emissions.
Roaus, etc. aie consiueieu in
infiastiuctuie cost.
1S 2S S6 wells Numbei of
wells pei
pau
S.S.1 Numbeis of wells uiilleu
uepenus on the local
geological anu suiface
location situations.
2SS SSS 16u uuu 1S8 889 twell Cost pei well S.S.1 The iig site cost pei well is
calculateu baseu on
assuming a ceitain pau size
anu the numbei of wells
uiilleu pei pau.

The iig site configuiation scenaiios, shown in Table S-1S, iange foi paus fiom 1S to S6
wells. These numbeis aie baseu on wells with longei lateial extensions anu the neeu to
minimise the numbei of iig sites. In the following, only the 'most likely' scenaiio with 2S
wells pei pau is consiueieu.

9u
(BJH: VIPa. [:Q=FIJB@:K ;G@= @;:LBC>G@
[C>HH>LE K:Q=FIJB@:K ;G@=
%Q=>A>@=>; 2G@=
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$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
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$GAA:L=@ BLK
K:Q:LK:L;>:@
2Su 27S Suu tm Casing,
cementing
anu
wellheau
cost
S.S.S The cost of well
installations in teims of
casing, cement anu
wellheau aie assumeu to be
iathei constant as they aie
uominateu by piices of
steel, cement anu auuitives.
Noie expensive cement
auuitives may inciease the
cementing efficiency.
7 S S - Nuu ie-use
factoi
S.S.S Nuu may be ie-useu foi
multiple wells, so cost is
uistiibuteu ovei multiple
wells. This numbei coulu
potentially be incieaseu
significantly with
investment in muu
management anu
centialiseu muu supply
facilities in the fielu. Limits
aie given by muu which is
uepositeu with cuttings anu
muu losses, which may be
encounteieu.
4uu 1 uuu 2 uuu tm
S
Nuu
mateiial cost
S.S.S Bighei muu cost will
typically leau to highei
peifoimance uue to a
ieuuction in wellboie-
ielateu pioblems. A stiong
link to uiilling peifoimance
can be expecteu.
264 66u 1 S2u tm
S
Waste anu
watei
management
cost
S.S.S Waste management cost is
estimateu to be ieflecteu by
consiueiing 66% of muu
cost iequiieu to manage the
volume of geneiating
cuttings. The type of muu
plays a cential iole in
uefining the ability to
iecycle veisus ueposition.

Baseu on the uepth anu uay iate alteinatives, we will consiuei thiee scenaiios, with the
'conseivative' scenaiio ieflecting touay's costs by utilising cuiient technology anu the
cuiient aveiage uiilling peifoimance in Euiope.
In this context it is impoitant to note that the uepth anu size of the well uiives in Bepth-
baseu cost (Table S-14) anu the uiilling peifoimance is the uiivei of Bay iate-baseu
costs in Table S-1S. The amount of meties a iig is capable of uiilling pei uay on aveiage
uefines the uuiation of the uiilling pioject (see Table S-16 anu Table S-17).

91
The 'most likely' scenaiio ieflects a cost situation which shoulu be ieasonably
achievable with cost-effective well uesigns anu an achievable inciease in efficiency by
uiilling piocess impiovements ieuucing non-piouuctive anu invisible lost time.
Technology uevelopment in this fiist phase will focus on ueveloping enviionmentally
acceptable ways to uiill anu peifoim hyuiaulic fiactuiing. Technology uevelopment will
also have to aim at geneiating cost-effective technology. It shoulu be iealistic to achieve
this level of technological impiovement, as well as peifoimance anu cost levels within a
timefiame of five yeais.
The 'optimistic' scenaiio assumes a futuie scenaiio wheie fielu uevelopment has
unueigone inuustiialisation utilising manufactuiing-type piocesses anu technologies
with a high uegiee of specialisation of iigs anu equipment. Fielus aie uevelopeu with
laige-scale uiilling campaigns anu with a high uegiee of optimisation. New technologies
minimalise uiilling iisks; foi example, uownhole sensing, ieal-time communication
between uown-hole sensois anu the iig, highly automateu iigs, which enable eaily
uetection of uiilling pioblems. Biilling ciews aie highly tiaineu specialists, who use
highly automateu uiilling machines. They consistently woik in the same fielu,
combining local geological expeitise anu benefiting fiom leaining cuive effects anu a
high uegiee of piocess optimisation. Technologies useu aie cost-effective as they can
also be manufactuieu in inuustiial quantities. It seems plausible to assume that builuing
laige-scale uiilling activities in Euiope, combineu with the necessaiy investment, will
allow the uevelopment of such piocesses anu technology within a timefiame of 1u to 1S
yeais fiom now anu ieach wiuespieau ueployment.
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[C>HH>LE Q:COGCABL;:
%Q=>A>@=>; 2G@=
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A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
1Su 11u 8u muay Biilling
peifoimance
S.S.2 Biilling peifoimance is
ueiiveu fiom past Euiopean
expeiience. Theie is the
potential to inciease
peifoimance, which will
tentatively leau to highei
uepth-baseu anu uay iate-
baseu uiilling costs as moie
technology anu highei
peifoimance piouucts anu
seivices aie useu.

Foi the following cost scenaiios, uiffeient piocess anu technological assumptions aie
combineu. Summaiising the above, the iesults show the following:
Conseivative scenaiio essentially ieflecting touay's cost;
Nost likely scenaiio achievable within a five-yeai time fiame;
0ptimistic scenaiio assuming 1u to 1S yeais of technology anu piocess
uevelopment.
The fiist iow in Table S-16 below shows the values (in bolu) foi the total uay iate-baseu
cost foi wells.

92

(BJH: VIPb. [C>HH>LE GQ:CB=>GL@ KBDICB=:IJB@:K ;G@= @;:LBC>G@
[C>HH>LE GQ:CB=>GL@ KBD CB=: ;G@=
%Q=>A>@=>; 2G@=
H>Z:HD
$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
Va U`` ac ^`` TU ``` jWKBD [C>HH>LE
GQ:CB=>GL@
KBD CB=:
;G@= M=G=BHN
S.S.S Total cost as sum of the
cost items below.
1S uuu 2u uuu 28 uuu tuay Rig cost S.S.S Shallowei wells iequiie
significantly smallei iigs
with lowei uay iates.
6 uuu 8 uuu 1S uuu tuay Biiectional
uiilling cost
S.S.S veitical wells may not
neeu uiiectional uiilling
costs, wheieas highly
ueviateu oi hoiizontal
uiilling woulu iequiie
uiiectional uiilling tools
anu seivices.
S uuu S uuu 8 uuu tuay Nuu seivice
cost
S.S.S Costs to maintain the muu
system anu to peifoim
soliu contiol woik. The
cost uepenus on the muu
system complexity.
8uu 1 Suu 2 uuu tuay Bit cost S.S.S The bit cost is consiueieu
as pait of the uay iate cost
in a iange between 1% anu
2% of total well cost. Bit
cost itself uoes not ieflect a
significant cost uiivei. The
uiilling peifoimance in the
piouuctive time (PT) as a
consequence of bit
selection has a significant
impact.
1u uuu 1S uuu 2S uuu tuay Evaluation
cost
S.S.S Evaluation cost may iange
fiom stanuaiu wiie-line
logging to using logging
while uiilling systems. Foi
highly ueviateu wells,
evaluation tools have to be
iun on the uiill stiing, so
using LWB is a viable
option.

In the cost mouel below, the 'most likely' iig scenaiio is combineu with the 'most likely'
cost anu peifoimance scenaiios.

9S
(BJH: VIPT. [C>HH>LE ;G@= @;:LBC>G Q:C R:HH
$G@= @;:LBC>G@
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO A:B@<C:
16u uuu 16u uuu 16u uuu t Site cost pei well (2S wells pei pau)
S uuu S uuu S uuu m Bepth
Su1 S8S Su6 tm Biilling uepth-baseu cost
S4 8uu 49 Suu 78 uuu tuay Biilling opeiations uay iate cost
S8 4S 6S uays Well uuiation
V ``V ``` a VVT ``` T ^b^ ``` j (G=BH R:HH KC>HH>LE ;G@= MCG<LK:KN
TU `TU c^ aPa PSP `a` jWKBD *?:CBE: ;G@= Q:C KBD
b`P UbT P ^PV jWA *?:CBE: ;G@= Q:C A:=C:

In teims of the fiactuiing cost, a similai appioach is taken wheie numbeis of stages, as
well as cost aie consiueieu in thiee scenaiios, which show a technological evolution
ovei a timefiame that is similai to the uiilling technology above.

94
(BJH: VIPU. 6CB;=<C>LE ;G@= @;:LBC>G Q:C R:HH
(DQ>;BH OCB;=<C>LE ;GLO>E<CB=>GL@
%Q=>A>@=>; 2G@=
H>Z:HD
$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
8 12 1S stages Numbei of
suiface
fiactuie
stages
pumpeu pei
well using
multipoit
fiactuiing
technology
S.S.4 A ieuuction in numbei of
fiactuiing stages is baseu on
the assumption that iepoits
show that, in examples, 7u%
of the piouuction is coming
fiom Su% of the
peifoiations.

6CB;=<C>LE ;G@=
%Q=>A>@=>; 2G@=
H>Z:HD
$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
Suu uuu 6uu uuu 7uu uuu t Fixeu cost
pei fiactuie
job
S.S.4 A fixeu cost pei shale gas
well is assumeu to
account foi infiastiuctuie
set-up, mobilisation, etc.
anu watei management
cost. 0sing closeu-loop
fiactuie fluiu systems anu
ieuse of fluiu will have a
significant impact on
waste management cost.
2Su uuu Suu uuu SSu uuu tstage Cost pei
stage
S.S.4 A vaiiable cost is assumeu
to account foi cost of
mateiials anu seivices pei
fiactuie stage. The cost
pei stage will gieatly
uepenu on the type of
fiactuiing fluiu that is
utiliseu. No estimate foi
potential ieuse of fluiu is
maue.

k2G@= H>Z:HD7 R:HH R>=F =FC:: ;G@= @;:LBC>G@
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO A:B@<C:
12 12 12 stages Numbei of stages
V ^`` ``` a S`` ``` a c`` ``` j 6CB;=<C>LE ;G@=

Fielu uevelopment anu infiastiuctuie costs will be highly uepenuent on the local
situation in the inuiviuual fielu. Cost scenaiios will vaiy with complexity anu existing
infiastiuctuie in teims of pipeline anu piocessing capacity. The possibility of ieusing
existing pipeline anu piocessing capabilities will allow foi cost ieuuctions in ceitain
shale gas iegions in Euiope. Laigei sizeu paus will allow foi moie centialiseu

9S
infiastiuctuie, which in tuin leaus to ieuuceu costs. In the following stuuy, a simplifieu
appioach is taken to the estimation of costs.
Consiueiing the high uegiee of unceitainty anu the potential cost savings fiom
manufactui-ing-type uevelopments with highly centialiseu infiastiuctuie, the estimateu
cost foi fielu uevelopment anu infiastiuctuie is ieflecteu as Su% of uiilling anu
completion cost in Table S-19.
(BJH: VIPc. 6>:HK K:?:HGQA:L=Y >LOCB@=C<;=<C: BLK QCG;:@@>LE ;G@=@ JD @;:LBC>G
6>:HK K:?:HGQA:L= BLK >LOCB@=C<;=<C: BLK
QCG;:@@>LE ;G@=@

%Q=>A>@=>; 2G@=
H>Z:HD
$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL GO
AGK:H ;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
V S^P ^`` a SbU ^`` b SVS ^`` j 6>:HK
K:?:HGQA:L=Y
>LOCB@=C<;=<C:
BLK
QCG;:@@>LE
;G@=
S.S.S Lifting cost is
assumeu to be Su%
of uiilling anu
piouuction costs.
Cost is estimateu on
the basis of
assuming pau type
uevelopment with
concentiateu suiface
infiastiuctuie.

In the following, a cost summaiy is pioviueu (with optimistic, most likely anu
conseivative cost estimates), baseu on the consiueieu scenaiios. The cost scenaiios aie
combineu with thiee piouuction scenaiios to ieflect a iange of possible outcomes foi a
specific well anu iig site configuiation.
0sing liquiu piouuction values fiom Table S-11, the impoitance of the impact of
conuensate piouuction on the oveiall economics of shale gas plays is shown., The cost
pei NWh is significantly influenceu by the high eneigy content pei baiiel of liquiu
piouuction.
The numbeis given below uemonstiate the high economic inteiest in iesouices with
liquiu potential in the 0SA. The piouuction estimates below combine liquiu anu gas
piouuction iates pei well using uiffeient scenaiios.
The amount of liquiu potential uepenus on the matuiity of the iesouice as a
consequence of geological situation anu ueposition histoiy. A iealistic assessment of
gas-liquiu iatios that coulu possibly be achieveu in Euiope will have to be pioven by
intensive exploiation.

96
(BJH: VIS`. /CGK<;=>GL ;G@= @;:LBC>G ;GAJ>L>LE GQ=>A>@=>;Y AG@= H>Z:HD BLK ;GL@:C?B=>?: ;G@= BLK
QCGK<;=>GL @;:LBC>G@
/CGK<;=>GL @;:LBC>G
%Q=>A>@=>; 2G@=
H>Z:HD
$GL@:C?B=>?: "L>= GO
A:B@<C:
[:@;C>Q=>GL
GO AGK:H
;G@=
;GAQGL:L=
$FBQ=:C
C:O]
$GAA:L=@ BLK
K:Q:LK:L;>:@
8S S7 21 mcm

Estimates of
technically
iecoveiable
iesouices
fiom a gas
shale
S.S.6 0ltimate gas iecoveiy
scenaiios baseu on 0S
iefeiences.
P]`P `]bU `]S^ 2>HH>GL
2gF
'L:CED
QCGK<;:K
Q:C R:HH
OCGA EB@
S.S.6 Conveision of gas
piouuction to eneigy
Suu uuu Suu uuu 1uu uuu bbl Estimates of
technically
iecoveiable
iesouices
fiom a shale
oil well
S.S.6 0ltimate liquiu iecoveiy
scenaiios baseu on 0S
iefeiences.
`]Ua `]^` `]PT 2>HH>GL
2gF
'L:CED QCGK<;:K Q:C
R:HH OCGA H>_<>K@
Conveision of liquiu
piouuction to eneigy
P]U^ P]PU `]aS 2>HH>GL
2gF
(G=BH
:L:CED
QCGK<;:K
OCGA R:HH
S.S.6

k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK QCGK<;=>GL @;:LBC>G@7 R>=FG<= H>_<>K
QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO
A:B@<C:

9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
c]ba PU]UT Ta]Tc jW2gF $G@= Q:C 2gF LG= ;GL@>K:C>LE
H>_<>K QCGK<;=>GL

k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK QCGK<;=>GL @;:LBC>G@7 R>=F H>_<>K
QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO
A:B@<C:

9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
^]SU P`]Ub aa]Ua jW2gF $G@= Q:C 2gF ;GL@>K:C>LE
H>_<>K QCGK<;=>GL

If the 'most likely' piouuction is combineu with the thiee cost scenaiios, it can be seen
how the piouuction cost may uevelop ovei a timefiame of S to 1S yeais.

97
(BJH: VISP. /CGK<;=>GL ;G@= @;:LBC>G@ JB@:K GL =F: kAG@= H>Z:HD7 QCGK<;=>GL BLK =FC:: ;G@=
@;:LBC>G@
k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK lAG@= H>Z:HDm QCGK<;=>GL
@;:LBC>G@7 R>=F H>_<>K QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO A:B@<C:
1.18 1.18 1.18 Nillion NWh Total eneigy piouuceu
fiom the well 'most likely'
9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
U]ST P`]Ub P^]U^ jW2gF $G@= Q:C 2gF
;GL@>K:C>LE H>_<>K
QCGK<;=>GL

This compaiison can be uone in a similai mannei foi 'optimistic' anu 'conseivative'
piouuction scenaiios, as uepicteu in the following two figuies below.
(BJH: VISS. /CGK<;=>GL ;G@= @;:LBC>G@ JB@:K GL kGQ=>A>@=>;7 QCGK<;=>GL BLK =FC:: ;G@= @;:LBC>G@
k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK lGQ=>A>@=>;m QCGK<;=>GL
@;:LBC>G@7 R>=F H>_<>K QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO A:B@<C:
1.8S 1.8S 1.8S Nillion NWh Total eneigy piouuceu
fiom the well 'most likely'
9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
^]SU b]cV P`]PS jW2gF $G@= Q:C 2gF
;GL@>K:C>LE H>_<>K
QCGK<;=>GL

(BJH: VISV. /CGK<;=>GL ;G@= @;:LBC>G@ JB@:K GL k;GL@:C?B=>?:7 QCGK<;=>GL BLK =FC:: ;G@= @;:LBC>G@
k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK l;GL@:C?B=>?:m QCGK<;=>GL @;:LBC>G@7
R>=F H>_<>K QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO
A:B@<C:

u.42 u.42 u.42 Nillion NWh Total eneigy piouuceu fiom the
well 'most likely'
9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
SV]Vc V`]TP aa]Ua jW2gF $G@= Q:C 2gF ;GL@>K:C>LE
H>_<>K QCGK<;=>GL

M'%7/' )(4('%:+($, -"($/05%-
The uevelopment of technology anu piocesses to piouuce shale gas will globally move
in a similai uiiection. The scenaiios will be chaiacteiiseu by veiy cost conscious anu
peifoimance oiientateu fielu uevelopments.
In the cuiient opeiatoicontiactoiseivice company business mouel, technology in
teims of tools anu piocesses will be available on the global maiket place. vaiiation will
most likely be uiiven by uiffeient peisonnel costs anu local piice vaiiations influenceu
by tax iegimes oi the like. An auuitional potentially uominating factoi, leauing to
technology anu cost vaiiations, will be vaiiations in enviionmental stanuaius.

98
An alteinative may uevelop. Baseu on 0S examples, it seems veiy likely that the
business mouel may unueigo changes. 0peiatois will ietuin fiom an almost exclusive
outsouicing policy, which they followeu ovei the past uecaues, to insouicing again. The
uiive foi that is to combine the highest possible efficiency with competitive auvantage.
Business success in shale gas plays is not uiiven by exploiation iisk but by
manufactuiing competence at the highest possible enviionmental stanuaius. Such
capability will be key foi economic success anu potentially the biggest uiffeientiatoi foi
companies competing foi ieseives. 0peiatois, ueveloping unique capabilities in this
uiiection, will have an auvantage globally in successfully exploiting shale gas.
D@F 3%$"'1-5%$-
The success of shale gas uevelopment in Euiope will gieatly uepenu on:
1) the ability to inciease the efficiency of uiilling by inuustiialising the uiilling
piocess, anu utilising iig automation technology anu equipment by aiming at
zeio haimful emissions, thus piouucing the lowest possible enviionmental
footpiint;
2) the ielateu ieuuction of uiilling anu fiactuiing cost, with coulu aim at Su% cost
ieuuctions foi laige-scale uiilling campaigns;
S) the uevelopment of clean fiactuiing technology in combination with a ueep
unueistanuing of the ielationship between geomechanical piopeities of the iock,
fluiu flow anu chemical inteiactions, anu between foimation anu stimulation
fluiu;
4) the iequiieu investment in ieseaich anu uevelopment to establish anu builu the
iequiieu technology in Euiope;
S) the builuing of human iesouice capacity to suppoit laige-scale fielu
uevelopments with seveial hunuieus of iigs opeiating in Euiope foi many
uecaues, anu to uevelop anu builu the iequiieu infiastiuctuie.
The uevelopment of shale gas will only be successful in Euiope if the enviionmental anu
economic bounuaiy conuitions can be fulfilleu.
The chaptei concluues with ueveloping cost scenaiios foi futuie shale uevelopment in
Euiope leauing to the following total cost pei NWh. These cost estimates aie in line
with the cuiient bieak-even costs foi shale gas piouuction in Euiope pioposeu by othei
notable stuuies, which lie between eithei t1S.S-S2NWh oi $S-12NBtu given }anuaiy
2u12 maiket conuitions (see Figuie S-12).

99
(BJH: VISa. -FBH: EB@ ;G@= @;:LBC>G@ OGC '<CGQ:
k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK QCGK<;=>GL @;:LBC>G@7 R>=FG<= H>_<>K
QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO
A:B@<C:

9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
c]ba PU]UT Ta]Tc jW2gF $G@= Q:C 2gF LG= ;GL@>K:C>LE
H>_<>K QCGK<;=>GL

k2G@= H>Z:HD R:HH BLK C>E @>=: @;:LBC>G ?:C@<@ (FC:: ;G@= BLK QCGK<;=>GL @;:LBC>G@7 R>=F H>_<>K
QCGK<;=>GL
%Q=>A>@=>; 2G@= H>Z:HD $GL@:C?B=>?: "L>= GO
A:B@<C:

9 7S4 Suu 12 8uS Suu 18 697 Suu t Total cost pei well
^]SU P`]Ub aa]Ua jW2gF $G@= Q:C 2gF ;GL@>K:C>LE H>_<>K
QCGK<;=>GL

1uu
a +BLK BLK ABCZ:= B;;:@@

>3 E'($.%) ()= E3 e')-'T.W- !"#$%&'() +%,,-..-%)/ 01+ 2345

The iate of piouuction of a iesouice is influenceu by the physical featuies of that
iesouice, the technology available to exploit the iesouice anu the vaiious economic anu
political factois that affect the behavioui of the oiganisations involveu. Whilst the fiist
two of the abovementioneu factois have alieauy been auuiesseu in this iepoit, this
section aims to give a notional oveiview of some of the iemaining 'above giounu' issues
foi one foim of unconventional gas - specifically, shale gas - using language that is
accessible to ieaueis who uo not necessaiily have a technical backgiounu. In light of the
veiy small amount of ieseaich, exploiation anu piouuction uata that aie publicly
available on Euiopean unconventional gas, it is necessaiy to stuuy cases fiom Noith
Ameiica anu elsewheie as a staiting point to iuentifying the likely scale, timefiame anu
necessaiy conuitions foi unconventional gas piouuction in Euiope.
As the following pages illustiate, a veiy wiue iange of factois may potentially affect lanu
anu maiket access foi unconventional gas uevelopments. Because of the uifficulty of
uefining a scope foi the ieview of the eviuence on these topics that woulu be both
iigoious anu compiehensive at the same time, this chaptei uoes not attempt to pioviue
a systematic ieview, as Chaptei 2 uoes foi ieseive estimates. In paiticulai, although
steps have been taken to locate the most ielevant stuuies, to limit selection bias anu to
assess the methouological quality of souices useu, the application of piotocols anu
explicit ciiteiia to these enus is unviable. Reaueis shoulu theiefoie iegaiu the chaptei
as an exploiatoiy suivey of the econometiic, mouelling anu qualitative eviuence aiounu
lanu oi maiket access issues foi the puipose of iuentifying aieas of fuithei ieseaich oi
contextually infoiming the inteipietation of futuie uevelopments on these key topics.
F@? O/$) /""(--
The puipose of this section is to uiscuss lanu access issues anu the iegulatoiy
fiamewoik goveining unconventional gas. It coiiesponus with the thiiu anu fouith
factois ueteimining the viability of natuial gas piouuction piesenteu in Figuie 1-S. The
ability to access ueposits of shale gas staits on the suiface anu is ciucially ueteimineu
by a numbei of physical, social anu enviionmental constiaints. Shoulu the size anu
commeicial viability of technically iecoveiable iesouices in Euiope tianslate into laige
scale piouuction, theie will be a wiue iange of issues in neeu of attention. The aim of
this section, theiefoie, is to answei two key questions. Fiist, what is the suiface-level
impact of shale gas opeiations compaieu with that of conventional gas. Seconu, what
aie the piimaiy iegulatoiy factois that can oi will affect shale gas opeiations,
paiticulaily in Euiope.
The fiist question iequiies an analysis of lanu access issues at the level of the well-heau.
Accoiuingly, the fiist section will begin by compaiing the suiface iequiiements of thiee
uiffeient types of onshoie gas wells - single veitical gas wells, on the one hanu, anu
single hoiizontal wells anu multi-well paus (in which seveial hoiizontal wellboies stem
fiom a single pau) on the othei. The analysis will then focus on well uensities,
highlighting the uistinction uiawn in much of the liteiatuie between conventional anu
unconventional well spacing iequiiements. Baving pioviueu a geneial pictuie of the

1u1
extent of lanu use iequiieu by unconventional gas uevelopment, the seconu section will
uiscuss the wiue iange of iegulatoiy issues in Euiope that may constiain oi enable
these suiface-level opeiations. 0f piimaiy inteiest is the extent to which suiface-level
issues, whethei technical, legal oi socioeconomic in natuie, can be effectively manageu
by a iobust iegulatoiy fiamewoik. The key question in this context is whethei the
inteiests of thiee bioauei sets of actois (maiket, state anu societal) can be effectively
balanceu by such a fiamewoik, anu what majoi issues have been iuentifieu in the
liteiatuie as being ciitical to successful shale gas exploitation activities.
Nany of the iefeiences useu foi this section have been uiawn fiom uetaileu impact
assessments of shale gas uevelopment in uiffeient 0S states. These iepoits aie baseu on
the cumulative knowleuge anu feeuback of inuustiial playeis, community stakeholueis,
inuepenuent consultancies, scientific expeits anu public policymakeis; theiefoie, they
seive as a ielatively authoiitative souice of infoimation. By uiawing on such iepoits as
well as theii suppoiting uocumentationannexes, it has been possible to extiact a
ielatively cleai pictuie of the suiface-level impact of shale gas uevelopment. This
pictuie has been fuithei iefineu by an extensive ieview of othei liteiatuie specific to
Euiope.
a]P]P 0:@G<C;: B;;:@@
S10E/"( 0(Y150(+($,- /$) &('' )($-5,5(-
Suiface uistuibances aie pait anu paicel of natuial gas uevelopment. Lanu is iequiieu
to finu, uevelop, piouuce anu tianspoit gas. In auuition to the immeuiate infiastiuctuie
foiming what is known as the 'well pau', the most common suiface level iequiiements
incluue access ioaus, utility coiiiuois (e.g. watei anu electiicity lines), tianspoitation
anu piocessing units (e.g. gas gatheiing lines, fielu compiessoi stations) anu watei
management facilities. The amount of lanu necessaiy foi such infiastiuctuie vaiies
piincipally accoiuing to the type of well uiilleu (shallow oi ueep; veitical oi hoiizontal;
single oi multi-pau) anu the phase of opeiation (e.g. exploiation, uevelopment oi
completion of the well). The example of Polanu is instiuctive. The total aiea occupieu by
existing conventional natuial gas fielus in Polanu amounts to appioximately 1 6uu
squaie kilometies, compiising 26u ueposits ianging in size fiom 4.6 - 7.6 squaie
kilometies.
1
The cuiient aiea coveieu by shale gas exploiation licences is much laigei,
constituting ioughly S7 uuu squaie kilometies, oi about 2u% of Polish teiiitoiy.
2
The
eventual aiea that will be submitteu to inuustiial activity will, of couise, be much
smallei. Thus, theie is cleaily a uistinction to be uiawn between lanu access foi
exploiation, anu lanu access foi uevelopment anu exploitation of natuial gas ueposits.
At the level of an inuiviuual well, this is illustiateu by figuies pioviueu by a 0S
Bepaitment of Inteiioi stuuy of gas anu oil uevelopment in Aikansas.

1
Souice: Beloitte, Aicmap uIS.
2
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices', v-2, Cleantech, 'Shale uas Investment
uuiue', (Waisaw: Cleantech Polanu Sp., 2u11), 41.

1u2
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V

'9QHGCB=>GL [:?:HGQA:L= /CGK<;=>GL
->LEH: ?:C=>;BH MnS ``` O=N u.98 1.9S u.7S
->LEH: ?:C=>;BH M^ ```IPS ``` O=N 1.6u 2.72 u.91
->LEH: FGC>\GL=BH 1.S9 2.79 u.89
2<H=>IFGC>\GL=BH Ma R:HH@ Q:C QBKN 2.69 (u.67 pei
well)
4.64 (1.16 pei well) 1.S9 (u.SS pei
well)

S
Incluues size of well paus, access ioaus, utility anu tianspoitation lines anu piocessing units. Buieau of
Lanu Nanagement, 'Aikansas: Reasonably foieseeable uevelopment scenaiio foi fluiu mineials', (}ackson,
NS: Bept of Inteiioi, 2uu8), Su-SS.

1uS
6>E<C: aIP. /FB@:@ BLK Z:D @=:Q@ >L K:?:HGQ>LE B 2BC;:HH<@ @FBH: R:HH
a



4
William E. Befley et al., 'The Economic Impact of the value chain of a Naicellus shale well', in E-88
X#.-)'.. V%$W-); E(&'$., eu. Katz uiauuate School of Business (Pittsbuigh, PA: 0niveisity of Pittsbuigh,
2u11).

1u4
The uevelopment cycle of a typical hoiizontal well, togethei with its economic
implications, has been exploieu by a team of ieseaicheis at Pittsbuigh 0niveisity (0S).
As uepicteu in Figuie 4-1 above, a consiueiable amount of inputs aie necessaiy to
piepaie, constiuct anu uevelop a single uiill site. 0nce all the necessaiy peimitting
pioceuuies have been completeu, site piepaiation commences in the foim of levelling
anu access ioau constiuction to make way foi multiple tiucks caiiying uiveise uiilling
equipment. Powei geneiatois, living quaiteis with sanitaiy facilities anu secuiity gates
must be constiucteu, in auuition to the constiuction of watei pipes anu othei utility
lines. Biilling 'muu' - piincipally watei but also chemicals anu auuitives - must be
puichaseu anu tianspoiteu in oiuei foi uiilling to commence. Flowback watei must be
piocesseu, tieateu anu iecycleu, while casing opeiations aie applieu to the wellboie.
The fiactuiing piocess, once begun in eainest, iequiies significant anu continuous
activities in the foim of watei anu wastewatei hauling, the constiuction of watei ponus
to holu fiac fluius anu the eventual installation of a gatheiing system of pipes anu
compiessois to accommouate gas flows fiom the peimanent wellheau. The piouuction
life cycle is subject to continuous monitoiing anu maintenance whilst paitial site
ieclamation opeiations aie initiateu. Woikovei anu well stimulation effoits may incluue
auuitional fiactuiing opeiations, which iequiie ioughly the same level of initial
uevelopment activity as the oiiginal fiactuiing piocess.
As shown in Figuie 4-2 below, hoiizontal well paus iequiie a gieatei suiface aiea than
single veitical wells. This is uue to the neeu foi a laigei pau to accommouate hoiizontal
uiilling equipment, as well as moie watei management facilities given the necessity to
use watei-intensive well fiactuiing technologies uuiing uevelopment. 0thei stuuies
pioviuing estimates of total suiface aiea iequiiements tenu to coiioboiate the finuing
that paus containing multiple wellboies occupy the gieatest total suiface aiea on a pei
well-pau basis.


1uS
6>E<C: aIS. (G=BH @<COB;: BC:B C:_<>C:A:L=@ OGC K:?:HGQ>LE LB=<CBH EB@ R:HH@
^


Bowevei, a point is often iaiseu that %7'$(:: suiface uistuibance of multi-well paus is in
fact much smallei than foi single veitical wells. Inueeu, much of the liteiatuie on lanu
access foi unconventional gas piouuction has highlighteu the impoitance of well
spacing, e.g. the maximum aiea that one well woulu efficiently anu economically extiact
gas fiom baseu on geologic anu engineeiing chaiacteiistics.
6
It is often pointeu out that
theie aie uiffeient well spacing iequiiements foi hoiizontal uiilling opeiations that
taiget continuous iock foimations iathei than conventional ieseivoiis. Wheieas single
veitical well paus aie saiu to be spaceu at 16 sites pei squaie mile, single hoiizontal
paus, by viitue of accessing longei subsuiface lateials, can ieuuce this figuie to
appioximately nine paus pei squaie mile. Fuithei ieuuction can be attaineu by

S
Robeit N. Anueison, 'Enviionmental Assessment of Southwestein Piouuction Coip's pioposeu 8 well
hoiizontal uiilling piogiamme in the Boinbuckle Fielu, Wyoming', (Caspei, WY: Anueison Enviionmental
Consulting, 2uu9); Aithui anu Bockelmann, 'Analysis of Pioposeu Aiticle 7 ', Buieau of Lanu Nanagement,
'Aikansas'; Buieau of Lanu Nanagement, 'Reasonably Foieseeable Bevelopment Scenaiio foi 0il anu uas
foi the ueoige Washingtion National Foiest viiginia anu West viiginia', (}ackson, NS: Bept of Inteiioi,
2u11); Buieau of Lanu Nanagement, 'Suiface Bistuibance associateu with 0il anu uas Activities', in K$(D8
1'.%#$F' H()(;',')8 E:() D%$ E-)'=(:'/ V9%,-); (}ackson, NS: Bept of Inteiioi, 2uu7); Cuauiilla
Resouices, 'Economic Impact of Shale uas Exploiation & Piouuction in Lancashiie & the 0K', (Altiincham,
Cheshiie: Regeneiis Consulting, 2u11); Befley et al., 'Economic Impact', Nels }ohnson et al., 'Naicellus
Shale Natuial uas anu Winu', in E')).9:7()-( ")'$;9 >,&(F8. J..'..,')8 (Ailington, vA: The Natuie
Conseivancy, 2u1u); National Paik Seivice, 'Potential Bevelopment of the Natuial uas Resouices in the
Naicellus Shale New Yoik, Pennsylvania, West viiginia, anu 0hio', (Benvei, C0: Bepaitment of the
Inteiioi, 2uu8); NTC Consultants, 'Impacts on Community Chaiactei of Boiizontal Biilling anu Bigh
volume Byuiaulic Fiactuiing in Naicellus Shale anu 0thei Low-Peimeability uas Reseivoiis, Final Repoit
Piepaieu foi NYSERBA', (Saiatoga Spiings, NY 2uu9).
6
In the 0niteu States, minimum well spacing iequiiements aie ueteimineu by state anu local authoiities;
in some cases, howevei, these iegulations have not auapteu to the chaiacteiistics of hoiizontal wellboies,
whose lateial length can ieach up to S uuu meties.

1u6
constiucting a multi-well configuiation in which six to eight (oi possibly moie) wells
aie uiilleu fiom a single pau.
7
This can yielu well uensities as low as one pei squaie
mile. Baseu on these assumptions, a Supplemental ueneiic Enviionmental Impact
Assessment (SuEIS) foi the Naicellus shale play by the New Yoik State Bepaitment of
Enviionmental Conseivation (NYSBEC) concluues that 'theie cleaily is a smallei total
aiea of lanu uistuibance associateu with hoiizontal wells foi shale gas uevelopment
than that foi veitical well'.
8
This uiffeience is laigely explaineu by the ieuuceu neeu foi
inuiviuual well paus anu associateu access ioaus, gatheiing lines anu othei utility
coiiiuois (as illustiateu in Figuie 4-S below).
6>E<C: aIV. (F:GC:=>;BH R:HH K:L@>=>:@ GO ?:C=>;BH BLK A<H=>IR:HH FGC>\GL=BH QBK@
c



Bowevei, theie is a point of contention in the liteiatuie conceining the extent to which
multi-well pau uiilling actually ieuuces oveiall suiface uistuibance associateu with gas
uevelopment anu piouuction. Inueeu, most of the above figuies on shale gas well
spacing aie ultimately ueiiveu fiom a single consulting fiim, which has publisheu
seveial iepoits piesenting essentially the same uata.
1u
A caveat is theiefoie in oiuei
about the assumptions maue iegaiuing ieuuceu well uensity anu suiface uistuibance
biought about by multi-well hoiizontal uiilling. Inueeu, anothei set of liteiatuie has
aigueu that, though it may be the case that multi-well pau spacing begins at one site pei
squaie mile, this uoes not piecluue veitical infill uiilling between such aieas.
11
The 0S
case uemonstiates that once an aiea pioves to be commeicially viable, theie is a
tenuency foi fiims to peifoim infill uiilling, cieating what is known as 'uownspacing'. As
one iepoit points out, "spacing histoiies of the Bainett, Fayetteville, Antiim, New
Albany, 0hio anu Wooufoiu shales all tienu fiom laigei to smallei spacing units. Foi the
Naicellus Shale, it is ieasonable to expect S2u-acie |1Su haj oi 16u-acie |6S haj spacing
initially anu eventually some aieas expeiiencing infill uiilling to 8u-acie |S2 haj oi even

7
}. Baniel Aithui et al., 'Byuiaulic Fiactuiing Consiueiations foi Natuial uas Wells of the Fayetteville
Shale', (Tulsa, 0K: ALL Consulting, 2uu8).
8
New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS'.
9
Natthew B. Alexanuei et al., 'Consiueiations foi Responsible uas Bevelopment of the Fieueiick Biook
Shale in New Biunswick', (Saint }ohn, NB: Funuy Engineeiing anu Atlantica Centie foi Eneigy, 2u11).
1u
ALL Consulting, 'Nouein Shale uas uevelopment'; Aithui anu Bockelmann, 'Analysis of Pioposeu
Aiticle 7 '; Aithui et al., 'Byuiaulic Fiactuiing Consiueiations'; }. Baniel Aithui anu Bave Coinue,
'Technologies Reuuce Pau Size Waste', J,'$-F() U-: ()= B(. 1'&%$8'$ 2u1u, August euition (2u1u ).
Repoits that uiaw heavily on this liteiatuie incluue Alexanuei et al., 'Consiueiations foi Responsible uas
Bevelopment', New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS'; Woou et al.,
'Shale gas piovisional assessment'.
11
NTC Consultants, 'Impacts on Community Chaiactei', 7.

1u7
4u-acie spacing |16 haj shoulu infill uiilling be economic."
12
This is coiioboiateu by
othei iepoits citing common spacing of one well eveiy 4u-16u acies (16-6S ha).
1S

Figuies fiom a iecent EIA Repoit on emeiging shale plays in the 0SA show a iange of 2-
11 wells pei squaie mile, with a mean of 6.S.
14
The figuie below inuicates that well
uensities in shale plays uo inueeu -)F$'(.' ovei the couise of uevelopment. Noieovei,
uue to moie uispeiseu 'gas in place' foi shale plays, one iepoit notes that, "with shale
gas plays coveiing laige aieas anu iequiiing a gieatei numbei of wells uiilleu moie
closely togethei compaieu with conventional fielus, this implies a gieatei suiface
footpiint ovei a wiuei aiea foi shale gas."
1S

6>E<C: aIa. $<CC:L= R:HH K:L@>=D >L "- ;G<L=>:@ GO ;GAQBCBJH: @FBH: EB@ QHBD@Y S``c
Pb


T10/,5%$ /$) 5$,($-5,= %E &('' )05''5$*
The aigument that multi-well pau hoiizontal uiilling ieuuces suiface uistuibance is
baseu on a calculation of total suiface aiea anu aveiage well spacing which, by
themselves, uo not necessaiily seive as sufficient inuicatois foi oveiall lanu use
iequiiements. A moie compiehensive methou woulu consiuei both the uuiation anu
intensity of uiilling anu completion activities. Bue account must be taken of factois such
as watei consumption, tiuck tiips, noise levels anu visual impacts, all of which may
significantly affect the lanu access issue, paiticulaily in Euiope.
The uuiation of uevelopment foi a multi-well pau uiffeis significantly accoiuing to the
numbei of wells uiilleu. Nany uiilling activities, such as fiacking oi clean-up opeiations,

12
National Paik Seivice, 'Potential Bevelopment of Naicellus Shale'; }oel Paishall, 'Bainett Shale
Showcases Tight-uas Bevelopment', 0%#$)(: %D E'8$%:'#, G'FC)%:%;9 Septembei (2uu8): SS; Lisa Sumi,
'Shale uas: Focus on the Naicellus Shale', (Washington, BC: Eaithwoiks, 2uu8), 18.
1S
0f couise, theie aie spacing aiiangements as high as one pei squaie mile; ALL Consulting, 'Nouein
Shale uas uevelopment'; National Paik Seivice, 'Potential Bevelopment of Naicellus Shale'; Sumi, 'Shale
uas'.
14
See INTEK, 'Review of emeiging iesouices', Appenuix B.
1S
Bowaiu Rogeis, 'Shale uas - the unfoluing stoiy', UAD%$= 1'7-'T %D "F%)%,-F E%:-F9 27, no 1 (2u11): 128.
16
Bazen anu Sawyei, 'Final Impact Assessment of Natuial uas Piouuction in the New Yoik City Watei
Supply Wateisheu', (New Yoik, NY: New Yoik City Bepaitment of Enviionmental Piotection, 2uu9), 2S.

1u8
can only be caiiieu out foi one well at a time; thus, the gieatei numbei of wells, the
longei pie-piouuction opeiations aie liable to take. Since uiilling anu completion
activities aie also contingent on a numbei of geological, logistical anu iegulatoiy factois,
estimates of theii uuiation tenu to vaiy. Noieovei, wheieas some stuuies pioviue
figuies foi the total amount of time necessaiy to uevelop an entiie well-pau (e.g.
incluuing the constiuction of access ioaus anu utility lines), otheis focus on the uuiation
of uiilling anu fiacking activities. Table 4-2 below summaiises the figuies pioviueu by
these vaiious iepoits. Bespite these uiffeiences, a point of agieement in the liteiatuie
iests on the fact that uiilling hoiizontally geneially takes aiounu uouble the amount
time as foi a veitical well.
17

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-G<C;: [<CB=>GL (DQ:
Woou et al. (2u11) Suu-1 Suu uays 6-well pau
Bowney (2u1u) 0p to 18
months
Nulti-well pau
Eneigy Resouices Conseivation Boaiu (2u11) 12-S6 months Nulti-well pau
New Yoik State Bepaitment of Enviionmental Conseivation
(2uu9)
6-1S months Single hoiizontal well
pau
Cuauiilla Resouices (2u11a) 6-8 months Single hoiizontal well
pau
Bazen anu Sawyei (2uu9) 4-1u months Single hoiizontal well
pau
ICF Inteinational (2uu9) 2-4 months Single hoiizontal well
Anueison (2uu9) 2 months Single hoiizontal well
NTC Consultants (2uu9) 1-2 months Single hoiizontal well

6>E<C: aI^. (>A:H>L: OGC @FBH: EB@ K:?:HGQA:L= BLK QCGK<;=>GL M@>LEH: R:HHN
PU


The uuiation of uiilling foi each hoiizontal well is paiticulaily impoitant in the case of
Euiope, which has fai fewei active lanu-baseu gas uiilling iigs than the 0SA. This means
that shoulu seveial shale gas plays in uiffeient countiies be ueemeu commeicially
viable, competition ovei bookings foi well uiilling can become a ciucial uevelopmental
bottleneck. In auuition, one oveilookeu point in ueteimining well uiilling times is the

17
NTC Consultants, 'Impacts on Community Chaiactei', 18.
18
Bowney, 'Fueling Noith Ameiica's futuie'. It must be boine in minu that the life-span of a shale gas well
is yet unknown, anu that vaiious estimates have been piesenteu in the liteiatuie stuuy.

1u9
uelay causeu by foice majeuie, both in teims of suiface level uistuibances (e.g. weathei-
ielateu uelays) oi unfoieseen sub-suiface uifficulties. Inueeu, Cuauiilla Resouices
expeiienceu all of these uevelopmental bottlenecks whilst attempting to builu a test
well in Lancashiie.
19

In New Yoik state, the iegulatoiy limit on well uiilling activity pei site is thiee yeais,
which is inuicative of the maximum time it may take foi a single site to expeiience
uiilling anu completion activities.
2u
It is also impoitant to consiuei that within this span
some paus may not be fully uevelopeu in one consecutive peiiou of time. Accoiuing to a
consultancy iepoit foi the New Yoik State Eneigy Reseaich anu Bevelopment Authoiity
(NYSERBA), opeiatois may uiill one oi two wells on a pau to ueteimine its piouuctivity
befoie ueciuing to uiill the iemaining wells; the uecision to fuithei uevelop a site may
also be contingent on favouiable maiket conuitions.
21
Finally, if ie-fiacking oi othei
stimulation anu woikovei effoits aie ueemeu necessaiy to piolong the life-span of a
well, a ieneweu peiiou of intense uevelopment activity may occui seveial months aftei
the piouuction phase has staiteu. Thus, given that six to ten wells aie expecteu to be
iequiieu to fully exploit the natuial gas iesouices in a 64u-acie spacing unit, it is
ieasonable to expect that a given well site will be unueigoing a ielatively high anu
constant level of inuustiial activity foi at least one anu up to thiee yeais.
22
Theieaftei,
one stuuy maintains that uiilling opeiations 'continue foi the whole fielu life anu they
aie iequiieu to maintain the piouuction plateau'.
2S

Shale gas uevelopment iequiies heavy tiuck tiaffic to anu fiom the site foi this peiiou of
time. Few figuies on the intensity of ioau tiaffic uuiing well constiuction aie available.
0ne of the few oiiginal estimates available stems fiom NYSBEC, which estimates
appioximately 4 Suu-6 6uu tiuck visits foi a multiple hoiizontal well-pau in the
uevelopment phase of a shale gas pioject.
24
Foi single hoiizontal well paus, a ielateu
analysis caiiieu out foi NYSERBA estimates two scenaiios of 1 42u anu 2 uuu tiuck
tiips.
2S
The majoiity of this tianspoitation activity is foi watei anu wastewatei hauling
uuiing the uevelopment anu fiacking phase, which is ielatively unique to shale gas
uevelopment. The iepoit concluues that because of this "the tiuck tiaffic associateu
with uiilling a hoiizontal well with high-volume hyuiaulic fiactuiing is 2 to S times
highei than the tiuck tiaffic associateu with uiilling a veitical well."
26
In teims of the
timefiame of tiucking activities, the table below shows the uaily uistiibution of tiaffic
ovei a Su-uay peiiou uuiing initial well pau uevelopment of hoiizontalveitical wells.
Bowevei, it has been aigueu that the maikeu inciease in tiuck tiaffic foi hoiizontal

19
Cuauiilla Resouices, 'Planning Application foi Pieese Ball Exploiation Site: Tempoiaiy Planning
Peimission foi a Byuiocaibon Exploiation Boiehole', (Lichfielu, West Sussex: 2u11).
2u
New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS', S-4, S-Su. The Tynuall
Centie's iepoit uses NYSBEC figuies to aiiive at a uuiation of Suu-1 Suu uays foi all opeiations piioi to
piouuction of a six-well pau. It is uncleai how these figuies weie calculateu. Woou et al., 'Shale gas
piovisional assessment'.
21
ICF Inteinational, 'Well Peimit Issuance foi Boiizontal Biilling anu Bigh-volume Byuiaulic Fiactuiing
to Bevelop the Naicellus Shale anu 0thei Low Peimeability uas Reseivoiis', (Albany, NY: New Yoik State
Eneigy Reseaich anu Bevelopment Authoiity, 2uu9), 9.
22
New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS', Section 4.
2S
N. uuainone et al., 'An unconventional minuset foi shale gas suiface facilities', 0%#$)(: %D L(8#$(: B(.
@F-')F' ()= ");-)''$-); 6 (2u12).
24
Woou et al., 'Shale gas piovisional assessment', 24.
2S
NTC Consultants, 'Impacts on Community Chaiactei', 1S.
26
New Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS', 6-Su1.

11u
wells woulu be offset by the fewei numbei of paus necessaiy to uevelop a given shale
play, given that iigs anu equipment woulu only neeu to be ueliveieu anu iemoveu one
time foi the uiilling anu stimulation of all the wells on a given pau.
27
This aigument,
howevei, can be contesteu by the eailiei iefeience maue to the piactice of uiilling one
oi two wells to ueteimine piouuctivity befoie fuithei ueveloping a well site.
6>E<C: aIb. '@=>AB=:K KB>HD F:B?D BLK H>EF= =C<;Z CG<LKI=C>Q =CBOO>; JD R:HH =DQ:
SU


Two auuitional issues associateu with lanu use intensity anu lengthiei constiuction
peiious aie noise anu visual impacts. Noise souices, which aie most piominent uuiing
the uiilling phase, incluue vaiious iigging opeiations, pipe hanuling, compiessois anu
opeiations of tiucks, backhoes, tiactois anu cement mixing. In most cases, moueiate to
significant noise impacts may be felt within Suu meties of a well site.
29
In moie highly
uevelopeu oi moie uensely populateu aieas, these noise impacts may seive as
constiaints to the 24-houi uiilling activity that is typical foi seveial weeks uuiing the
uiilling phase of a single hoiizontal well. In any case, noise impacts aie best mitigateu
thiough well site location anu uesign. As foi visual impacts, it is common foi hoiizontal
uiilling iigs to ieach ovei 4u meties, compaieu with 1u-Su meties foi conventional
veitical well-uiilling equipment anu foi theii substiuctuie to occupy a laigei suiface
aiea.
Su
Thus, although the noise anu visual impact stemming fiom hoiizontal uiilling aie
both laigei anu lengthiei than those aiising fiom veitical well constiuction, the
theoietically ieuuceu numbei of well-paus foi a given spacing unit may offset the
uisciepancy. Theie aie othei technological uevelopments that have been iuentifieu as
potential mitigating factois on futuie levels of suiface uistuibance; foi example, ieuse of

27
Ibiu., 6-Su4.
28
Ibiu.
29
NTC Consultants, 'Impacts on Community Chaiactei', 1S.
Su
Ibiu., 18.

111
watei that can ieuuce the iequisite tiucking oi hoiizontal uiilling technology that
allows a ceitain level of flexibility in pau placement.
S1

!--%"5/,() 5$E0/-,01",10(
Beyonu the immeuiate suiface-level iequiiements foi constiucting anu opeiating a
shale gas well pau, it is also necessaiy to consiuei the suiiounuing infiastiuctuie
necessaiy to suppoit potentially laige-scale uevelopment of a much wiuei aiea. As one
iepoit notes, laige scale uevelopment of shale gas iesouices in a continuous play
iequiies facilities to suppoit high-volume hyuiaulic fiactuiing (e.g. watei withuiawal,
stoiage anu tieatment facilities). Besiues the access ioaus anu utility lines iequiieu foi
inuiviuual well paus, it is necessaiy to uevelop gas gatheiing systems, offsite piouuction
anu piocessing facilities, anu tiansmission lines, as well as 'othei activities to biing the
gas iesouice into piouuctionon a moie consoliuateu anu centializeu basis because of
the oveiall vision foi uevelopment anu the potential foi achieving economies of scale'.
S2

Bepenuing on the pioximity to aieas of gas uemanu, uiilling companies may opt eithei
to constiuct auuitional pipelines to connect into the main gas pipeline netwoik oi cieate
on-site electiicity geneiation which is then connecteu to the giiu. Accoiuing to a iepoit
commissioneu by Cuauiilla Resouices 0K, "unuei eithei appioach a substantial bouy of
auuitional laboui anu equipment is iequiieu to put in place the necessaiy
infiastiuctuie, which will giow in scale as the numbei of wells in any one location
incieases."
SS

In compaiative teims, the ueaith of upstieam onshoie gas piouuction infiastiuctuie in
Euiope is commonly iuentifieu as an impeuiment to laige-scale shale gas piouuction.
S4

In the 0SA, by contiast, two of the laigei shale plays aie oveilaiu by extensive gas
tianspoit anu piocessing infiastiuctuie (e.g. in New Yoik anu Texas, iespectively)
owing to these states' pievious histoiical uevelopment of conventional gas iesouices.
Even in these well-uevelopeu maikets, necessaiy investments in miu-stieam
infiastiuctuie to suppoit auuitional gas piouuction have incurred significant additional
costs. For example, construction of gas gathering systems and processing facilities
constituted 15% of industry spending by Marcellus gas producers in Pennsylvania in 2009.
35

A iecent stuuy on the suiface facilities neeueu to accommouate shale gas piouuction in
Euiope makes the valiu point that the iuentification of sweet spots on the basis of
geological anu ieseivoii paiameteis alone may not sufficiently ieflect the optimal
location foi shale gas extiaction.
36
Rathei, a 'multi-uisciplinaiy' minuset is iequiieu foi
anticipating the neeu foi tianspoit anu piocessing infiastiuctuie, as well as the suiface-
level iestiictions biought about by enviionmental oi othei lanu use iegulations. These
issues of suiface-level uownstieam tianspoit capacity will be taken up in Section 4.2
thiough a uiscussion of pipeline tiansmission anu uistiibution giiu uensity.

S1
Ibiu., 26.
S2
Ibiu., 4. This type of centialiseu infiastiuctuie ioll-out also impoitantly affects the commeicial viability
of a given play.
SS
Cuauiilla Resouices, 'Economic Impact in Lancashiie'.
S4
'Nemoianuum submitteu by Shell' in Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12',
eu. Eneigy anu Climate Change Committee (Lonuon: Bouse of Commons, 2u11), points 17, 19 anu 21.
SS
Timothy }. Consiuine, Robeit Watson anu Seth Blumsack, 'The Economic Impacts of the Pennsylvania
Naicellus Shale Natuial uas Play: An 0puate', (Altoona, PA: Pennsylvania State 0niveisity, 2u1u), S.
S6
uuainone et al., '0nconventional minuset'.

112
6>E<C: aIT. #B=<CBH EB@ QCG;:@@>LE QHBL=@ BLK QCGK<;=>GL JB@>L@ >L =F: "-*Y S``c
VT


31+1'/,54( 5+:/",-
This section has piesenteu the lanu access iequiiements foi shale gas uevelopment in a
bottom-up mannei by employing a pei well appioach. Bowevei, in oiuei to auequately
consiuei shale gas suiface iequiiements anu associateu lanu access issues, it is
necessaiy to consiuei the F#,#:(8-7' -,&(F8 of seveial hoiizontal wells being uiilleu
annually ovei a longei peiiou of uevelopment. Cumulative impacts aie the effects of two
oi moie single piojects consiueieu togethei. Since some countiies may have
consiueiable quantities of the iesouice, some stuuies have speculateu on the cumulative
effects of laige-scale builu-outs. Foi example, a iecent stuuy of potential shale gas
uevelopment in the 0K has pioviueu an estimate of the iesouices iequiieu to piouuce
1u% of 0K gas consumption fiom shale; it aigues that, "to sustain this level of
piouuction foi 2u yeais in the 0K woulu iequiie aiounu 2,Suu-S,uuu hoiizontal wells
spieau ovei some 14u-4uukm
2
anu some 27 to 11S million tonnes of watei."
S8
Such a
laige-scale activity, with multiple iigs opeiating at the same time in a continuous aiea,
may leau to a numbei of potentially negative impacts on watei quality, lanu use, wilulife
anu natuial iesouices, agiicultuie, touiism anu the oveiall quality of life in a
community. These impacts, of couise, may uiffei uepenuing on the scale of uevelopment
which, as Section 4.1.2 will auuiess, can be monitoieu oi potentially iestiicteu by the
iegulatoiy iegime in place. Whatevei iules aie in place, it is impoitant to iecognise that
cumulative impacts coulu be consiueieu excessive, even when inuiviuual opeiatois
meet oi even exceeu iegulatoiy iequiiements. Inueeu, "the F%,I-)(8-%) of impacts fiom

S7
EIA, 'Natuial uas Piocessing Plants in the 0niteu States: 2u1u 0puate', (Washington, BC: 2u11).
S8
Woou et al., 'Shale gas piovisional assessment', SS.

11S
multiple uiilling anu piouuction opeiations, suppoit infiastiuctuie (pipelines, ioau
netwoiks, etc.) anu ielateu activities can oveiwhelm ecosystems anu communities."
S9

Foi Euiope, what woulu be the cumulative impact of a laige-scale ioll-out of
unconventional gas uevelopment anu piouuction. A biius-eye view of the most
piouuctive shale plays in the 0SA may be an instiuctive analogue. Inueeu, compaiing
the two maps below of the Bainett Shale in Texas illustiates the scale of uevelopment
cuiiently in opeiation.
6>E<C: aIU. 5BCL:== -FBH: KC>HH>LE >L PccT BLK S``cY 6=] gGC=F 5B@>LY (:9B@Y "-*
a`



Bowevei, seveial 'positive' factois woulu likely militate against such a laige-scale builu-
out in Euiope, piincipal among which is the impiovement in technology that allows foi
multi-well pau uiilling. 0thei technological uevelopments, such as efficiency gains
acquiieu thiough iefineu fiacking anu watei management techniques, as well as
impioveu seismic evaluation methous that avoiu the neeu to uiill multiple test wells,
may altei the uegiee of suiface-level uistuibance as fewei sites with less lengthy well
constiuction activities become the noim.
41
This issue of technological leaining anu its
impact on futuie uevelopment activities is fuithei exploieu in Chaptei S anu Section C.4
of the Annexes.
a]P]S 0:E<HB=GCD OCBA:RGCZ
This section will consiuei the most common issues iuentifieu in the liteiatuie iegaiuing
the spatial constiaints to shale gas uevelopment, with a paiticulai focus on Euiope. A
successful iegulatoiy iegime goveining the exploitation of any sub-suiface mineial
must ieconcile the objectives of thiee main sets of actois: goveinments, with theii

S9
Subcommittee on Shale uas Piouuction, 'The SEAB Shale uas Piouuction Subcommittee Ninety-Bay
Repoit', (Washington, BC: Secietaiy of Eneigy Auvisoiy Boaiu, 2u11).
4u
Richaiu Newell, 'Shale uas anu the 0utlook foi 0S Natuial uas Naikets anu ulobal uas Resouices'
(papei piesenteu at the 0iganization foi Economic Co-opeiation anu Bevelopment Paiis, 2u11).
41
uny, '0nconventional uas', 6u.

114
uesiie to maximise ients while achieving socioeconomic objectives; maiket playeis anu
theii uesiie foi a ietuin on investment that is consistent with the iisk associateu with
the pioject; anu finally, the neeus of societal actois to pieseive oi impiove welfaie in
social, monetaiy oi enviionmental teims.
42
The iegulatoiy fiamewoik must
accommouate these oveilapping spheies of inteiest that often may conflict with one
anothei (see Figuie 4-9). This is laigely because the thiee sets of actois tenu to use
uiffeient ciiteiia foi evaluating theii iespective neeus. Foi example, societal actois will
juuge the uesiiability of shale gas uevelopment fiom the point of view of welfaie effects
anu ielateu inuicatois, such as the piovision of public goous oi the enviionmental
impact of gas uiilling, wheieas maiket actois will assess theii investments on the basis
of the net piesent value of assets oi the inteinal iate of ietuin foi a given pioject.
Regulatoiy fiamewoiks goveining hyuiocaibon piouuction must balance these
inteiests so as to encouiage investment, pievent enviionmental uegiauation anu
uistiibute the gains (anu losses) of shale gas uevelopment faiily.
In most Euiopean countiies - paiticulaily those with inuigenous hyuiocaibon
piouuction - theie exists a iaft of iegulations anu pioceuuies goveining the vaiious
opeiations associateu with sub-suiface mining activities. uiven the paitial uegiee of
oveilap between conventional anu unconventional gas uevelopment, seveial of the legal
iegimes in place apply to activities associateu with the lattei. Theie aie, of couise,
iegulatoiy challenges unique to unconventional gas. Auuitional national anu E0
legislation may apply to activities associateu with auvanceu well stimulation techniques,
such as that goveining watei management anu the use of chemicals.
4S
Bowevei,
uetailing the iequisite E0, national anu local peimits, concessions, licences anu potential
gaps in legislation foi each Euiopean countiy is beyonu the scope of this section. A
pieliminaiy investigation of these issues has been pioviueu by a legal stuuy
commissioneu by Bu ENER.
44
Bowevei, it is impoitant to note that this stuuy uiu not
assess the applicable E0 iequiiements anu coveieu peimitting anu licensing
iequiiements in a limiteu numbei of Nembei States (BE, FR, PL anu SE); fuithei legal
assessment is on-going in the fiame of a stuuy commissioneu by Bu ENv. Biawing on
this anu othei liteiatuie, it is useful to highlight the key points that have been iaiseu in
ielation to suiface accessibility foi shale gas uevelopment. These iegulatoiy issues can
be bioauly summaiiseu accoiuing to theii technicallogistical, legal anu socioeconomic
uimensions.

42
Auapteu fiom Silvana Toiuo, 'Fiscal Systems foi Byuiocaibons, WP 12S,' in V%$:= X()W V%$W-); E(&'$
(Washington, BC: Woilu Bank, 2uu7).
4S
See Stefan Lechtenbhmei et al., 'Impacts of shale gas anu shale oil extiaction on the enviionment anu
on human health', (Biussels: Euiopean Pailiament, 2u11).
44
Philippe & Paitneis, '0nconventional uas in Euiope'.

11S
6>E<C: aIc. 3:D :H:A:L=@ GO BL <L;GL?:L=>GLBH EB@ C:E<HB=GCD OCBA:RGCZ
a^


-LnvlronmenLal lmpacL
assessmenL and mlLlgaLlon
-Mlneral 8lghLs 8eglme
-ulspuLe 8esoluLlon rocedures
-SpaLlal regulaLlons (e.g. poollng,
unlLlzaLlon, well spaclng)
-lannlng/ermlLLlng rocedures
-8egulaLory resLrlcLlons
-Concesslons/Llcenslng Areas
-lncenLlves/CredlLs
-1axes/8oyalLles 8eglme
-enalLles/llnes


-Sub-/Surface 8lghLs
-Land ManagemenL
-8esource proLecLlon
-Legal supporL


-Land use permlLLlng
-lees/royalLles/compensaLlon
-lngress/Lgress
-!ob/wealLh creaLlon
-CommunlLy
CuLreach
-MonlLorlng/
8eporLlng


1ax 8evenue
AdmlnlsLraLlon CosLs
ollLlcal Calns
8lsk-8eward (C8A)
nv / 8aLe of 8eLurn
8reak-even CosLs

Local Counclls
8eglonal CovernmenL
ulsLrlcL CourLs
Mlnlng AuLhorlLy
Lnergy 8egulaLor
arllamenLs/LeglslaLlon
CovernmenL MlnlsLrles/ LxecuLlve
!"#"$ #&"'(!
urlllers
ConLracLors
Servlce Companles
[1hlrd parLy] Suppllers
CperaLors
Lnergy flrms
lnvesLors

)#(*$" #&"'(!
Landowners
Local communlLles
AcLlvlsLs / roLesLers
Lobby groups
1rade unlons
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Welfare effecLs
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G("<$5"/'P'%*5-,5"/' 5--1(-
0nce a piospective uiilling aiea is ueemeu commeicially viable, companies must secuie
a concession anu a iight to uiill fiom the owneis of the mineial iesouices (which aie
usually auministeieu in Euiope by state uepaitments - e.g. mining authoiities oi
equivalent). At the same time, uiilleis must also acquiie consent to access the suiface
aiea oveilaying the shale gas play; this involves negotiations with local authoiities as
well as piivate lanuowneis.
Accoiuing to Floience uny, theie aie thiee methous wheieby lanu can be accesseu in
Euiope, namely thiough negotiating a fee foi ienting the lanu, a compulsoiy puichase

4S
Baseu on analysis by ALL Consulting, 'Nouein Shale uas uevelopment'; Sally Koinfelu, 'Socio-Economic
Consiueiations in Shale uas Bevelopment' (papei piesenteu at the Atlantic Council Neeting, 2u11); New
Yoik State Bepaitment of Enviionmental Conseivation, 'Biaft SuEIS'; Toiuo, 'Fiscal Systems foi
Byuiocaibons'.

116
by goveinment (oi, in extieme cases, via eminent uomain) oi thiough acquisition of the
lanu by the uiilling company.
46
uny claims that concessions gianteu by Euiopean
goveinments aie small, with one block geneially compiising 2.6 km
2
, making it highly
uifficult to conuuct exploiation activities.
47
Bowevei, it is uncleai how this figuie has
been calculateu anu theie may in fact be much vaiiation hiuuen behinu such a
geneialisation. Foi example, a iepoit on shale gas by the Biitish ueological Suivey notes
that the 0K uses 1uukm
2
blocks in its licensing iounus (the most iecent 1Sth 0nshoie
Licence Rounu awaiueu SS new licences coveiing moie than 7 uuu km
2
).
48
In Polanu,
too, the iule is that a single concession cannot exceeu an aiea of 1 2uu km
2
, but even
heie theie is no limit as to the numbei of concessions one entity can holu.
49

Nonetheless, even such laigei uimensions foi concession holueis may not be sufficient
to evaluate shale gas plays to the scale witnesseu in the 0S case. A iepoit by IBS CERA
contiasts a typical 24u km
2
concession block in Euiope with a single 0S opeiatoi's
concession aiea in the Fayetteville shale coveiing ovei S Suu km
2
.
Su
This has a beaiing
on the amount of lanuowneis that uiilling companies must engage with in oiuei to
secuie access to lanu, not only foi puiposes of uiilling but also foi play evaluation anu
thoioughfaie (foi example, extensive use of access ioaus). Inueeu, since open
agiicultuial aieas aie the most likely canuiuates foi shale gas uiilling, it has been noteu
that the size of faiming plots in Euiope aie much smallei than in the 0SA.
S1
Retuining to
the example of Polanu, most faims aie 1u-2u hectaies in size, meaning that uiilleis will
'have to engage seveial lanuowneis foi peimission to constiuct a uiilling pau anu the
type of factoiy-scale piouuction wheie well paus aie placeu at iegulai inteivals is
impossible'.
S2
This is compounueu by the oft-iepeateu point that exploiation foi shale
gas iequiies a much laigei initial suiface aiea than foi conventional gas. Inueeu, it is of
ciucial impoitance to locate a shale play's 'sweet spots' fiom which the gas can be
extiacteu unuei the most favouiable geological conuitions.
Noieovei, in this context compaiisons aie often maue between the population uensities
suiiounuing 0S shale foimations veisus those founu in Euiope. It is commonly aigueu
that the compaiatively low population uensity in the 0niteu States is paiticulaily
amenable to lanu-intensive exploiation anu uiilling opeiations.
SS
To make this point,
many stuuies aie content to oveilay national spatial population uensity uata with
piospective shale plays oi compaie the population uensities of 0S states with those of

46
uny, '0nconventional uas'.
47
Ibiu.
48
Baivey anu uiay, '0nconventional iesouices of Biitain'.
49
Ewa Zalewska, 'The Concession gianting policy foi piospecting, exploiation anu piouuction of
hyuiocaibons in Polanu', E$a';:(= B'%:%;-Fa)9 SS, no 121 (2uu7).
Su
IBS CERA, 'uas fiom Shale: Potential 0utsiue Noith Ameiica.', (Cambiiuge, NA: IBS CERA, 2uu9).
S1
Centiica Eneigy, '0nconventional uas in Euiope: Response to BECC Consultation', (Winusoi: 2u1u),
Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12', eu. Eneigy anu Climate Change
Committee (Lonuon: Bouse 0f Commons, 2u11). This uocument contiasts the aveiage faim size of 12 ha
in Polanu with 16u ha oi 21u ha in 0klahoma anu Texas, iespectively; see also uny, '0nconventional
uas', 74.
S2
Cleantech, 'Investment uuiue', S9.
SS
Rick Caii anu Chuck Chakiavaithy, 'Natuial uas: Revoluiton oi evolution', (New Yoik, NY: Beloitte
Bevelopment LLC 2u11); Centiica Eneigy, '0nconventional uas in Euiope'; uny, '0nconventional uas';
Anuieas Koin, 'Piospects foi unconventional gas in Euiope', (Bsseluoif: E.0N, 2u1u); Naximilian Kuhn
anu Fiank 0mbach, 'Stiategic Peispectives of 0nconventional uas: A uame Changei with Implications foi
the E0's Eneigy Secuiity', in "6+"1@ @8$(8';9 E(&'$, eu. Euiopean Centie foi Eneigy anu Resouice
Secuiity (Lonuon: Bepaitment of Wai Stuuies, King's College Lonuon 2u11); Stevens, 'Bype anu ieality'.

117
seveial Euiopean countiies.
S4
This kinu of coaise analysis, howevei, uoes not pioviue a
iigoious insight into the bottom-up piospects foi shale gas uevelopment foi a given
aiea. Inueeu, as one of these stuuies fieely aumits, "to fully giasp the pioblem of suiface
accessibility causeu by spatial constiaints, it is necessaiy to uo an analysis at the most
local level possible."
SS

uiven these technical anu logistical constiaints in Euiope, an impoitant consiueiation
ieveals itself - namely how to manage multiple lanuowneis anu theii vaiying claims to
iestiict anuoi iequiie compensation foi accessing theii piopeity. This constitutes one
of the key factois highlighteu by Centiica, an eneigy fiim, in its assessment of the
potential foi unconventional gas uevelopment in Euiope.
S6
It is all the moie peitinent
given the auuitional neeu foi extensive utility line placement in the context of local
opposition to any activities that may potentially spoil lanuscapes oi iequiie extensive
excavation activities.
O(*/' 5--1(-
The liteiatuie on shale gas uevelopment piospects often notes that Euiopean anu 0S
lanu owneiship iules uiffei; wheieas in the lattei, lanuowneis own both suiface anu
mineial iights, in the foimei, sub-suiface iights aie geneially owneu by the state.
S7
The
aigument iuns that mineial iights iegimes in Euiopean countiies pose gieatei
challenges foi uiilling because suiface owneis aie not entitleu to ioyalties oi 'signing
bonuses' anu hence have little incentive to suppoit shale gas uevelopment.
S8
Bowevei,
this aigument may obscuie the complexity of mineial iights in the 0SA, which aie
goveineu by myiiau state laws anu wheie "the leases, sales, gifts anu bequests of the
past have piouuceu a lanuscape wheie multiple peisons oi companies have a paitial
owneiship of oi iights to many ieal estate paicels."
S9
Paiticulaily in aieas wheie theie
has been extensive histoiical oil anu gas uevelopment (e.g. the Bainett anu Naicellus
shales) it is common foi the mineial anu suiface estates to be owneu by uiffeient people
(e.g. a 'split estate').
6u
This phenomenon may be unuei-iepoiteu because "the extent of
seveieu iights is veiy uifficult to estimate empiiically because of the lack of easily
accessible iecoius."
61

Thus, the ieal uistinction between 0S anu Euiopean lanu access iights is not necessaiily
owneiship but iathei the uegiee to which suiface lanuowneis have a say in gianting
peimission to uevelop an aiea. In the 0SA, state anu local laws tenu to favoui the holuei
of the mineial estate. Inueeu, wheie split estates exist in Texas, suiface owneis must
allow the holuei of the mineial estate to "fieely use the suiface estate to the extent
ieasonably necessaiy foi the exploiation, uevelopment anu piouuction of the oil anu

S4
uny, '0nconventional uas'; Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12'; Roueiick
Keffeiputz, 'Shale Fevei: Replicating the 0S gas ievolution in the E0. CEPS Policy Biief no 21u', (Biussels:
Centie foi Euiopean Policy Stuuies, 2u1u); Stevens, 'Bype anu ieality', 16.
SS
uny, '0nconventional uas'.
S6
Centiica Eneigy, '0nconventional uas in Euiope'.
S7
uny, '0nconventional uas'.
S8
Baivey anu uiay, '0nconventional iesouices of Biitain', Su, Bouse of Commons, 'Shale uas: Fifth Repoit
of Session 2u1u-12', 28.
S9
geology.com, H-)'$(: 1-;C8. (citeu).
6u
Anthony Anuiews et al., '0nconventional uas Shales: Bevelopment, Technology, anu Policy Issues',
(Washington B.C.: Congiessional Reseaich Seivice, 2uu9), 27.
61
Baviu Kay, 'The Economic Impact of Naicellus Shale uas Biilling. What Bave We Leaineu. What aie the
Limitations.', in V%$W-); E(&'$ @'$-'. (Ithaca, NY: Coinell 0niveisity, 2u11).

118
gas unuei the piopeity."
62
This incluues compiehensive access to the lanu foi caiiying
out seismic tests, uiilling wells, builuing ioaus anu utility lines anu so on. Similai laws
exist in othei 0S states, unuei which suiface owneis must pioviue ieasonable access to
the lanu in exchange foi the iight to piotection fiom "unieasonable encioachment anu
uamage" anu compensation foi the use of the suiface.
6S

In Euiope, by contiast, theie seems to be some confusion as to the extent to which
suiface lanuowneis can iestiict the uevelopment of shale gas. A legal stuuy on shale gas
uevelopment in Euiope commissioneu by the E0 uoes not pioviue a cleai answei. 0n
the one hanu it is claims that piopeity owneis may not be "willing to peimit a company
on to its lanu if he is not being compensateu by a financial incentive" yet elsewheie in
the same iepoit it is stateu that such consent fiom lanuowneis is unnecessaiy foi the
exploiation anu exploitation of state-owneu sub-suiface mineials.
64
Wheieas some
stuuies state that lanu owneis can be a significant hinuiance to shale gas uiilling
opeiations
6S
, otheis aigue that "hyuiocaibons aie mostly nationalizeu, so theie is no
neeu foi gas fiims to negotiate with many uiffeient lanuowneis (though the ownei of
the site of the actual uiilling pau will suiely neeu compensation)."
66

This confusion may stem fiom the vaiiable impoitance assigneu to lanuownei consent
in uiffeient Nembei States. 0nuei Fiench law, foi example, the Nining Coue stipulates
that any holuei of an exploiation licence is entitleu to conuuct all necessaiy piospection
activities iegaiuless of whethei the suiface ownei lenus his consent to such activities.
67

In the 0K, by contiast, it is stateu that 'the iights gianteu by lanuwaiu licenses uo not
incluue any iights of access, anu the onus is upon the licensee to obtain all the ielevant
planning peimissions fiom the iespective authoiities anu lanuowneis'.
68
Noieovei, a
couit case has laiu a pieceuent foi iequiiing peimission fiom lanuowneis unuei whose
lanu a hoiizontal section of a gas well passes.
69
In paiticulai the couit iuleu that 'the
ownei of the suiface is the ownei of the stiata beneath it, incluuing the mineials that
aie to be founu theie, unless theie has been an alienation of them by conveyance, at
common law oi by statute, to someone else'.
7u
In Polanu, the authoiisation holuei
always neeus to have appioval fiom the conceineu lanu owneis as a F%)=-8-% .-)' \#(
)%) befoie any authoiisation can be gianteu.
71

Biilling companies anu iegulatois in the 0SA have auuiesseu the pioblem of obtaining
access fiom multiple lanuowneis by initiating what is known as unitisation anu
pooling.
72
These piocesses both involve negotiations with multiple lanuowneis foi
ieceiving a pio-iateu shaie of ioyalties baseu on theii iespective acieage oveilaying the
gas ieseivoii. While pooling iefeis to the combination of seveial small tiacts of lanu to

62
Texas Railioau Commission, '0il & uas Exploiation anu Suiface 0wneiship', (Austin, TX).
6S
Anuiews et al., '0nconventional uas Shales'.
64
Philippe & Paitneis, '0nconventional uas in Euiope', 8 anu 26, iespectively.
6S
uny, '0nconventional uas'; Kuhn anu 0mbach, 'Stiategic Peispectives'; Stevens, 'Bype anu ieality'.
66
Riuley, 'Shale uas Shock', 17.
67
Philippe & Paitneis, '0nconventional uas in Euiope'.
68
Rhian Kenuall, Nigel Smith anu Anuiew Bloouwoith, 'Alteinative Fossil Fuels: Nineial Planning
Factsheet', (Keywoith: Biitish ueological Suivey, 2u11).
69
Antoinette Baivey, ' Inquiiy conceining shale gas licensing', coiiesponuence with Petei Zeniewski
(2u11).
7u
Ibiu.
71
Philippe & Paitneis, '0nconventional uas in Euiope', 26.
72
See Kiista Weiunei, 'Natuial uas Exploiation, a lanuowneis guiue to leasing lanu in Pennsylvania',
(Altoona, PA: PennState College of Agiicultuial Sciences, 2uu8).

119
meet the spacing iequiiements foi a single well, unitisation iefeis to fielu-wiue oi
paitial fielu-wiue opeiation of a piouucing ieseivoii involving multiple aujoining lanu
tiacts. With faim plots smallei anu lanu owneiship moie uiffuse in Euiope than in the
0SA, both unitisation anu pooling may be an option iequiieu foi managing concession
aieas faiily anu effectively. Noieovei, both pooling anu unitisation can contiibute to a
ieuuceu suiface footpiint by ieining in excessive uiilling biought about by the 'iule of
captuie' piinciple (wheieby sub-suiface mineials can be extiacteu fiom aujacent
piopeity tiacts).
Since much of the sub-suiface in Euiope is state-owneu, legal unceitainties suiiounuing
the iule of captuie in many cases aie moot, but the centialiseu appioach to uiilling
piogiammes implieu by pooling anu unitisation can be vieweu as a useful piactice
applicable to the Euiopean context. Inueeu, lessons fiom unitisation anu pooling can be
uiawn not necessaiily fiom the faii uistiibution of ioyalties but as a mouel foi
efficiently extiacting gas ovei a given suiface aiea. uas fielus in the 0SA that have been
pooleu oi unitiseu have helpeu to ieuuce suiface uistuibance by avoiuing unnecessaiy
wells anu infiastiuctuie while maximising a fielu's ultimate iecoveiy accoiuing to
shaieu technical oi engineeiing infoimation among uiffeient opeiatois anu licence
holueis. In this way, benefits aie acciueu by licensing authoiities as well as lanuowneis.
Some inuustiy expeits also enuoise this methou; inueeu, it is synonymous with the
iecommenuation of E&P expeits at Italy's ENI that shale gas exploitation be puisueu
accoiuing to a mouulai facilities appioach, wheieby uevelopment anu piouuction fiom
a 'complex' of multiple wellpaus is manageu centially in oiuei to avoiu uuplication of
infiastiuctuie, goous anu seivice piocuiement, anu to speeu up peimitting
pioceuuies.
7S
This top-uown low-cost stiategy contiasts with the 0S expeiience of
factoiy-style uiilling anu iesonates insteau with conventional gas fielu uevelopment in
continental Euiope, which has by anu laige been uiiven by enviionmentally conscious,
iegulateu uiilling piogiammes.
S%"5%("%$%+5" 5--1(-
Public acceptance is iegulaily acknowleugeu as a majoi constiaint to shale gas
opeiations in Euiope. A key uimension of this issue ielates to the gieatei sensitivity in
Euiope towaiu activities affecting the enviionment, health anu safety. Seveial analysts
point out that zoning iestiictions anu tightei iegulations on the use of public lanus can
hinuei onshoie piospecting foi hyuiocaibons in much of Euiope.

In most cases, uiilling
activities encountei constiaints in aieas consiueieu out of bounus, such as
enviionmentally piotecteu aieas oi those in close pioximity to builuing oi iesiuential
zones. This is complementeu by the Euiopean 0nion's biouiveisity policy, known as
Natuia 2uuu, which piotects ovei 2S uuu natuie conseivation aieas collectively
coveiing aiounu 8uu uuu km
2
, oi ioughly 2u% of the total lanu aiea of the E0.
74
In the
case of Polanu, this policy has a paiticulaily impoitant beaiing on obtaining iights since
lanu exploitation occuiiing in pioximity to such piotecteu sites aie subject to a
manuatoiy enviionmental impact assessment. Noie geneially, analysts have flaggeu up
what is consiueieu a gieatei 'enviionmental awaieness' in Euiope than in the 0SA.
7S


7S
uuainone et al., '0nconventional minuset'.
74
Euiopean Commission, 'uuiuance Bocument: Non-eneigy mineial extiaction anu Natuia 2uuu', eu.
Biiectoiate-ueneial foi Enviionment (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2u1u).
7S
Keffeiputz, 'Shale Fevei'.

12u
Public acceptance, it is saiu, can be secuieu in laige pait by pioviuing auequate financial
iecompense foi populations affecteu by shale gas uiilling. Inueeu, it is commonly aigueu
that local communities in the 0SA aie moie amenable to fossil fuel exploitation on theii
lanu given the financial incentives, anu the long histoiy of gas anu oil uevelopment in
aieas containing shale gas iesouices.
76
A iepoit on Noith Ameiica's gas maiket by IBS
CERA states that gas uevelopment pioviues lanuowneis with ioyalties, iental payments
anu bonuses, at the same time as cieating jobs fiom ioau builuing, lanu cleaiing anu
local seivice piovisions.
77
In Euiope, howevei, seveial analysts have noteu the limiteu
benefits acciueu by local populations anu the concomitant potential foi consiueiable
opposition to uiilling. As Paul Stevens of Chatham Bouse wiites:
f<($;'S.F(:' =-.$#&8-%). F(#.'= I9 =$-::-); ()= C9=$(#:-F
D$(F8#$-); ($' :-W':9 8% ;')'$(8' C#;' :%F(: %&&%.-8-%)/
'.&'F-(::9 ;-7') F%)F'$). %7'$ ')7-$%),')8(: =(,(;'3 VC-:'
.%,' %&'$(8-%). ($' I';-))-); 8% D(F' -)F$'(.'= :%F(:
%&&%.-8-%) -) 8C' 6)-8'= @8(8'./ 8C'$' -. ( D-)()F-(: -)F')8-7'
D%$ :%F(: F%,,#)-8-'. 8% .#DD'$ 8C' -)F%)7')-')F'. I'F(#.'
8C' $'.%#$F' -. 8C' &$%&'$89 %D 8C' &$-7(8' :()=%T)'$ ()= )%8
8C' .8(8'3 >) "#$%&'/ I9 F%)8$(.8/ 8C' .8(8' T-:: $'(& 8C'
D-)()F-(: $'T($=. %D 8C' $'.%#$F' ()= &$%7-=' )% D-)()F-(:
-)F')8-7' D%$ 8C' :%F(: F%,,#)-893g
78

Anothei set of liteiatuie aigues that such claims may amount to ovei-simplification,
since it is not stiictly tiue that lanuowneis in Euiope aie not entitleu to any benefits
fiom hyuiocaibon piouuction. Accoiuing to a stuuy by Phillipe & Paitneis, Fiance anu
Sweuen giant suiface owneis pait of the ioyalties acquiieu fiom piouuction licences.
79

Still, this uoes not piecluue cases wheie opposition geneiates a political backlash that
makes shale gas uiilling untenable (such as in the case of Fiance anu Bulgaiia).
In the absence of Euiopean lanuowneis uiiectly ieaping the iewaius fiom sub-suiface
iesouice extiaction, it is all the moie necessaiy to cleaily communicate othei, moie
inuiiect economic benefits that can be potentially acciueu by local communities. In this
context, stuuies obseiving the local economic impact of shale gas activities aie an
impoitant souice foi consiueiing the uegiee of public acceptance of shale gas
uevelopment. The teim economic impact iefeis to the contiibution a given investment,
policy oi pioject (in this case, shale gas opeiations) may make to the existing local
economy.
8u
Seveial stuuies have exploieu this impact in uiffeient 0S shales. Foi
example, a thiee-pait stuuy leu by Timothy Consiuine at Pennsylvania State 0niveisity
analyseu the economic impact of Naicellus shale gas uevelopment by calculating "the
sum of the uiiect, inuiiect anu inuuceu spenuing, set off fiom the expenuituies by
natuial gas piouuceis."
81
In othei woius, the infusion of money fiom the gas inuustiy to

76
uny, '0nconventional uas', Keffeiputz, 'Shale Fevei', Riuley, 'Shale uas Shock', Stevens, 'Bype anu
ieality'.
77
Bowney, 'Fueling Noith Ameiica's futuie'.
78
Stevens, 'Bype anu ieality', 17.
79
Philippe & Paitneis, '0nconventional uas in Euiope', 4S.
8u
Kay, 'Economic Impact of Naicellus Shale'.
81
Timothy }. Consiuine et al., 'An Emeiging uiant: Piospects anu economic impacts of ueveloping the
Naicellus shale natuial gas play', (Altoona, PA: Pennsylvania State 0niveisity, 2uu9), 18. Inuiiect
spenuing iefeis to gas anu oil companies' puichase of goous anu seivices fiom othei businesses (e.g.
supply chain expenuituie). Inuuceu spenuing ueiives fiom the iesulting inciease in householu incomes,

121
the local economy was quantifieu by obseiving the piovision of goous anu seivices, as
well as the payment of taxes anu ioyalties. These weie mouelleu using 'input-output'
analysis, a wiuely-useu methou foi measuiing how these factois contiibute to othei
sectois of the economy. The stuuy concluueu that, in 2uu8, the Naicellus shale gas
inuustiy "geneiateu $2.S billion in total value auueu, moie than 29,uuu jobs, anu $24u
million in state anu local taxes."
82
Table 4-S below, summaiising the woik of Consiuine
anu his colleagues, shows the metiics useu to quantify the economic impacts of shale
gas uevelopment.
(BJH: aIV. ';GLGA>; >AQB;=@ GO 2BC;:HH<@ -FBH: K:?:HGQA:L= >L /:LL@DH?BL>BY "-*Y S``c
UV

[>C:;= )LK>C:;= )LK<;:K (G=BH (G=BH MK>C:;=
W >LK>C:;=
GLHDN
,CG@@ G<=Q<=
MoA>HH>GLN
S 769 1 SS7 1 844 7 17u S S26
,CG@@ ?BH<:
BKK:K
MoA>HH>GLN
1 982 828 1 u66 S 876 2 81u
'AQHGDA:L=
M6(' dGJ@N
21 778 8 7S2 1S S87 44 u98 Su S1u
(B9 >AQB;=@
M@=B=:WO:KWHG;BHY
oA>HH>GLN
1 446

Bowevei, economic impact assessments of hyuiocaibon extiaction often geneiate a
high level of contioveisy, mainly uue to the numeious assumptions containeu theiein.
Inueeu, such assessments iely fiist anu foiemost on the expecteu expenuituies anu
ievenues of oil anu gas companies anu, as a coiollaiy, on likely natuial gas piouuction
iates. Assumptions must theiefoie be maue about the numbei of wells uiilleu in a given
suiface aiea annually ovei an extenueu peiiou of time (as shown in the note
accompanying Table 4-S above). These assumptions must be unueipinneu by a
ielatively cleai iuea of the amount of gas extiacteu by a given well (iueally accompanieu
by uecline iate analysis anu the appioximate cost of well stimulation techniques).
Noieovei, it is also necessaiy to calculate piouuction costs, which aie ciucially ieliant
on piojections of futuie natuial gas piices. These costs vaiy, -)8'$ (:-(, accoiuing to the
type, location anu length of the well (in auuition to othei impoitant vaiiables such as
technological 'leaining cuives', lease payments, ioyaltytax iates, piice piessuies
iesulting fiom heighteneu uemanu foi piouucts anu seivices, anu so on). Finally, the
extent to which expenuituie anu ievenue is uiviueu between exteinal anu locally
souiceu goous anu seivices has an impoitant beaiing on whethei positive economic
gains aie felt by the communities closest to uiilling opeiations. Relateu to this, the

which stimulates spenuing on local goous anu seivices. See also Woou Nackenzie, '0.S. Supply Foiecast
anu Potential }obs anu Economic Impacts (2u12-2uSu)', (Woou Nackenzie, 2u11).
82
Consiuine et al., 'An Emeiging uiant'. Although not within the scope of the piesent section, theie is an
inteiesting meta-analysis that ciitically engages with stuuies analysing the economic impact of shale gas
uevelopment - see Kay, 'Economic Impact of Naicellus Shale'.
8S
Note: baseu on 71u new wells in a yeai anu an aveiage uaily piouuction iate of S27mcf. Consiuine,
Watson anu Blumsack, 'Economic Impacts of Naicellus'.

122
extent to which lanuowneis spenu theii ioyalty payments in the local economy (an
impoitant input foi calculating inuuceu effects) can only be infeiieu. 0nly by making
such assumptions is it possible to estimate the gioss output, value auueu anu
employment impacts of natuial gas opeiations in uiffeient sectois of the economy
(whethei in the foim of uiiect, inuiiect oi inuuceu impacts).
With so many vaiiables anu an inheient iange of unceitainty in each, it is small wonuei
that the iesults of such stuuies aie so fiequently contesteu.
84
0n a ueepei
methouological level, the input-output mouels piocessing the uata aie also ciiticiseu foi
being incapable of evaluating the implications of iapiu anu substantial changes in the
economy.
8S
The neglect of boombust cycles associateu with iesouice extiaction is an
impoitant omission, as aie the supplyuemanu effects that ciucially infoim
assumptions about both the piofitability anu cumulative impacts of auuitional wells.
86

Theie aie also ceitain oveilookeu iisks to longei-teim uevelopment that iesouice
extiaction may biing to beai on local economies. Inueeu, as Kay's meta-analysis notes,
although laige-scale uiilling woulu "inciease the wealth anu income of vaiious
inuiviuuals anu communities at least uuiing paits of the Naicellus uevelopment cycle
it woulu also biing new iisks anu most unavoiuably, significant change. Whethei natuial
gas uevelopment woulu leau to economic uiveisification oi oveispecializeu uepenuency
is an impoitant economic uevelopment concein."
Finally, theie aie auuitional caveats peitaining to the applicability of 0S-baseu
economic impact assessments to Euiope. As noteu by a stuuy piobing the possible
impact of shale gas in the 0K, the scale of ieseives, geogiaphy, uiilling costs anu ioyalty
payments aie all significantly uiffeient between the two siues of the Atlantic.
87
0n the
last point in paiticulai, uiilling companies' payments to piivate lanuowneis in the 0SA
make up the bulk of total spenuing, accoiuing to Consiuine's iepoit.
88
If these
expenuituies weie ie-uiiecteu to the national level in the foim of state taxes anu
ioyalties, then the benefits to the local economy woulu be fai less tangible. Foitunately,
a iecent stuuy caiiieu out foi Cuauiilla Resouices in the 0K quantifies the expecteu
impact of a single test well uiilleu in the iegion of Lancashiie, baseu only on the sunk
costs incuiieu by site piepaiation anu well uiillingfiactuiing opeiations (anu )%8
assuming ioyalties, taxes, gas piouuction iates oi auuitional wells uiilleu). The iesults
weie piesenteu accoiuingly:

84
See Kay, 'Economic Impact of Naicellus Shale', Thoman Kinnaman, 'The Economic Impact of shale gas
extiaction; a ieview of existing stuuies', in U8C'$ 2(F#:89 1'.'($FC ()= E#I:-F(8-%). (Lewisbuig, PA:
Bucknell 0niveisity, 2u1u).
8S
Euiopean Commission, 'Communication fiom the Commission to the Council anu the Euiopean
Pailiament - Repoit on piogiess in cieating the inteinal gas anu electiicity maiket ', (Luxembouig: 0ffice
foi 0fficial Publications of the Euiopean Communities, 2uu9).
86
Kay, 'Economic Impact of Naicellus Shale', S-6.
87
Cuauiilla Resouices, 'Economic Impact in Lancashiie', 11.
88
Consiuine et al., 'An Emeiging uiant', 22.

12S
(BJH: aIa. [>@BEEC:EB=>GL GO @>LEH: =:@= R:HH ;G@=@ M>L =FG<@BLK QG<LK@ @=:CH>LEN
Uc

gGCZ:C@ X @<QQH>:C@ JB@:K >L
+BL;B@F>C: 0:@= GO
"3
(G=BH
"3
%?:C@:B@ (%(*+
+BJG<C SuS 1 98S 2 28S S47 2 8SS
-<J@>@=:L;: S8S 77 462 S1 S1S
5G<EF= >L EGGK@ X @:C?>;:@ M>L;H]
K:QC:;>B=>GLN
8u1 1 79S 2 S94 2 1u2 4 696
%?:CF:BK@ 11S 691 8u6 S4S 1 1S1
/CGO>=@ 12S 7S2 877 S76 1 2S4
(G=BH 1 729 S 296 7 u24 S 422 P` aab
17% Su% SS%

As shown in Table 4-4, a single test well uiilleu ovei a 12-month peiiou costs 1u.S
million, of which ioughly 17% is ueployeu on local woikeis anu supplieis, with the iest
split between the iest of the 0K, anu goous anu seivices piocuieu oveiseas.
F@C ;/0#(, /""(--
This section touches on the impact that infiastiuctuie, anu contiactual anu political
limitations may have on maiket access foi unconventional gas. It coiiesponus with the
last of the factois ueteimining the viability of natuial gas piouuction as piesenteu in
Figuie 1-S.
Theie aie two piinciple ueteiminants of whethei new gas iesouices aie able to ieach
maikets: 1) theii physical pioximity to suitable gas tianspoitation infiastiuctuie; anu
2) the iegulatoiy stiuctuie of the natuial gas maiket. Whilst the uistance between the
wellheau anu pipelines uiives up the capital anu opeiating costs iequiieu to uelivei gas
to consumeis, the stiuctuie of the natuial gas maiket has impoitant implications foi
how easily new supplies aie able to compete with establisheu supplies. Nost notably,
the uegiee to which the maiket has been libeialiseu
9u
plays a ciitical iole in ensuiing
that, foi example, incumbent fiims uo not use contiol ovei existing infiastiuctuie to
stymie competition fiom maiket entiants.
The fact that shale gas opeiatois in the 0SA have, by anu laige, expeiienceu 'easy anu
low-cost access to the gas tianspoit netwoik' has been singleu-out by many expeits as
having playeu a key iole in the iapiu uevelopment of that iesouice acioss the Atlantic.
91

Bowevei, theie is unceitainty as to whethei the 0S expeiience can be ieplicateu in
othei iegions of the woilu. Accoiuing to the IEA, one of the obstacles to be oveicome
will be the pioximity of a pipeline system to shale plays.
92
Royal Butch Shell has echoeu
this belief, stating that a lack of tiansmission infiastiuctuie in aieas wheie theie has not
tiauitionally been any gas piouuction coulu challenge the uevelopment of

89
Cuauiilla Resouices, 'Economic Impact in Lancashiie'.
9u
0i ueiegulateu, following 0S teiminology.
91
Stevens, 'Bype anu ieality', 12. See also Kuhn anu 0mbach, 'Stiategic Peispectives', 17.
92
IEA, 'Neuium-Teim 0il anu uas Naikets', (Paiis: 0iganisation foi Economic Co-opeiation anu
Bevelopment 2u1u), 18S.

124
unconventional gas in these aieas.
9S
Regaiuing the scale of the challenge faceu, the
Woilu Eneigy Council uiew attention to the fact that only S2 of the 142 basins that
containeu shale woiluwiue hau any existing infiastiuctuie that coulu ieuuce initial
capital expenuituies ielateu to the exploitation of shale gas.
94

Noving beyonu the meie piesence of infiastiuctuie, howevei, the iole playeu by a
libeialiseu eneigy maiket has ieceiveu even gieatei attention in the liteiatuie. The IEA,
foi example, has been quick to point out that even in maikets wheie extensive pipeline
systems aie alieauy built, "iegulations about thiiu paity access to such infiastiuctuie
can be impoitant as a means of minimising tianspoit costs".
9S
Nuch of the uiscussion is
uiiven by the fact that, wheieas the 0S natuial gas maiket is libeialiseu, the maiket
libeialisation piocess in Euiope is still ongoing. A numbei of notable iepoits thus
contiast the "fully ueiegulateu" 0S maiket with the Euiopean maiket - a maiket that
they juuge to be still "uominateu by few playeis".
96
These iepoits auu that ceitain
Euiopean countiies still maintain iestiictions on thiiu-paity access,
97
anu that
tiansmission pipelines in Euiope "aie still not inuepenuent but aie affiliates of majoi
national piouuceis".
98
By this view, such factois intiouuce an auueu uegiee of
unceitainty to unconventional gas piouuction in Euiope.
a]S]P 2BCZ:= @=C<;=<C:
Also known as ueiegulation, maiket libeialisation involves the opening up of maikets to
competition by ieuucing the statutoiy baiiieis to entiy anu exit that exist. It is
pieuicateu, on the assumption that the tiauitional foim of goveinment monopoly oi
iegulateu public utility opeiation of gas is inefficient, that a system that intiouuces
maiket competition inheiently pioviues lowei piices, moie uesiiable seivice options
foi consumeis anu - on balance - gieatei secuiity of public seivice opeiations.
Stiuctuial anu iegulatoiy iefoim measuies aie intiouuceu to facilitate 'gas-to-gas
competition'.
99

Since the supply of gas is usually geogiaphically iemoveu fiom its ultimate
consumption, the libeialiseu mouel also envisions a competitive maiket foi
tianspoitation capacity in a system that is subject to open access. A key element is,
theiefoie, ensuiing thiiu-paity access to the tiansmission netwoik. Neoclassical
economic theoiy states that the owneiship of physical tiansmission iights (such woulu
be the case unuei veitical integiation) incieases the ability of eneigy supplieis to
exeicise maiket powei thiough withholuing tiansmission capacity. When a veitically
integiateu company becomes unbunuleu into uiffeient companies hanuling the
piouuction, tiansmission anu uistiibution stages in the value chain sepaiately, this
facilitates maiket entiy foi new supplieis such as unconventional gas companies, foi

9S
'Nemoianuum submitteu by Shell' in Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12',
2S.
94
WEC, 'Suivey of Eneigy Resouices', S-4.
9S
IEA, 'uoluen age', 47.
96
Stevens, 'Bype anu ieality', 17.
97
'Bowevei, this will be iequiieu to change as the E0 Siu Package of gas iegulations becomes law in eaily
2u11.' uny, '0nconventional uas', S9.
98
Kuhn anu 0mbach, 'Stiategic Peispectives', S7. See also Faiiu uasmi anu }uan Baniel 0vieuo,
'Investment in tianspoit infiastiuctuie, iegulation, anu gas-gas competition', ")'$;9 "F%)%,-F. S2
(2u1u).
99
}ames T. }ensen, 'The LNu Revolution', ")'$;9 0%#$)(: 24, no 2 (2uuS): 4.

12S
example. Competition in the maiket is encouiageu anu the gieatei vaiiety of companies
can help the maiket to ieact to outsiue shocks moie smoothly anu flexibly. Auuitionally,
unbunuling iesults in efficiency gains anu consumei savings by iemoving iegulatoiy
haze, excess capacity anu cential planning.
1uu

The neoclassical assumptions outlineu above aie often iefeiieu to as the stiuctuie-
conuuct-peifoimance paiauigm: The .8$#F8#$' of maikets is consiueieu a ciucial uiivei
foi the F%)=#F8 of fiims anu the eventual economic &'$D%$,()F'.
1u1
Aftei the auoption of
the Single Euiopean Naiket objective in 198S, this paiauigm became the point of
uepaituie foi the Euiopean Commission, which useu it as an instiument to tackle the
pievailing intia-communal baiiieis to tiaue.
1u2
When applieu to the natuial gas maiket,
the paiauigm implies that the main objectives foi the iegulatoi aie:
1) full unbunuling anu maximum entiy in the potentially competitive segments of
the value chain; anu
2) maiket liquiuity anu effective access anu peifoimance iegulation in the natuial
monopoly segments of the value chain.
1uS

In fact, whilst the stiuctuie-conuuct-peifoimance paiauigm piesents a paisimonious
bluepiint foi iegulatois, theoiists influenceu by the new institutional economics school
of thought
1u4
have questioneu the assumption that integiation in the utilities sectoi
shoulu always be pieventeu oi iemoveu. These theoiists highlight that veitical
integiation anu contiacting stiuctuies may leau to gieatei economic efficiency because
they help to offset the unceitainty anu iisk involveu in the laige up-fiont payments
necessaiy in natuial gas infiastiuctuie investment. Libeialiseu maikets may inciease
the cost of capital anu ieuuce investment if the size of fiims in the maiket falls, oi if
iegulatoiy iisk is incieaseu uue to incieaseu (anu inefficient) iegulatoiy oveisight of
investment uecisions.
1uS

At the heait of the issue lies the concept of tiansaction costs, which aie not explicitly
consiueieu in neoclassical economics. These incluue the uiiect costs of wiiting,
monitoiing anu enfoicing contiacts, plus the costs associateu with the iisk of 'A ()8'
investments having an 'A &%.8 peifoimance that is lowei than anticipateu as a iesult of
contiactual hazaius anu othei unceitainties.
1u6
When one consiueis that investments in
gas maikets along the entiie value chain aie often veiy laige anu pieuominantly

1uu
P. }oskow anu }. Tiiole, 'Tiansmission iights anu maiket powei on electiic powei netwoiks', 1JLK
0%#$)(: %D "F%)%,-F. S1, no S (2uuu).
1u1
}. Bain, X($$-'$. 8% L'T +%,&'8-8-%)Y GC'-$ +C($(F8'$ ()= +%).'\#')F'. -) H()#D(F8#$-); >)=#.8$-'.
(Cambiiuge, Nassachusetts: Baivaiu 0niveisity Piess, 19S6).
1u2
}anne Baalanu Natliy, ")'$;9 &%:-F9 -) 8C' "#$%&'() 6)-%) (Basingstoke: Palgiave Nacmillan 1997).
1uS
Aau Coiielje anu }ohn uioenewegen, 'The uas maiket, tiansaction costs anu efficient iegulation ', in
+%)D'$')F' %) J&&:-'= >)D$(.8$#F8#$' 1'.'($FC (Beilin: Woikgioup foi Infiastiuctuie Policy at Beilin
0niveisity of Technology, 2uu6), 1-2, 6; Bietei Belm, 'The Assessment: The New Eneigy Paiauigm', UAD%$=
1'7-'T %D "F%)%,-F E%:-F9 21, no 1 (2uuS).
1u4
0i tiansaction cost economics. See 0. E. Williamson, GC' "F%)%,-F >).8-8#8-%). %D +(&-8(:-., (New
Yoik: The Fiee Piess, 198S).
1uS
Coiielje anu uioenewegen, 'The uas maiket, tiansaction costs anu efficient iegulation '.
1u6
Ibiu.

126
iiieveisible (sunk), then it becomes easy to see how potential tiansaction costs can play
a cential iole in ueciuing the economic viability of a gas pioject.
1u7

To illustiate, take the following example, sometimes iefeiieu to as the 'investment holu-
up pioblem'. Piioi to investing in a gas pipeline, the investoi has a ielatively stiong
baigaining position because the consumei uepenus on him foi unueitaking the
investment. 0nce laiu, howevei, the pipeline has veiy limiteu, if any, alteinative use.
This ties the investoi to the maiket foi the foieseeable futuie, shifting the baigaining
powei to the consumei. The consumei can now auapt his policy to inciease his own (oi
his society's) ients at the expense of the investoi's. This may be uone thiough
ienegotiation, by ueteimining lowei piices, oi by fieely peimitting entiy to the
infiastiuctuie. Investois theiefoie uemanu that futuie customeis commit to paying the
sunk costs which they, the investois, pioviue up-fiont. Without such assuiances against
so-calleu iegulatoiy iisk, the uecision to builu a pipeline coulu nevei be maue.
1u8

vieweu in this light, the task foi iegulatois is to establish a 'woikable' balance between
maintaining the piessuie foi a uynamically competitive maiket (neoclassical theoiy)
anu pioviuing a sufficient uegiee of stability anu cooiuination to facilitate investments
in the system (new institutional economics).
1u9
The question foi potential
unconventional gas in Euiope is not just whethei the maiket is sufficiently libeialiseu,
but also whethei iegulatois aie able to finu a foim of goveinance that allows both
tiauitional supplieis anu maiket entiants to minimise tiansaction costs anu theii
exposuie to 'A &%.8 iisks.
a]S]S 2BCZ:= B;;:@@ >L #GC=F *A:C>;B
This section looks at the iegulation of the Noith Ameiican natuial gas inuustiy anu the
tienus in new pipeline constiuction since the iapiu inciease in unconventional gas
piouuction witnesseu in iecent yeais. In uoing so, it seeks to tease out some of the
maiket access conuitions that may have playeu a iole in the shaip iise in
unconventional gas piouuction on that continent.
0S iegulation of natuial gas began in the 19Sus with an attempt to cuib the abuse of
maiket powei in the inteistate pipeline business. Between this peiiou anu 1978, the
stiuctuie of the Noith Ameiican natuial gas inuustiy was simple, with limiteu flexibility
anu few options foi natuial gas ueliveiy. The Feueial uoveinment iegulateu both the
piice at which piouuceis solu natuial gas to tianspoitation pipelines, as well as the
piice at which pipeline owneis coulu sell to local uistiibution companies. State
goveinments then iegulateu the piice at which local uistiibution companies coulu sell
natuial gas to theii customeis. With wellheau piices of gas iegulateu too, theie was
little competition in the maiketplace anu incentives to impiove seivice anu innovate
weie few. The limiteu incentive foi piouuceis anu consumeis to auapt theii behavioui
in this iigiu system leu to natuial gas shoitages in the 197us anu suipluses in the 198us.
Buiing the 198us anu eaily 199us, inteistate natuial gas maikets in the 0SA maue the
giauual tiansition away fiom the iegulation that hau chaiacteiiseu the thiee pievious

1u7
Fianz Bubeit anu Iiina Suleymanova, 'Stiategic investment in inteinational gas tianspoit systems: A
Bynamic Analysis of the Bolu-up Pioblem', in K>V X'$:-) K-.F#..-%) E(&'$., eu. Euiopean Investment
Bank (Beilin: Beutsches Institut fi Wiitschaftsfoischung, 2uu8).
1u8
Aluo Spanjei, 'Regulatoiy inteivention on the uynamic Euiopean gas maiket - neoclassical economics
oi tiansaction cost economics. ', ")'$;9 E%:-F9 S7 (2uu9): S2S2.
1u9
Coiielje anu uioenewegen, 'The uas maiket, tiansaction costs anu efficient iegulation '.

127
uecaues. The fiist steps took place in 1978 with the passage of the Natuial uas Policy
Act unuei the initiative of the 0S Feueial Eneigy Regulatoiy Commission (FERC). This
iemoveu wellheau ceiling piices, which weie latei ueiegulateu altogethei with the
Natuial uas Wellheau Becontiol Act (1989). In 1984, FERC 0iuei S8u ieleaseu local
uistiibution companies (LBCs) fiom long-teim take-oi-pay contiacts, maiking the
beginning of the libeialisation of the gas tianspoitation maiket. Known as the 0pen
Access 0iuei, FERC 0iuei 4S6 in the veiy next yeai establisheu a voluntaiy fiamewoik
foi non-uisciiminatoiy thiiu-paity access to gas tiansmission pipelines - a scheme that
all majoi pipeline systems eventually paiticipateu in. Anu in 1992, FERC 0iuei 6S6
maue the funuamental veitical unbunuling of tianspoitation anu sales activities
compulsoiy, auuitionally obliging pipeline companies to publish infoimation about the
availability of seivices anu to expanu access to inteistate stoiage capacity.
11u

(BJH: aI^. 2BdGC H:E>@HB=>GL OGC =F: "- EB@ >LK<@=CD JD $GLEC:@@Y 6'0$ BLK ;G<C= C<H>LE@
PPP

[B=: +:E>@HB=>GL /C>L;>QBH GJd:;=>?:
19S4 Couit: Phillips
uecision
Feueial Powei Commission must enfoice wellheau piice contiol anu
use authoiity to iegulate E&P inuustiy
1978 0S Congiess Natuial
uas Policy Act
Pioviue foi giauual phase-out of piouucei iate iegulation anu
inciemental piicing guiuelines foi inuustiial gas sales; leu to
upscaling of cogeneiation of electiicity in majoi inuustiial heat
piouuceis in conjunction with Public 0tility Regulatoiy Policies Act
198S FERC oiuei 4S6 Thiiu-paity access to gas tiansmission pipelines encouiageu, activate
uiscounts foi shippeis anu piouuceis
1987 FERC oiuei Suu 0pen access to gas tiansmission pipelines fuithei iegulateu anu shift
cost of long-teim obligations to piouuceis anu shippeis in case of no
take-up of gas volumes
1988 FERC oiuei 497 Sepaiate opeiating employees of inteistate natuial gas pipelines fiom
theii maiketing affiliates to function inuepenuently of each othei
1989 0S Congiess Natuial
uas Wellheau
Becontiol Act
Complete ueiegulation of wellheau gas piices
1992

0S Congiess Eneigy
Policy Act
Reuuce 0S uepenuence on foieign oil (feueial bouies shoulu use
natuial gas engines anu utilities) anu pioviue funuing foi ieseaich to
iecovei moie natuial gas fiom conventional anu unconventional
iesouices
FERC oiuei 6S6 Nanuate full thiiu-paity access to gas tiansmission pipelines
1996 FERC oiuei 889 Enfoice employees of the tiansmission pioviueis engageu in
tiansmission system opeiations to function inuepenuently of
maiketing employees
2uuu FERC oiuei 6S7 Pioviue full tianspaiency about taiiffs anu capacity via 0pen Access
Same-time 0nline Infoimation Platfoim; uaily auctions
2uuS FERC oiuei 2uu4 Coipoiate sepaiation of maiketing anu title tiansfei seivices to
shippeis anu gas tiansmission seivices, oveiiuleu by lanumaik couit
iuling in 2uu6 anu CFR 18 ievision in 2uu8
2uuS 0S Congiess Eneigy
Policy Act
FERC obtaineu Penal Authoiity to penalise companies that uo not
abiue with FERC Coue of Conuuct anu Regulation 0iueis

11u
K.u. Aianoa anu B.F. Blaii, 'An ex-post welfaie analysis of natuial gas iegulation in the inuustiial
sectoi', ")'$;9 "F%)%,-F. Su, no S (2uu8), Chiistian von Biischhausen, 'Infiastiuctuie, iegulation,
investment anu secuiity of supply: A case stuuy of the iestiuctuieu 0S natuial gas maiket ', 68-:-8-'. E%:-F9
16, no 1 (2uu8).
111
Souices: EIA, ?'9 2"1+ U$='$./ NhRiSM[[R (2uu9, citeu uS Nay 2u12); Ruuu Weijeimais, 'value chain
analysis of the natuial gas inuustiy: Lessons fiom the 0S iegulatoiy success anu oppoitunities foi
Euiope', 0%#$)(: %D L(8#$(: B(. @F-')F' ()= ");-)''$-); 2, no 2-S (2u1u).

128
[B=: +:E>@HB=>GL /C>L;>QBH GJd:;=>?:
2uu6 Couit iuling in
National Fuel uas
Supply Coipoiation
veisus FERC
Couit iejects the tieatment of Eneigy Affiliates in FERC oiuei 2uu4,
implying FERC's coipoiate sepaiation between eneigy anu maiketing
affiliates is not iequiieu so long as functional no-conuuit iule is
fulfilleu
2uu8

FERC oiuei 712 Noie efficient pipeline capacity ielease stanuaius
Revision CFR 18 pait
SS8
Revision of 0iueis 497, 889 anu 2uu4 baseu on 2uu6 Couit iuling to
allow integiateu planning anu competitive solicitation of anu
tiansmission capacity; limiteu to a stiict functional sepaiation of
tiansmission function employees anu maiketing function employees

The iestiuctuiing of the 0S gas maiket has hau a substantial impact. Enu useis now
have a numbei of options to souice theii natuial gas. They aie able to choose the best
puichase anu tianspoitation aiiangements fiom the wellheau to the pipeline.
Alteinatively, they may choose to tuin to the LBC foi a bunuleu piouuct anu leave the
aiiangements foi souicing anu inteistate tianspoitation of the gas to the LBC. The
numbei of gas maiketeis (companies that cooiuinate the business of biinging natuial
gas fiom the wellheau to enu-useis) jumpeu fiom Su in 1986 to some 26u in the 199us.
The numbei of maiket centies, oi 'hubs', have also incieaseu, as has the size of the
financial maiket, which helps to ensuie supply secuiity thiough contiacts that heuge
against piice changes.
112

Not all of the effects of the new iegime have been positive. Foi example, piice spikes in
Califoinia ovei the summei of 2uuu biought chaiges of maiket abuse anu iaiseu
bioauei questions about both the effectiveness of competitive piessuies in incieasing
the economic efficiency of the gas maiket as well as how successfully the 0S pipeline
system can suppoit aibitiage.
11S
In spite of ceitain localiseu anu tiansient occuiiences
howevei, the geneial consensus is that the new iegime has been successful in
facilitating competition in the 0S gas maiket anu this has been a majoi impiovement on
the pievious system of veitically integiateu utilities. Compaiable fuel puichases became
much less expensive - halveu, in some cases - anu aitificial inefficiencies weie ieuuceu
in the gas supply chain.
114

A libeialiseu anu competitive maiket thus foimeu an impoitant pait of the iegulatoiy
backuiop to the unconventional gas ievolution in the 0SA. But the biief theoietical
ieview piesenteu eailiei in this chaptei then iaises anothei question: whethei the
incieaseu iegulatoiy iisk in this libeialiseu maiket has pieventeu infiastiuctuie
investment - a question moie significant foi unconventional gas uevelopments because
of theii naiiowei piofit maigins.
In the 0SA, most shale gas is eithei pioximal to the intenueu maiket, as in the case of
the Naicellus, oi close to majoi pipelines, as in the case of the Bainett, Baynesville anu
Wooufoiu. Neveitheless, significant shale ieseives lie outsiue the existing 0S pipeline

112
Weijeimais, 'value chain analysis'. Biischhausen, 'Infiastiuctuie, iegulation, investment anu secuiity
of supply'.
11S
P. }oskow anu Euwaiu Kahn, 'A quantitative analysis of piicing behavioi in Califoinia's wholesale
electiicity maiket uuiing summei 2uuu', GC' ")'$;9 0%#$)(: 2S, no 4 (2uu2).
114
IEA, '0SA Review', in ")'$;9 E%:-F-'. %D >"J +%#)8$-'. (Paiis: 0iganisation foi Economic Co-opeiation
anu Bevelopment 2uu2): Tooiaj }amasb et al., 'Inteinational benchmaiking anu iegulation of Euiopean
gas tiansmission utilities. Repoit piepaieu foi the Council of Euiopean Eneigy Regulatois (CEER)',
(Cambiiuge: 0niveisity of Cambiiuge, Electiicity Policy Reseaich uioup, 2uu6).

129
giiu anu iequiie capital investment to builu the infiastiuctuie necessaiy to utilise the
gas. In 2uu9, the Inteistate Natuial uas Association of Ameiica estimateu that $1SS-21u
billion woulu neeu to be investeu uuiing the following 2u yeais to piocess the gas
coming fiom shale anu othei tight gas foimations.
11S

6>E<C: aIP`. "- LB=<CBH EB@ Q>Q:H>L: ;BQB;>=D BKK>=>GL@ ?:C@<@ ABCZ:=:K EB@ QCGK<;=>GL
PPb


Figuie 4-1u above piesents new 0S gas pipeline auuitions anu annual maiketeu gas
piouuction foi the peiiou 1999 to 2u1u. It can be seen that whilst both measuies appeai
eithei stagnant oi in slight uecline in the yeais between 1999 anu 2uuS, the peiiou
between 2uuS anu 2u1u is maikeu by a significant inciease in maiketeu gas piouuction
- a tienu known to be unueipinneu by gieatei unconventional piouuction - anu an even
moie stiiking jump in auuitional pipeline capacity. Accoiuing to the EIA, 2uu8 was the
most active yeai foi 0S natuial gas pipeline constiuction in moie than a uecaue. Eighty-
foui piojects anu close to 6 Suu kilometies of pipeline weie auueu. Nuch of the
constiuction was uiiven by unconventional supply giowth, paiticulaily in noitheast
Texas, which saw 1S new pipelines ielateu to the uevelopment of gas supplies fiom the
Bainett, Wooufoiu oi Fayetteville shale foimations.
117

Pipeline constiuction activity in 2uu9 was also consiueiable, albeit well below the
exceptionally high pace of auuitions in 2uu8. At least 4S natuial gas pipeline piojects
weie completeu in 2uu9 in the lowei 48 states, auuing close to 4 8uu kilometies of
pipeline to the natuial gas giiu anu iepiesenting an investment of about $9.9 billion.

11S
INuAA Founuation anu ICF Inteinational, 'Natuial uas Pipeline anu Stoiage Infiastiuctuie Piojections
Thiough 2uSu ', (Washington BC: Inteistate Natuial uas Association of Ameiica Founuation 2uu9).
116
Souice: Eneigy Infoimation Auministiation, uasTian Natuial uas Tianspoitation Infoimation System,
Natuial uas Pipeline Piojects Batabase. Citeu in Califoinia Eneigy Commission, 'Cuiient Tienus: Natuial
uas Infiastiuctuie', in @8(DD V%$W.C%&Y M[NN >)8';$(8'= ")'$;9 E%:-F9 1'&%$8 (2u11).
117
Anuiews et al., '0nconventional uas Shales', 6.

1Su
Figuie 4-11 below shows thiee piojects of paiticulai inteiest that illustiate how
incieaseu unconventional gas piouuction has impacteu iegional patteins in pipeline
utilisation.
6>E<C: aIPP. ->EL>O>;BL= Q>Q:H>L: :9QBL@>GL@ >L =F: "-* >L S``c
PPU


Both the Niucontinent Expiess anu Texas Inuepenuence pipelines allow gieatei
ueliveiability fiom the Bainett Shale to iegional maikets.
119
Bowevei, the longest
natuial gas pipeline pioject completeu in 2uu9 was the 1 uuu-kilometie Rockies
Expiess-East pipeline. This maikeu the enu of the constiuction of a 2 7uu-kilometie, $S
billion pipeline system stietching fiom Coloiauo to 0hio. Natuial gas iesouices within
the Rockies aie founu piimaiily in unconventional foimations,
12u
anu the pipeline
uemonstiates that a combination of shale gas, CBN anu tight gas uevelopment has also
uiiven veiy significant infiastiuctuie piojects in the 0SA.
Foi the neai futuie at least, unconventional gas looks set to continue to tiansfoim the
0S tiansmission netwoik. Table 4-8 below shows a list of pipelines set to come into
seivice between 2u11 anu 2u14 with the expiess puipose of biinging shale gas to
maiket. Whilst the majoiity of such pipeline uevelopments in pievious yeais centieu on
the Bainett Shale in noitheast Texas, most of the piojects in the immeuiate time-hoiizon
will seivice the Naicellus Shale anu aie locateu in the states of Pennsylvania, West
viiginia anu New Yoik.

118
Souice: EIA, 'Natuial uas Yeai-In-Review 2uu9', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u1u).
119
Ibiu.
12u
Tight gas sanus aie wiuely uistiibuteu in the uieen Rivei Basin of south-westein Wyoming anu the
Piceance Basin of noith-westein Coloiauo. The Rocky Nountain iegion is also the location of two of the
most piolific coal-beu methane basins in the woilu: the San }uan Basin in south-westein Coloiauo anu
noith-westein New Nexico, anu the Powuei Rivei Basin in eastein Wyoming. Enviionmental Piotection
Agency, 'An Assessment of the Enviionmental Implications of 0il anu uas Piouuction: A Regional Case
Stuuy ', (Washington BC: Enviionmental Piotection Agency, 2uu8), 2-S.

1S1
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Announceu 2u14 Suu 1u6 S.67 N} to
NY
Suniise Pioject Completeu 2u12 272 8u 8.88 PA to
Wv
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Constiuction 2u12 6SS 177 1S.71 Wv to
PA
Tioga County
Extension Pioject
Constiuction 2u11 46.76 26 9.91 PA to
NY
Bainett Intiastate
uas Pipeline
Pioject
Announceu 2u11 NA 161 28.S TX to
TX

Acioss the boiuei in Canaua, theie is also eviuence that unconventional gas piouuction
is changing gas tiaue flows anu uiiving new infiastiuctuie investment. The Canauian
anu 0S natuial gas maikets opeiate as a single integiateu maiket anu have a numbei of
similaiities. Foi example, the Canauian natuial gas maiket has a highly libeialiseu
stiuctuie as a iesult of fai-ieaching iegulatoiy iefoims that began in 198S.
122
Canaua
has ielatively well-uevelopeu pie-existing pipeline infiastiuctuie that has been built
aiounu histoiical conventional piouuction. Anu finally, Canaua has expeiienceu a
significant inciease in unconventional gas piouuction in the last uecaue.
12S

Canauian tight anu shale gas uevelopments aie piimaiily focuseu on the Nontney anu
Boin Rivei Basin plays in noitheast Biitish Columbia. Whilst the tiansmission
infiastiuctuie in Biitish Columbia as a whole has benefitteu fiom uecaues of
conventional gas piouuction, Canaua's National Eneigy Boaiu foiecasts that a slew of
mouest expansions will be necessaiy to connect new unconventional supplies to the
substantial existing long-haul capacity that biings gas to the majoi consuming iegions
of eastein Canaua anu beyonu.
124
Piojects in this vein incluue the uiounubiich (iecently
completeu) anu Boin Rivei Nainline pipelines (planneu) that connect supplies in the
Boin Rivei Basin to the Albeita system. Noie significantly, the ambitious Pacific Tiail
Pipeline pioject will move gas fiom noitheast Biitish Columbia to the planneu Kitimat
LNu teiminal foi expoit to piemium maikets in Asia when the two aie completeu in
2u14.
So what uoes the Noith Ameiican expeiience tell us about the iole that maiket access
plays in unconventional gas uevelopment. Bue to the fact that laige-scale shale gas
piouuction has so fai not been obseiveu outsiue of libeialiseu eneigy maikets,
questions iemain about whethei the phenomenon can be ieplicateu in uiffeiently
stiuctuieu maikets anu, if so, how this might look. What this section uoes show,

121
Souice: 0S Eneigy Infoimation Agency. Infoimation as of Becembei 2u11.
122
A. Seiletis anu R. Rangel-Ruiz, 'Testing foi common featuies in Noith Ameiican eneigy maikets',
")'$;9 "F%)%,-F. 26 (2uu4), P. I. Wilson, 'Beiegulation anu natuial gas tiaue ielationships: lessons fiom
the Albeita-Califoinia expeiience ', ")'$;9 E%:-F9 2S (1997).
12S
Tight anu shale gas piouuction accounteu foi S6% (S4% fiom tight, 2% fiom shale) of total uomestic
gas piouuction in 2u1u, up fiom 18% in 2uuu. National Eneigy Boaiu, 'Canauian Eneigy 0veiview 2u1u',
(0ttawa: National Eneigy Boaiu, 2u11).
124
National Eneigy Boaiu, 'Canaua's Eneigy Futuie: Infiastiuctuie Changes anu Challenges to 2u2u',
(0ttawa: National Eneigy Boaiu, 2uu9).

1S2
howevei, is that an institutional fiamewoik can be founu to enable investment in majoi
unconventional gas infiastiuctuie piojects in even the most highly libeialiseu maikets.
This is in spite of the naiiowei piofit maigins anu gieatei unceitainty commonly
asciibeu to unconventional gas piouuction.
12S
In this iegaiu, tax incentives anu loan
guaiantees, such as those offeieu unuei the 0S Eneigy Policy Act (2uuS) anu Biitish
Columbia's Infiastiuctuie Royalty Cieuit Piogiam, may play a key iole in ensuiing an
acceptable iate of ietuin foi investois in such piojects.
a]S]V 2BCZ:= B;;:@@ >L =F: '"IST
This section takes a biief look at the existing pipeline system anu stiuctuie of the
natuial gas maiket in Euiope to suggest how much the Noith Ameiican expeiience
might be able to infoim expectations iegaiuing possible inuigenous shale gas
piouuction. A note of caution, howevei: simple infiastiuctuial inuicatois, such as the
combineu length of vaiious types of pipelines foi example, cannot give a ieliable
inuication of the amount of auuitional investment necessaiy to biing new
unconventional gas supplies to maiket uue to a host of auuitional factois that must also
be taken into consiueiation. Similaily, the coinciuent timing of seveial maiket iefoim
steps makes it uifficult to finu econometiic eviuence capable of uiiectly testing the effect
of libeialisation measuies, such as owneiship unbunuling. Theie may also be countiy-
to-countiy uiffeiences in the pace at which binuing E0 legal measuies become
piactically effective.
126
Foi the abovementioneu ieasons, this section cannot offei a
methouologically empiiical assessment of the factois in question, although it aims to
pioviue a iigoious tieatment of some of the most notable anu ielevant available
eviuence.

12S
This echoes the empiiical analysis of investment tienus in 0S LNu ievealing that infiastiuctuie
investment is foithcoming uuiing favouiable economic conuitions, anu that aftei the 1992
implementation of 0iuei 6S6, the natuial gas pipeline system unueiwent an investment boom.
Biischhausen, 'Infiastiuctuie, iegulation, investment anu secuiity of supply'.
126
Nichael Pollitt, 'The aiguments foi anu against owneiship unbunuling of eneigy tiansmission
netwoiks', ")'$;9 E%:-F9 S6, no 2 (2uu8 ).

1SS
6>E<C: aIPS. (F: "- LB=<CBH EB@ =CBL@A>@@>GL L:=RGCZ
PST



127
Souice: EIA, 0ffice of 0il anu uas, Natuial uas Bivision, uas Tianspoitation Infoimation System.

1S4
6>E<C: aIPV. (F: '"7@ LB=<CBH EB@ =CBL@A>@@>GL L:=RGCZ
PSU




128
Souice: Euiopean Commission, Platts, IBS.

1SS
Figuie 4-12 anu Figuie 4-1S show the tiansmission pipeline infiastiuctuie in the 0SA
anu Euiope iespectively. The 0SA was the fiist countiy to uevelop its natuial gas
iesouices anu has what can be consiueieu a well-uevelopeu tiansmission netwoik.
Accoiuing to the EIA, theie weie an estimateu 49u uuu kilometies of inteistate anu
intiastate tiansmission pipeline in the 0SA at the close of 2uu8 - ovei SS km of
tiansmission pipeline foi eveiy 1 uuu km
2
of lanu.
129
Although theie aie significant
uiffeiences between inuiviuual Nembei States (see Table 4-7), the equivalent statistic
foi the E0 is compaiable - ioughly 29 km of tiansmission pipeline pei 1 uuukm
2
.
1Su

(BJH: aIT. ,B@ =CBL@A>@@>GL EC>K K:L@>=D JD ;G<L=CD
PVP

"L>=:K -=B=:@ )=BHD -R:K:L "L>=:K
3>LEKGA
(G=BH '"
BEEC:EB=:K
uas giiu (km)
aiea
(1 uuukm
2
)
SS 11u 1 4S 29

Although these figuies suggest that the 0S anu E0 gas tianspoitation systems aie
analogous,
1S2
ieaueis shoulu be awaie of seveial factois that complicate the uiiect
compaiison of the two maikets on simple pipeline uensity teims. Fiist, whilst pipeline
age anu efficiency can be consiueieu to be alike, uiffeiences in both the geogiaphical
uistiibution of pipelines in ielation to unconventional plays anu theii cuiient levels of
utilisation neeu to be taken into account.
1SS
Seconuly, uiffeiences in patteins of pipeline
uevelopment also neeu to be factoieu in. Foi example, the 0SA is both a majoi piouucei
anu consumei of gas anu the uense tiansmission infiastiuctuie in states such as Texas
anu offshoie in the uulf of Nexico aie a legacy of many yeais of hyuiocaibon
uevelopment. Being piimaiily a consumei of natuial gas, Euiope uoes not have iegions
that aie as tightly netwoikeu anu this may have the effect of loweiing the aggiegateu
length of pipelines pei km
2
.
Finally, the possibility that unconventional gas supplies can be piouuceu close to
maikets may lessen ieliance on tiansmission pipelines altogethei. In goveinment
testimony, Shell has stateu that successful shale gas uevelopment in Euiope is likely to
fiist meet local maiket uemanu, thus potentially fieeing up supply to othei paits of
Euiope.
1S4
In the 0SA, Pennsylvania-baseu 0uI 0tilities is investigating the possibility of
auuing consumei value by selling locally piouuceu Naicellus shale gas uiiectly thiough
theii uistiibution system - a soit of shale gas micio-giiu.
1SS
Whilst this is an exceptional
case, it illustiates how wiuely uistiibuteu unconventional gas iesouices may challenge
tiauitional assumptions about the iole infiastiuctuie plays in iesouice uevelopment.

129
EIA, JI%#8 63@3 L(8#$(: B(. E-&':-)'. S G$().&%$8-); L(8#$(: B(. (2u11, citeu 12 Becembei 2u11);
available fiom
http:2uS.2S4.1SS.7puboil_gasnatuial_gasanalysis_publicationsngpipelineinuex.html
1Su
Souice: Euiopean Commission, Platts, IBS.
1S1
Souices: EIA, L(8#$(: B(. E-&':-)'. (citeu), IEA, '0il anu uas Naikets', 187.
1S2
uny, '0nconventional uas', 46.
1SS
'In the 0S, a huge numbei of pipeline uebottlenecking piojects have been necessaiy to sustain shale
gas piouuction giowth, uespite the fact that the main piouucing iegions (e.g. Texas, Rockies, 0klahoma)
aie in the vicinity of uense pipeline netwoiks.' Ibiu., 98.
1S4
Nemoianuum submitteu by Shell, in Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12'.
1SS
Baviu Falcheck, '0uI links shale gas to system: 0tility celebiates fiist Naicellus connection', @F$()8%)
G-,'.SG$-I#)' 2u11.

1S6
If the E0 shaies ceitain bioau similaiities with the 0SA in teims of the uevelopment of
its eneigy infiastiuctuie, then eneigy maiket stiuctuie similaiities aie less appaient.
This is because the 0SA has a fully libeialiseu maiket foi natuial gas but iefoims to the
E0's inteinal gas maiket aie still ongoing.
The libeialisation of gas maikets in Euiope began in the 0K with the 1982 0il anu uas
Act, uesigneu to biing competition to the tiansmission anu uistiibution of natuial gas. In
1986, the 0K maiket was openeu foi non-uomestic customeis anu Biitish uas - the
laigest integiateu gas utility company in the woilu at the time - was piivatiseu.
Biamatic changes continueu with the 199S uas Act, which laiu the giounuwoik foi the
intiouuction of full ietail competition by cieating licensing schemes foi companies to
engage in the tianspoit anu supply of gas. Then in 1996 the Netwoik Coue was
intiouuceu - a legal uocument that set the iules foi system balancing, capacity
acquisition anu tiauing, anu gas tianspoitation anu tiauing in the pipeline system.
1S6

The 0K expeiience uemonstiateu that it was possible to move fiom a monopoly to a
competitive enviionment in natuial gas without stiuctuial iefoims in an E0 Nembei
State.
1S7

The E0 began the libeialisation of the Euiopean natuial gas sectoi at the supia-national
level in 1998 with the auoption of what has become known as the Fiist uas Biiective.
1S8

This sought to bieak monopolies anu cieate an open anu competitive maiket by
iequiiing that integiateu companies unbunule theii inteinal accounts anu not abuse
commeicially sensitive infoimation. It also manuateu that netwoik opeiatois pioviue
thiiu-paity access to theii infiastiuctuie anu that Nembei States giauually intiouuce
maiket opening. The legislation aspiieu to biing choice to consumeis, accessibility foi
all supplieis anu impiovement to secuiity of supply thiough uiveisity. Seveial
subsequent legal acts - intiouuceu in Table 4-8 below anu coveieu in moie uetail in
Annex u - have piogiessively built upon the objectives of the Fiist uas Biiective, albeit
with vaiieu success. The most iecent Thiiu Inteinal Naiket Package took uiiect effect
on S Naich 2u11.
1S9


1S6
lvaio Caiteaa anu Thomas Williams, '0K uas Naikets: the Naiket Piice of Risk anu Applications to
Nultiple Inteiiuptible Supply Contiacts', ")'$;9 "F%)%,-F. Su, no S (2uu8).
1S7
Anuiej }uiis, 'Naiket Bevelopment in the 0niteu Kinguom's Natuial uas Inuustiy', (Washington BC:
Woilu Bank, 1998).
1S8
Euiopean 0nion, 'Biiective 98SuEC of the Euiopean Pailiament anu of the Council of 22 }une 1998
conceining common iules foi the inteinal maiket in natuial gas ', (Luxembouig: 0ffice foi 0fficial
Publications of the Euiopean Communities, 1998).
1S9
Euiopean 0nion, 'Biiective 2uu97SEC of the Euiopean Pailiament anu of the Council of 1S }uly 2uu9
conceining common iules foi the inteinal maiket in natuial gas anu iepealing Biiective 2uuSSSEC
(Text with EEA ielevance)', (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean Communities,
2uu9); Euiopean 0nion, 'Regulation (EC) No 71S2uu9 of the Euiopean Pailiament anu of the Council of
1S }uly 2uu9 establishing an Agency foi the Coopeiation of Eneigy Regulatois (Text with EEA ielevance)',
(Luxembouig: 0ffice foi 0fficial Publications of the Euiopean Communities, 2uu9); Euiopean 0nion,
'Regulation (EC) No 71S2uu9 of the Euiopean Pailiament anu of the Council of 1S }uly 2uu9 on
conuitions foi access to the natuial gas tiansmission netwoiks anu iepealing Regulation (EC) No
177S2uuS (Text with EEA ielevance)', (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2uu9).

1S7
(BJH: aIU. 2BdGC C:E<HB=>GL@ OGC =F: '" >L=:CLBH EB@ ABCZ:=
Pa`

[B=: '" [>C:;=>?:@ BLK *;=@ /C>L;>QBH GJd:;=>?:
August
1998
98SuEC Fiist uas
Biiective 'Regulation foi an
inteinal natuial gas maiket'
uuaiantee TPA to impiove competitiveness anu impiove
secuiity of supply.
}une
2uuS
2uuSSSEC Seconu
Amenueu uas Biiective
'acceleiation uiiective'
Encouiage legal unbunuling of tiansmission system opeiatois
fiom gas tiauing companies on a voluntaiy basis. Beiegulate gas
maikets by }uly 2uu4 anu have full TPA by }uly 2uu7, incluuing
TPA foi stoiage systems.
2uu4 Fiist Stiategic Eneigy
Review
Biiections on secuiity of supply.
Naich
2uuS
Euiopean uas Regulatoiy
Foium
uuiuelines on seivices anu iules foi TPA compileu by the Foium
0ct
2uu7
E0 Commission Repoit 'An
Eneigy Policy foi Euiope'
Biveiging views within E0; Fiance anu ueimany favoui
inuepenuent TS0s as in the Netheilanus since }uly 2uuS.
Nov
2uu8
Seconu Stiategic Eneigy
Review
Secuiing an eneigy futuie.
Apiil
2uu9
Thiiu Legislative Eneigy
anu uas Package
Cieation of ACER (Agency foi the Coopeiation of Eneigy
Regulatois) anu ENTS0 (Euiopean Netwoik of Tiansmission
System 0peiatois).

It is too eaily to tell what the long-teim effects of the Thiiu Package will be. 0n the one
hanu, theie have been encouiaging iecent uevelopments inuicating that libeialisation is
gatheiing pace. A wave of coipoiate meigeis anu uemeigeis was occasioneu by the
iefoims, heialuing a change in the inuustiial oiganisation mouel in the Euiopean utility
sectoi fiom single piouuct nationaliegional companies towaius a multi-eneigy pan-
Euiopean mouel.
141
0n the iegulatoiy fiont, signs of maiket integiation have been
obseiveu, along with piice uecieases in Nembei States that have uiveisifieu supply.
Tiaueu volumes on the thiee most liquiu gas spot maikets iose by 4.4S% to ieach 1 4SS
teiawatt houis (TWh) in 2uu9.
142
Anu, in combination with the aibitiage possibilities
cieateu by the incieasingly uense pipeline stiuctuie
14S
, the maiket libeialisation
piocess in Euiope is being cieuiteu by some obseiveis foi the giowth in piessuie fiom
E0 consumeis to ievise long-teim oil-inuexeu gas contiacts towaius maiket-baseu
piicing (see Section S.2.4).
144
With any substantial Euiopean unconventional gas
piouuction not expecteu befoie the enu of this uecaue, some analysts aie hopeful that
the libeialisation piocess will have maue significant piogiess by then.
14S

0n the othei hanu, maiket concentiation iemains high, changes obseiveu in
inteiiegional connectivity have only been mouest anu the switching iate continues to
iemain low in most Nembei States. Foi these ieasons, the latest Commission iepoit on

14u
Weijeimais, 'value chain analysis'.
141
}onathan Stein anu Bowaiu Rogeis, 'The Tiansition to Bub-Baseu uas Piicing in Continental Euiope ',
(0xfoiu: 0xfoiu Institute foi Eneigy Stuuies, 2u11), 2u.
142
Euiopean Commission, 'Commission Staff Woiking Bocument: 2uu9-2u1u Repoit on piogiess in
cieating the inteinal gas anu electiicity maiket', eu. Biiectoiate-ueneial foi Eneigy (2u11).
14S
By 2u1S, pipeline inteiconnections will allow LNu aiiiving in uieece to be ueliveieu to a iange of
south anu cential Euiopean countiies as fai noith as Austiia; oi vice-veisa foi gas to be ueliveieu fiom
the cential Euiopean uas Bub to uieece. Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 16.
144
Nihaiu Kanai, 'Becoupling the 0il anu uas Piices: Natuial uas Piicing in the Post-Financial Ciisis
Naiket ', (Paiis, Biussels: Institut fianais ues ielations inteinationales 2u11).
14S
uny, '0nconventional uas', 84, 98.

1S8
maiket piogiess conceues: "a tiuly single eneigy maiket is fai fiom complete."
146

Questions thus iemain as to whethei the E0's inteinal maiket iules can be piactically
applieu in the context of possible unconventional gas souices to be cleai; non-
uisciiminatoiy, timely anu iepeatable acioss laige opeiations.
Noieovei, theie is an impoitant factoi which may make the Euiopean tiansition moie
complicateu than histoiical pieceuents suggest. In the woius of one notable
commentatoi: "in both Noith Ameiica anu the 0K, the vast majoiity of the paities
involveu in the maiket iefoim piocess weie unuei the same political anu legal
juiisuiction (oi in the case of the 0niteu States anu Canaua, similai juiisuictions). In the
case of Continental Euiope, not only aie theie a laige numbei of impoiting companies
with uiffeiing legal systems, but theii supplieis - in paiticulai Russia anu Algeiia, but
not foigetting a laige numbei of LNu expoiting countiies - opeiate unuei
funuamentally uiffeient legaliegulatoiy fiamewoiks."
147

Tuining the question on its heau, at least two obseiveis have suggesteu that inuigenous
unconventional gas piouuction may facilitate the cieation of a genuine single maiket foi
gas acioss the E0 by allowing new playeis to challenge incumbent fiims in iegions
wheie gas-to-gas competition may not otheiwise be obseiveu.
148
The economic theoiy
of contestable maikets states that maiket powei, such as monopoly, can be contiolleu if
theie is a genuine possibility of entiy by new supplieis. Actual entiy of competing
supplieis is not necessaiy, simply the thieat that the maiket might be contestable is
sufficient to stimulate behavioui associateu with a competitive maiket.
149
In this light, if
theie aie ieal piospects of significant gas supplies fiom uomestic shale souices, this
coulu have a veiy poweiful influence on the behavioui of Euiope's cuiient exteinal gas
supplieis foicing them to lowei piices in oiuei to maintain maiket shaie.
1Su
Foi a
continuation of this point, see Sections S.2.S anu S.2.4.
F@D U$)5*($%1- :0%)1",5%$ /$) ($(0*= -("105,=
The eneigy secuiity benefits of unconventional gas aie oveiwhelmingly poitiayeu as
being associateu with incieaseu inuigenous piouuction anu eneigy inuepenuence. This
section will show that while eneigy inuepenuence biings a host of impoitant benefits,
uiiectly equating eneigy inuepenuence with eneigy secuiity is too simplistic. Incieasing
ieliance on eneigy impoits is not necessaiily incompatible with incieasing eneigy
secuiity, anu many of the potential secuiity of supply benefits of unconventional gas to
the E0 may come by way of moie ieliable anu affoiuable impoits because of the
libeialisation of the E0 eneigy maikets anu giowing global eneigy tiaue.
Eneigy plays an essential iole in satisfying basic human neeus, pioviuing foi social
welfaie anu as fuel to powei the economic engine. It is what classical economists once
calleu a 'basic goou': uiiectly oi inuiiectly, it enteis the piouuction of eveiy othei

146
Euiopean Commission, 'Commission Staff Woiking Bocument: 2uu9-2u1u Repoit on piogiess in
cieating the inteinal gas anu electiicity maiket'.
147
Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', S4-SS.
148
Alan Riley, 'The Impoitance of 'shale gas' its global implications', in E$'.')8(8-%) (8 ?%)$(= J=')(#'$
@8-D8#); (Beilin: 2u1u).
149
In a contestable maiket, with veiy low baiiieis to entiy anu exit, potential as well as actual
competition is a constiaint on what the incumbent piouuceis can chaige, so that a competitive piice is
obseiveu even when theie is only one sellei.
1Su
Testimony of Piof. Paul Stevens in Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12', Ev
w27.

1S9
piouuceu commouity oi seivice.
1S1
As such, ieliable access to affoiuable eneigy is an
impoitant national secuiity concein.
In spite of its ciucial impoitance, eneigy secuiity lacks both a common uefinition anu a
methouology foi its evaluation. Although its meaning vaiies between uiffeient countiies
anu oiganisations, in geneial it may be useu to signify some of the following:
Reliability of supply;
Self-sufficiency;
Secuiity of infiastiuctuie;
Stability anu uiveisity of supplieis;
Reuuceu consumption thiough eneigy efficiency;
Biveisity of eneigy caiiieis; anu incieasingly
Enviionmental sustainability.
1S2

In the 0N's V%$:= ")'$;9 J..'..,')8, eneigy secuiity is uesciibeu as 'the continuous
availability of eneigy in vaiieu foims, in sufficient quantities, anu at ieasonable
piices'.
1SS

In 2uuS, the 0K Bepaitment of Tiaue anu Inuustiy (now the Bepaitment foi Business,
Innovation anu Skills) ieuuceu the pioblem of ensuiing eneigy secuiity to one of
ensuiing ieliable supplies of eneigy at pieuictable piices ueliveieu thiough the
maiket.
1S4

The Inteinational Eneigy Agency uesciibeu it as "the uninteiiupteu physical availability
at a piice which is affoiuable, while iespecting enviionmental conceins".
1SS

Anu, finally, the Euiopean Commission iefeis to 'the uninteiiupteu physical availability
of eneigy piouucts on the maiket at an affoiuable piice foi all consumeis, whilst
iespecting enviionmental conceins anu looking towaius sustainable uevelopment".
1S6

Each of the afoiementioneu uefinitions of eneigy secuiity caiiies a goou measuie of
commonsense value. Bowevei, eneigy secuiity is a multi-faceteu concept. The following
pages will fuithei unpack the concept with specific iefeience to ceitain key elements of
the Euiopean Commission's uefinition, pioviueu above. In paiticulai, the phiases "foi all
consumeis"; "uninteiiupteu physical availability"; "on the maiket at an affoiuable
piice"; anu "iespecting enviionmental conceins" will be exploieu in oiuei to claiify a
hanuful of impoitant, but pioblematic, issues suiiounuing eneigy secuiity.
As one notable commentatoi iemaiks: "scholaily unueistanuing of the challenges at the
inteisection of eneigy anu national secuiity, anu of the vaiious policy tools available to

1S1
Chiistof Rhl, 'ulobal Eneigy Aftei the Ciisis: Piospects anu Piioiities', 2%$'-;) JDD(-$. NaichApiil
(2u1u).
1S2
Auapteu fiom Estonian Ninistiy of Foieign Affaiis, ")'$;9 @'F#$-89 (2u11, citeu 4 }anuaiy 2u11);
available fiom http:www.vm.ee.q=ennoue4116
1SS
0niteu Nations Bevelopment Piogiamme, 'Woilu Eneigy Assessment', (New Yoik: 0NBP, 2uuu), 11S.
1S4
0K Bepaitment of Tiaue anu Inuustiy, '0ui eneigy futuie - cieating a low caibon economy', (Lonuon:
2uuS), 7S.
1SS
IEA, ")'$;9 @'F#$-89 (2u12, citeu 4 }anuaiy 2u11).
1S6
Euiopean Commission, 'Towaius a Euiopean stiategy foi the secuiity of eneigy supply'.

14u
auuiess them, is suipiisingly weak."
1S7
0ne of the ieasons foi this is that the concept of
eneigy secuiity is inheiently value-lauen. That is to say, eneigy secuiity means uiffeient
things to uiffeient people. As Baniel Yeigin wiites:
f")'$;9S'A&%$8-); F%#)8$-'. D%F#. %) ,(-)8(-)-); 8C'
j.'F#$-89 %D =',()=k D%$ 8C'-$ 'A&%$8./ TC-FC (D8'$ (::
;')'$(8' 8C' %7'$TC':,-); .C($' %D 8C'-$ ;%7'$),')8
$'7')#'.3 2%$ 1#..-(/ 8C' (-, -. 8% $'(..'$8 .8(8' F%)8$%: %7'$
j.8$(8';-F $'.%#$F'.k ()= ;(-) &$-,(F9 %7'$ 8C' ,(-)
&-&':-)'. ()= ,($W'8 FC())':. 8C$%#;C TC-FC -8 .C-&. -8.
C9=$%F($I%). 8% -)8'$)(8-%)(: ,($W'8.3 GC' F%)F'$) D%$
='7':%&-); F%#)8$-'. -. C%T FC();'. -) ')'$;9 &$-F'. (DD'F8
8C'-$ I(:()F' %D &(9,')8.3 2%$ +C-)( ()= >)=-(/ ')'$;9
.'F#$-89 )%T :-'. -) 8C'-$ (I-:-89 8% $(&-=:9 (=l#.8 8% 8C'-$ )'T
='&')=')F' %) ;:%I(: ,($W'8./ TC-FC $'&$'.')8. ( ,(l%$
.C-D8 (T(9 D$%, 8C'-$ D%$,'$ F%,,-8,')8. 8% .':DS.#DD-F-')F93
2%$ 0(&()/ -8 ,'(). %DD.'88-); -8. .8($W .F($F-89 %D =%,'.8-F
$'.%#$F'. 8C$%#;C =-7'$.-D-F(8-%)/ 8$(='/ ()= -)7'.8,')83g
1S8

The Euiopean Commission's uefinition of eneigy secuiity speaks of pioviuing a supply
of eneigy piouucts "foi all consumeis". This highlights the fact that eneigy secuiity in a
Euiopean context usually iefeis to the consumei-centiic notion of secuiity of supply.
But even secuiity of supply is itself context uepenuent. The level of iisk to a countiy is a
function of the flexibility of its eneigy system anu its economy to accommouate supply
shocks, as well as the tightness of the eneigy maiket conceineu.
1S9

Key analytical factois to consiuei incluue:
1) The secuiity of the netwoik infiastiuctuie essential to ueliveiing eneigy supplies
to customeis (electiicity giius, gas anu oil pipelines, etc);
2) The uegiee to which a countiy is uepenuent on impoits;
S) Biveisity in the types of piimaiy eneigy an economy ielies on (the so-calleu
eneigy mix), in the souices of this eneigy anu in the means thiough which this
eneigy is ueliveieu;
4) The extent to which vaiious types of eneigy anu fuels can be substituteu foi each
othei in the economy;
S) Enviionmental constiaints on the type anu amount of eneigy useu;
6) Funuamental maiket conuitions;
7) The political ciicumstances of countiies anu iegions influencing the supply
chain.
Eneigy inuepenuence is, theiefoie, just one of a seiies of factois that ueteimine secuiity
of supply anu not a sufficient conuition of secuiity of supply. Countiies that aie eneigy

1S7
Nichael Levi, 'Eneigy Secuiity: An Agenua foi Reseaich', in V%$W-); E(&'$. (New Yoik: Council on
Foieign Relations, 2u1u), 1.
1S8
Baniel Yeigin, 'Ensuiing Eneigy Secuiity', 2%$'-;) JDD(-$. NaichApiil (2uu6): 71.
1S9
Clingenuael Inteinational Eneigy Piogiamme foi Euiopean Commission Biiectoiate-ueneial foi
Tianspoit anu Eneigy, 'Stuuy on Eneigy Supply Secuiity anu ueopolitics', (Ben Baag: Clingenuael, 2uu4),
44.

141
self-sufficient may also suffei fiom eneigy insecuiity uue to maiket failuies, foice
majeuie oi technical stoppages. Equally, incieasing ieliance on eneigy impoits may not
necessaiily be incompatible with incieasing eneigy secuiity if supplieis aie ieliable oi if
unueliveieu supplies can be easily substituteu in the eneigy system. In this context,
even impoiteu unconventional gas supplies coulu mitigate the high costs anu iisks
associateu with long-uistance gas tianspoitation by offeiing an alteinative to supplies
souiceu fiom fuithei afielu anu an auuitional souice of gas in times of shoitage. Put
simply, unconventional gas coulu intiouuce new 'supply shock absoibeis' to iesponu to
uisiuptions anu maiket imbalances.
16u

As a iesult of its conceptual elasticity, eneigy secuiity has been useu to justify a vaiiety
of policies. Recently, one majoi uebate in Euiope has centieu on how to manage
ueclining inuigenous natuial gas piouuction anu incieasing impoit uepenuence. The
teims 'eneigy secuiity' anu 'eneigy inuepenuence' aie often useu inteichangeably;
howevei, they aie uistinct concepts. Eneigy impoits may exaceibate tiaue ueficits: the
uevelopment of inuigenous eneigy souices can boost national economies; anu tax
ievenues fiom eneigy piouuction can bolstei goveinmental buugets. Bowevei, stiictly
speaking these aie not eneigy secuiity issues &'$ .'. Noieovei, eneigy inuepenuence as
a policy goal in anu of itself coulu be consiueieu misleauing anu costly as most E0
Nembei States uo not have the iesouices to be self-sufficient.
161

By iefeiiing to the "uninteiiupteu physical availability of eneigy", the Euiopean
Commission uieen Papei coiiectly highlights the most basic aspect of secuiity of
supply. Eneigy iesouices like natuial gas aie piivate commouities that aie subject to
the same maiket foices as othei commouities, such as steel, wheat, oi poik bellies.
162

Laige, flexible anu well-functioning eneigy maikets aie capable of pioviuing a
consiueiable souice of physical secuiity by absoibing shocks anu allowing supply anu
uemanu to ieallocate physical supply moie quickly anu with gieatei ingenuity than a
contiolleu system coulu.
16S
0nly in extieme ciicumstances, such as embaigoes, stiikes
oi wais, is eneigy physically unobtainable in uevelopeu countiies. In the woius of one
notable economist in the fielu, "Supply can (:,%.8 always be maue equal to uemanu,
&$%7-='= the piice is alloweu to aujust."
164

This biings us to the issue of the piice of eneigy piouucts - anothei funuamental
component of secuiity of supply. The Euiopean Commission's iefeience to the
availability of eneigy "on the maiket at an affoiuable piice" iaises the tiicky question of
how to uefine affoiuability. It must be iecogniseu that a consumei's point of view on
this issue will clash funuamentally with a piouucei's. In fact, the only way that eneigy
piices can enhance eneigy secuiity is when they aie high enough to guaiantee auequate
ietuin on investment foi piouuceis anu low enough to stimulate economic giowth in

16u
Bowney, 'Fueling Noith Ameiica's futuie', ES-6.
161
Bouse of Commons, '0K Eneigy Supply: Secuiity oi Inuepenuence. Eighth Repoit of Session 2u1u-12',
eu. Eneigy anu Climate Change Committee (Lonuon: Bouse 0f Commons, 2u11), 6.
162
Anuieas uoluthau, 'A Public Policy Peispective on ulobal Eneigy Secuiity ', >)8'$)(8-%)(: @8#=-'.
E'$.&'F8-7'. 12, no 4 (2u11): S.
16S
Yeigin, 'Ensuiing Eneigy Secuiity': 8u. Pieiie Noel, 'Beyonu uepenuence: Bow to Beal with Russian
uas', (Lonuon: Euiopean Council on Foieign Relations, 2uu8).
164
Emphasis in the oiiginal. Bietei Belm, 'Eneigy policy: secuiity of supply, sustainability anu
competition ', ")'$;9 E%:-F9 Su, no S (2uu2): 17S.

142
the consuming countiies.
16S
Put simply, low piices aie as uangeious to eneigy secuiity
as high piices.
166

In this context, the maiket plays an essential iole in secuiity of supply by ueciuing the
most suitable anu sustainable piice foi eneigy piouucts baseu on supply anu uemanu.
(This is pioviueu, of couise, that the maiket is functioning well) vieweu in this light,
unconventional gas coulu play a significant iole by ieuucing the scaicity of natuial gas
anu funuamentally iebalancing supply anu uemanu. As the natuial gas supply cuive
becomes moie elastic, as is the case with an incieasing abunuance of unconventional
gas iesouices, it will become incieasingly uifficult to piice natuial gas above maiginal
cost.
167
This coulu lowei the maiket piice of gas, impiove the E0's baigaining position
as a gas consumei anu make it easiei foi the E0 to meet its futuie eneigy neeus.
Although the maiket plays an impoitant iole in ensuiing eneigy secuiity, eneigy is
geneially consiueieu by policy-makeis to be too impoitant to be solely entiusteu to the
maiket alone. Noieovei, eneigy maikets suffei fiom multiple maiket failuies. Amongst
othei things, they aie stiongly uistoiteu by the 'ient-seeking' behavioui of states anu
laige businesses attempting to captuie special monopoly piivileges iathei than eaining
piofits thiough competitive tiaue.
0ne notable souice of maiket failuie is the fact that eneigy can be consiueieu both an
economic anu a political goou.
168
In iecent yeais, analysts have often commenteu on the
mannei in which natuial gas is useu as a political levei in the Russian-0kiainian
ielationship - a piactice that has gieatly uistoiteu both the piice anu ieliability of the
natuial gas ueliveieu to 0kiaine.
169
Bowevei, in the bioauei histoiical context, the most
notewoithy example of the use of eneigy foi political enus is the ueployment of the so-
calleu oil weapon. The switch fiom inteinational-piivate to national-public owneiship
of the inteinational oil maiket fiom 197S onwaius paveu the way foi a numbei of
notewoithy, politically motivateu inteiventions in ciuue oil ieseives anu piouuction by
0PEC goveinments.
17u
Shoit-teim uomestic conceins continue to influence the eneigy
agenuas of many piouucei countiies touay, a fact that some claim has contiibuteu to the
iecent volatility of eneigy maikets.
171

It is theiefoie seen that national anu inteinational political anu stiategic issues play a
veiy impoitant iole in secuiity of supply. Theie is a cleai economic case foi goveinment
inteivention in maikets wheie some foim of maiket failuie is taking place. In light of
the inuispensable impoitance of the maikets, the goal foi policy-makeis is "to set a

16S
A.F. Alhajji, 'What is Eneigy Secuiity. Befinitions anu Concepts', H-==:' "(.8 "F%)%,-F @#$7'9 L, no 4S
(2uu7).
166
Because of this, some economists have even suggesteu that eneigy secuiity can laigely be consiueieu
'ielatively stable piices ovei time' iathei than uwelling on piice levels - piouuceis anu consumeis may be
in tension ovei how much eneigy shoulu cost, but the impoitance of eneigy to theii economies means
that they can both agiee on the uesiiability of steauy anu pieuictable piices. Belm, 'Eneigy policy': 176.
167
Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity', S1.
168
Clingenuael Inteinational Eneigy Piogiamme foi Euiopean Commission Biiectoiate-ueneial foi
Tianspoit anu Eneigy, 'Supply Secuiity anu ueopolitics', S1.
169
}im Nichol, Steven Woehiel anu Beinaiu A. uelb, 'Russia's Cutoff of Natuial uas to 0kiaine: Context anu
Implications', (Washington B.C.: Congiessional Reseaich Seivice, 2uu6), Simon Piiani, '0kiaine's uas
Sectoi', (0xfoiu: 0xfoiu Institute foi Eneigy Stuuies, 2uu7).
17u
Clingenuael Inteinational Eneigy Piogiamme foi Euiopean Commission Biiectoiate-ueneial foi
Tianspoit anu Eneigy, 'Supply Secuiity anu ueopolitics', Su.
171
Rhl, 'ulobal Eneigy Aftei the Ciisis'.

14S
fiamewoik which will ensuie that the maiket opeiates with a minimum of uistoition
anu eneigy is piouuceu anu consumeu efficiently".
172
To this enu, factoiing in the
political uimension of eneigy is essential to both unueistanuing anu mitigating the
effects of events such as those mentioneu above.
As mentioneu eailiei, secuiity of supply is not an enu in itself. It is one of many means of
pioviuing foi basic human neeus anu social welfaie. When put into this bioauei human
context, it becomes cleai that the piouuction anu use of eneigy shoulu neithei enuangei
the quality of life of cuiient anu futuie geneiations noi exceeu the caiiying capacity of
ecosystems.
17S
Climate change as a iesult of iising gieenhouse gas emissions iepiesents
a thieat to inteinational peace, secuiity anu uevelopment. Noie than two thiius of the
woilu's caibon uioxiue emissions come fiom the way we piouuce anu use eneigy, so
eneigy policy has to play a majoi pait in meeting this challenge.
174
It is foi this ieason
that the Euiopean Commission makes "iespecting enviionmental conceins" one of the
funuamental components of its uefinition of eneigy secuiity. By uoing so it
acknowleuges that the shoit-teim benefits of secuiing eneigy supplies without uue
iespect foi the enviionment will be outweigheu by the long-teim costs, both in
monetaiy teims as well as in social welfaie.
F@F S1++/0=
The challenges facing shale gas uiilling anu uevelopment in Euiope aie not
insuimountable. Bowevei, shoulu the size anu commeicial viability of technically
iecoveiable iesouices tianslate into laige-scale piouuction, theie will be a wiue iange
of issues in neeu of attention.
Cleaily theie can be no neat sepaiation between the iegulatoiy, enviionmental,
technical, social anu economic challenges associateu with lanu access foi shale gas
uevelopment. As the analysis has ievealeu, these issues aie intimately ielateu anu affect
one anothei in inextiicable ways. Nonetheless, the table below pioviues an inuicative
summaiy of the main obstacles to accessing lanu foi unconventional gas uevelopment
that have been ievealeu by the liteiatuie ieview. Suiveying these, it becomes cleai that
lanu access is, above all, a local issue. Stuuies that analyse lanu access issues at the
iegional oi countiy level will inevitably yielu geneialisations that abstiact fiom local
specificities. While it is impoitant to highlight national iegulations goveining the
exploitation of conventional anu unconventional hyuiocaibons, in piactice the fiist
movei that ciucially ueteimines the extent to which uevelopment activities will
encountei significant obstacles aie local authoiities. Theiefoie, a top-uown analysis of
national iegulations anu centialiseu infiastiuctuie planning foi laige-scale
uevelopment anu piouuction of shale gas shoulu be complementeu by a bottom-up
analysis of the suiface-level constiaints anu oppoitunities piesent in each shale gas
play.

172
Lawson, quoteu in Belm, 'Eneigy policy': 17S.
17S
0niteu Nations Bevelopment Piogiamme, 'Woilu Eneigy Assessment', S1.
174
0K Bepaitment of Tiaue anu Inuustiy, 'Neeting the Eneigy Challenge: A White Papei on Eneigy',
(Lonuon: 2uu7), 7, Su.

144
(BJH: aIc. -<AABCD GO =F: AB>L ;FBHH:LE:@ OGC B;;:@@>LE HBLK OGC @FBH: EB@ K:?:HGQA:L= >L '<CGQ:
0:E<HB=GCD 'L?>CGLA:L=BH -G;>BH (:;FL>;BHWHGE>@=>;
BH
'L?>CGLA:L
=BH
- Watei management
|Stevens
17S
, Tynuall
176
j
- Natuialpiotecteu sites
|uny
177
j

-G;>BH - No sub-suiface piopeity
iights |Kuhn & 0mbach
178
,
Stevens, unyj
- Buiationintensity of
uiilling |Tynuallj
- Pioximity to iesiuential
aieas |Centiica
179
,
Tynuallj
- Noisevisual impacts
|Tynuall; IBS CERAj

- NINBYism
|Stevens, Kuhn &
0mbachj
- Community
impacts
|Koinfelu
18u
,
Bouse of
Commons
181
j

(:;FL>;BHW
HGE>@=>;BH
- Well size, spacing anu
uensity
- Zoning iestiictions
(uny)
- Nulti-well pau
peimitting (e.g. aujacent
plots)
- Smallei lanu paicels
|Kuhn & 0mbach, uny,
Centiicaj
- Inaccessible
teiiain
- Foice majeuie
|Cuauiilla
182
j
- 0bligation to
conuuct
enviionmental
impact
assessment

- Population
uensity
|E.0N
18S
,
Centiica, uny,
Stevens, Kuhn &
0mbach, Bouse
of Commonsj
- 0tility line
placement

';GLGA>;W
ABCZ:=
- Royalties foi the state
|CRS, uny, Stevens,
Phillipe anu Paitneis
184
j
- Peimitting costs
-Licensingcon-cessions
- Waste uisposal
- Site piotection
(Koinfelu)

- Lack of
financial
incentives foi
lanuowneisloc
al communities
|uny, Kuhn &
0mbach,
Stevensj
- Bighei laboui
costs
(Keffeiputz
18S
)
- Equipmentiig
tianspoit
- Access to
uistiibutiontians
mission system
|Stevens, unyj
- seivice availability
|Bouse of
Commonsj




17S
Stevens, 'Bype anu ieality'.
176
Woou et al., 'Shale gas piovisional assessment'.
177
uny, '0nconventional uas'.
178
Kuhn anu 0mbach, 'Stiategic Peispectives'.
179
Centiica Eneigy, '0nconventional uas in Euiope'.
18u
Koinfelu, 'Socio-Economic Consiueiations'.
181
Bouse of Commons, 'Shale uas: Fifth Repoit of Session 2u1u-12', 48.
182
Cuauiilla Resouices, 'Economic Impact in Lancashiie'.
18S
Koin, 'Piospects in Euiope'.
184
Philippe & Paitneis, '0nconventional uas in Euiope'.
18S
Keffeiputz, 'Shale Fevei'.

14S
^ (F: >AQB;= GO <L;GL?:L=>GLBH EB@ GL =F: '<CGQ:BL :L:CED
@D@=:A

>3 E'($.%)/ E3 e')-'T.W- ()= E3 e(.8'$( !"#$%&'() +%,,-..-%)/ 01+ 2345

This chaptei pioviues an oveiview of the unconventional gas boom in the 0SA anu its
knock-on effects globally. As with the pievious chaptei, the wiue iange of ways in which
unconventional gas may potentially impact the Euiopean eneigy system makes it
infeasible to uefine a stiict scope foi the ieview of the eviuence on this topic that woulu
be both iigoious anu compiehensive. As such, this chaptei uoes not attempt a
systematic ieview, as Chaptei 2 uoes foi ieseive estimates. Although steps have been
taken to locate the most ielevant stuuies, to limit selection bias anu to assess the
methouological quality of souices useu, the application of piotocols anu explicit ciiteiia
to these enus is unviable. Reaueis shoulu theiefoie iegaiu the chaptei as an exploiatoiy
suivey of the econometiic, mouelling anu qualitative eviuence foi the puipose of
iuentifying aieas of fuithei ieseaich oi contextually infoiming the inteipietation of
futuie uevelopments on these key topics.
J@? G<( 5+:/", %E -</'( */- 5$ ,<( R$5,() S,/,(- %E !+(05"/
Since unconventional gas piouuction has occuiieu pieuominately in the 0SA, most of
the uata piesenteu heie will iefei to the 0S case. This section highlights how iespecteu
inuustiy iefeiences have ieviseu theii foiwaiu-looking eneigy outlooks in light of the
shale gas boom in the 0SA. A seconuaiy objective is to ieview shifts anu majoi tienus
attiibutable to giowing shale gas piouuction which, in tuin, will guiue the mouelling
effoit in the subsequent chaptei.
^]P]P /CGd:;=>GL@ GO @<QQHD BLK QCGK<;=>GL
As late as 2uu8, the EIA's Annual Eneigy 0utlook (AE0), an authoiitative souice on 0S
eneigy inuustiy uata, pieuicteu an oveiall ueciease in 0S natuial gas piouuction, fiom
S68 bcm in 2uu8 to S44 bcm in 2uSu. These piojections weie maue just as the suige in
piouuction fiom the Bainett Shale in Texas was occuiiing, causing the 0SA to suipass
Russia as the laigest gas piouucei in the woilu in 2uu9. 0nconventional gas maue up
S6% of total 0S gas piouuction that same yeai. Since then, estimates of futuie 0S gas
piouuction have unueigone significant ievisions as new ieseives have been continually
auueu fiom exploiation anu uevelopment of the Bainett, Naicellus, Baynesville,
Fayetteville anu Boin Rivei shale plays (among otheis).
Each AE0 has pioviueu uiveiging piouuction estimates, but theie is a visible tienu of
upwaiu aujustment. The 2u11 euition publisheu in the wake of the shale gas boom
foiecast a steauy inciease in gas piouuction to 6S6 bcm in 2u2u anu 7S7 bcm in 2uSS.
This iepiesents an annual giowth iate of u.9% ovei the 2uu9-2uSS peiiou. This
significant ievision, shown in Figuie S-1! is laigely thanks to inuigenous shale gas
piouuction. Now, pieuictions envision shale gas piouuction alone, uisiegaiuing othei
unconventionals, to ieach 2Su bcm by 2u2u (anu S4Sbcm by 2uSS). This lattei figuie
woulu equal ioughly half of the total 0S natuial gas piouuction.

146
6>E<C: ^IP. /CGd:;=>GL@ GO "- LB=<CBH EB@ QCGK<;=>GL
P


0thei well-iegaiueu souices foi eneigy uata have also significantly ieviseu theii
estimates of futuie 0S gas piouuction. The IEA's 2u1u Woilu Eneigy 0utlook (WE0)
baseline 'new policies' scenaiio initially expecteu piouuction to giow to a moueiate S78
bcm in 2u2u anu 6u6 bcm by 2uSS, equivalent to an annual aveiage giowth iate of u.2%
ovei the 2uu8-2uSS peiiou.
2
By contiast, the moie iecent 2u11 iepoit has pieuicteu 0S
gas piouuction in 2u2u to be 68S bcm anu 71u bcm in 2uSS.
S

While the EIA's AE0 is pieuominately focuseu on the 0SA, the IEA's analysis has also
ieflecteu on the impact of 0S shale gas piouuction on the 0ECB anu wiuei woilu. In
geneial, the IEA pieuicts that natuial gas, boosteu by the piospects foi commeicial
exploitation of unconventional ueposits in uiffeient paits of the woilu, will play an
incieasingly impoitant iole in the global eneigy mix. In the 2u11 WE0, the IEA
emphasises the chief attiactions of gas: its softei enviionmental impact ielative to othei
fossil fuels; its ability to act as a backup fuel foi inteimittent ienewable powei
geneiation; anu, moie iecently, the giowing inteiiegional tiaue of natuial gas biought
on by LNu maikets (which will be uiscusseu in anothei section). Key uiiveis foi
incieaseu natuial gas consumption incluue the iecent tuin away fiom nucleai eneigy in
the wake of the Fukushima plant uisastei in 2u11, China's announcement of a majoi
push to expanu uomestic natuial gas use anu the giowing competitiveness of gas-fiieu
powei geneiation vis--vis othei fuels such as coal. 0thei ieseaich highlighteu the
potential foi gas to seive as an "effective biiuge to a lowei C02 emissions futuie".
4
This

1
EIA, 'vaiious AE0s'.
2
IEA, 'Woilu Eneigy 0utlook 2u1u', in V%$:= ")'$;9 U#8:%%W (Paiis: 0iganisation foi Economic Co-
opeiation anu Bevelopment 2u1u).
S
IEA, 'uoluen age'.
4
Bowney, 'Fueling Noith Ameiica's futuie', E.}. Noniz, B.B. }acoby anu A.}.N. Neggs, 'The futuie of natuial
gas: Inteiim iepoit', (Cambiiuge, Nassachusetts: Nassachusetts Institute of Technology, 2u1u), S6.

147
poitenueu a uebate about whethei gas is a competitoi to, oi facilitatoi of, ienewable
eneigy goals (both in an enviionmental as well as economic sense). This section will
auuiess these issues in teims of theii iecipiocal impact on the futuie uevelopment of
unconventional gas, piincipally in the 0SA but also foi the iest of the woilu.
Bespite optimistic foiecasts foi futuie natuial gas piouuction, the wiue iange of
scenaiios offeieu by the IEA's WE0 ieinfoices the uegiee of unceitainty conceining the
futuie uevelopment of the global eneigy mix. The 'new policies' scenaiio incoipoiates
the policy commitments anu plans that have been announceu by countiies aiounu the
woilu to auuiess all eneigy-ielateu policy piioiities (e.g. climate change, eneigy
secuiity, efficiency, competitiveness anu so on). The 'cuiient policies' scenaiio, by
contiast, piesents piojections unuei the assumption that goveinment policies will
iemain unchangeu fiom what has alieauy been agieeu. The '4Su' scenaiio assumes a
policy agenua of limiting an inciease in aveiage global tempeiatuie to 2C. Finally, the
'uas' scenaiio consiueis a positive futuie outlook foi natuial gas uue to high uemanu in
non-0ECB countiies, incieaseu piouuction fiom unconventional souices anu
competitive piices in ielation to othei fuels. The vaiiation in assumptions given by each
of these scenaiios leaus to a wiue iange of possible outcomes in the supply anu uemanu
of vaiious foims of eneigy ovei the next two uecaues. Bowevei, as iepeateuly stiesseu
by these iepoits, natuial gas is the only fossil fuel foi which uemanu iises in all foui
scenaiios.
S
Theiefoie, the IEA notes that "theie is much less unceitainty ovei the
outlook foi natuial gas: factois both on the supply anu uemanu siues point to a biight
futuie, even a goluen age, foi natuial gas."
6

0ne of the piimaiy uiiveis of this gas-fiienuly outlook is the estimates of global
unconventional gas ieseives anu piouuction. Both the IEA anu EIA have estimateu a
significant global piesence of shale gas, in the 0SA in paiticulai but also in Asia Pacific,
Latin Ameiica, Afiica anu Euiope. Nany analyses now ponuei whethei unconventional
gas is an appiopiiate teim foi shale gas, when its iesouice base is estimateu at 2uu Tcm,
oi a quaitei of total global gas ieseives.
7


S
IEA, 'Woilu Eneigy 0utlook 2u11', in V%$:= ")'$;9 U#8:%%W (Paiis: 0iganisation foi Economic Co-
opeiation anu Bevelopment 2u11), 1S6.
6
Ibiu., 42.
7
Ibiu., 16S.

148
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U


uiven these impiessive figuies, it is small wonuei that eneigy analysts, gas fiims anu
political bouies have sought to unueistanu the factois enabling the 0S shale gas
phenomenon anu test theii application in othei iegions of the woilu. The caveat, of
couise, is that in the eaily stages of this technological bieakthiough the one ceitainty is
that much iemains unceitain. Piojections of the impact of shale gas uevelopment in the
0SA anu elsewheie in the woilu ciucially iely on estimates of technically iecoveiable
iesouices anu assumptions about the economic viability of theii extiaction. Although
this has been taken up in gieatei uepth in Chaptei 2, it is useful to note that even
ieseive estimates foi establisheu shale gas plays aie subject to contestation anu
peiennial ievision. A iecent analysis by the EIA helpeu unueiscoie this phenomenon by
making a significant uownwaiu aujustment to the technically iecoveiable iesouice base
foi Naicellus shale. This contiibuteu to a wiuei ievision of total 0S shale gas ieseives,
fiom an eailiei estimate of 827 tcf in the AE02u1u
9
to 482 tcf one yeai latei (a figuie
that is 6u% less than the one oiiginally put foiwaiu).
Such staik ievisions to the 0S gas ieseive base as a iesult of shale gas exploiation have
hau knock-on effects on estimates of othei gas supply uata in the 0SA. The most obvious
change has occuiieu in pieuictions conceining 0S natuial gas impoits. It was initially
expecteu that the 0SA woulu begin impoiting substantial quantities of LNu. These
expectations leu to massive investments in the infiastiuctuie neeueu to impoit anu
piocess liquefieu natuial gas, while stimulating investments in piouucei states
anticipating a suige in uemanu foi LNu. The ieality, howevei, was that the 0SA enueu
up impoiting only aiounu 1S bcm of LNu in 2uu9 (out of a ie-gasification capacity of
neaily 1Su bcm). Now theie aie seiious pioposals to auu expoit capabilities

8
EIA, 'AE0 2u11'.
9
EIA, 'AE0 2u1u'.

149
(liquefaction plants) to unueiuseu LNu impoit teiminals. As noteu by Bowaiu Rogeis, a
piice uiffeiential between 0S anu uestination maikets of between $S-4NBtu woulu be
iequiieu to ensuie a ieasonable ietuin on investment foi this expoit maiket.
1u
0nuei
piesent ciicumstances, howevei, Noith Ameiica will iemain laigely self-sufficient anu
theiefoie will essentially iemain isolateu fiom inteiiegional tiaue.
11

6>E<C: ^IV. 4>@=GC>;BH BLK QCGd:;=:K L:= "- +#, >AQGC=@
PS


The issues of iesouice size anu LNu uevelopment ueseive theii own tieatment anu aie
theiefoie exploieu in gieatei uepth in Chaptei 2 anu Section S.2. Foi now, it suffices to
uiaw attention to the gieat ueal of unceitainty suiiounuing shale gas uevelopment anu
the concomitant uiveigence in the pieuictions of its size anu impact. These unceitainties
asiue, theie have been tangible impacts on 0S natuial gas infiastiuctuie as a iesult of
unconventional gas piouuction. Substantial investments have been witnesseu in miu
anu uown-stieam piocessing, tianspoit anu stoiage capacities. The lattei in paiticulai
has seen impiessive giowth as the Noith Ameiican maikets have been 'waiehousing'
gas to accommouate suiplus supply, whilst the minimum woiking gas inventoiy has
been iising to levels consiueiably above the volumes iequiieu foi wintei uemanu.
1S

^]P]S /CGd:;=>GL@ GO K:ABLK BLK O<=<C: :L:CED A>9
The impact of shale gas production has been made apparent by the growing role of gas used
as a fuel for electricity generation. Indeed, most of the growth in demand for gas in the USA
is expected to occur in the power generation sector, since industrial, residential and

1u
Rogeis, 'Shale gas': 1S6.
11
IEA, 'uoluen age'.
12
EIA, 'vaiious AE0s'.
1S
Bowaiu Rogeis, 'The impact of a globalising maiket on futuie Euiopean gas supply anu piicing: the
impoitance of Asian uemanu anu Noith Ameiican supply', (0xfoiu Institute foi Eneigy Stuuies, 2u12), 27.

1Su
commercial sectors are considered mature markets with little growth prospects.
14
Since 2005,
incremental increases in gas-fired electricity generation have been observed (as shown in
Figure 5-4 below). Although coal retains its position as the fuel of choice for most power-
generating units (a legacy of US policy advocating coal as a generating source in the 1970s),
this role has recently been challenged by a notable rise in natural gas consumption in the
power generation sector. According to IHS CERA, natural gas-fired power plants have cost,
timing and emissions advantages compared to coal-fired plants.
15
Whether these advantages
are capitalised upon partly depends on the extent to which US producers decide to export
natural gas via LNG liquefaction terminals, which would increase the price of natural gas
domestically and possibly deter investments in gas-fired electricity generation (at least
according to recent EIA analysis
16
).
6>E<C: ^Ia. "- :H:;=C>;>=D E:L:CB=>GL JD O<:H
PT


Nonetheless, in the neaiei teim it is alieauy appaient that gas-fiieu electiicity
geneiation is gaining giounu. As shown in Figuie S-S below, uata on geneiating capacity
ieveals a sizeable uiffeience in coal anu gas-fiieu investments in the 0SA ovei the next
foui yeais. Noieovei, as laige numbeis of coal-fiieu geneiatois aie scheuuleu foi
ietiiement, it is likely that investments in combineu cycle gas tuibines (CCuTs) will gain
giounu, boosteu by the iecently naiioweu gap between the costs of gas veisus coal foi
electiicity geneiation (Figuie S-6). Bowevei, a caveat is that the inciemental costs of
coal iemain lowei than foi natuial gas, even uespite the iecent suige in shale gas

14
Bowney, 'Fueling Noith Ameiica's futuie'.
1S
Ibiu.
16
EIA, 'Effect of Incieaseu Natuial uas Expoits on Bomestic Eneigy Naikets as iequesteu by the 0ffice of
Fossil Eneigy', (Washington, BC: 0S Eneigy Infoimation Auministiation, 2u12).
17
EIA, 'Electiic Powei Nonthly: }anuaiy 2u12', (Washington, BC: 0S Eneigy Infoimation Auministiation,
2u12).

1S1
piouuction anu the coiiesponuing uecline in natuial gas piices. This means that the
capacity utilisation iate foi gas-fiieu plants is, on aveiage, much lowei than foi coal
(although the highei efficiencies of CCuTs ielative to coal-fiieu powei plants shoulu be
taken into account). Noieovei, the fuel costs of combineu-cycle plants account foi 6u-
7S% of total geneiation costs (compaieu with u-4u% foi ienewables, nucleai oi coal),
meaning that these gas-fiieu plants aie fai moie sensitive to changes in fuel piices.
18

Still, accoiuing to ConocoPhillips, the full-cycle costs of builuing new powei plants aie
cuiiently moie favouiable foi combineu cycle gas plants than alteinatives iun on coal
(uespite lowei fuel piices), nucleai, ienewables anu fossil fuels accompanieu by CCS
technology. This is laigely uue to the ielatively low capital expenuituies of CCuTs in
ielation to these alteinatives.
19

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*A:C>;B MBEEC:EB=: S`PPIS`P^N
S`



18
IEA, 'Eneigy Technology Peispectives: Scenaiios & Stiategies to 2uSu', (Paiis: 0iganisation foi
Economic Co-opeiation anu Bevelopment 2uu6).
19
This is assuming a piice of $7mcf. Naiianne Kah, 'The futuie iole of natuial gas in the 0S' (papei
piesenteu at the 0T Eneigy Symposium, Austin, TX, 2u11).
2u
EIA, 'Electiic Powei Nonthly: }anuaiy 2u12'.

1S2
6>E<C: ^Ib. *?:CBE: ;G@= GO ;GBH BLK EB@ OGC :H:;=C>;>=D E:L:CB=>GL >L =F: "L>=:K -=B=:@ GO *A:C>;BY
8BL<BCD S``T I %;=GJ:C S`PP
SP


Besiues its giowing iole in electiicity geneiation, natuial gas may veiy well become an
impoitant component of the tianspoitation sectoi, whethei uiiectly in natuial gas-
poweieu vehicles (Nuvs) oi via the geneiation of electiic powei to iechaige the
batteiies of an electiic vehicle.
22
An NIT inteiuisciplinaiy stuuy also concluues that the
two most significant oppoitunities foi auuition maiket shaie foi natuial gas aie powei
geneiation anu tianspoitation.
2S
This has been confiimeu by IEA analysis, which
mouelleu a significant penetiation of Nuvs as a iesult of favouiable piice uiffeientials
between natuial gas anu oil. The intiouuction of such vehicles leaus to a pieuicteu
expansion of gas in the ioau tianspoitation sectoi's global eneigy mix, fiom 1% to
between S-S% in 2uSS.
24

In auuition to fosteiing investment in gas-fiieu electiicity geneiation anu boosting the
piospects foi gas-poweieu tianspoit, the suige in 0S shale gas piouuction has also hau
impacts on the tiansfoimation sectoi, paiticulaily the 0S petiochemicals inuustiy. As a
iesult of this eneigy-intensive inuustiy iequiiing a substantial amount of ethane anu
othei natuial gas liquius, its competitiveness is heavily uepenuent on the piice of these
liquius, as well as the piice of competitive feeustocks moie geneially (such as piopane,
butane anu naphtha). In this context, incieases in the iatio of the piice of oil to the piice
of natuial gas (fiom a low of S.S:1 in 2uuS to 1S.9:1 in 2uu9) have been favouiable foi
0S expoits of petiochemicals, plastics anu othei ueiivatives. The Ameiican Chemistiy
Council has theiefoie been upbeat about its futuie piospects, noting that 'with the
uevelopment of new shale gas iesouices, the 0S petiochemical inuustiy is announcing

21
Ibiu.
22
Bowney, 'Fueling Noith Ameiica's futuie'.
2S
Noniz, }acoby anu Neggs, 'Futuie of natuial gas'.
24
IEA, 'WE0 2u11', 171.

1SS
significant expansions of petiochemical capacity, ieveising a uecaue-long uecline'.
2S

Bowevei, it must not be assumeu fiom this tienu that shale gas has ieinvigoiateu
uemanu in the 0S inuustiial sectoi as a whole; uiamatic efficiency gains, coupleu with
uiops in piouuctivity uue to the global iecession anu anticipateu iegulation of
gieenhouse gas (uBu) emissions, have offset incieases in uemanu.
26

^]P]V #B=<CBH EB@ BLK C:L:RBJH: :L:CED
Natuial gas is often piomoteu as the optimal backup foi inteimittent ienewable
electiicity geneiation. Inueeu, annual utilisation iates foi winu tuibines (the ienewable
eneigy souice with the gieatest potential foi giowth in the 0SA) stanu at aiounu Su%.
With loau factois (iatio of aveiagepeak uemanu) in the 0SA neaiing S7%, the
integiation of winu powei into the electiicity geneiation sectoi iequiies consiueiable
backup capacity. uas-fiieu CCuTs, combustion tuibines anu steam boileis aie well
suiteu to 'cycling' anu 'peaking' capacity iequiiements, in that utilisation iates can be
changeu in iesponse to loau vaiiations, while fuel injection can commence iapiuly to
meet high but infiequent levels of electiicity uemanu. This makes natuial gas an iueal
accompaniment to inteimittent ienewable electiicity geneiation, ensuiing giiu stability
uuiing times of peak uemanu in a way that coal oi nucleai plants cannot.
Thus, theie aie visible piospects of natuial gas gaining maiket shaie as ienewable
electiicity geneiation iises. Inueeu, a iecent analysis caiiieu out by the EIA has
pieuicteu stiong giowth in the ienewables sectoi. Souices that geneiate vaiiable
amounts of electiicity (e.g. non-hyuio) aie set foi a giowth spuit in the coming uecaues
such that, by 2uSS, the shaie of these eneigy souices in the total geneiation of the 0SA
is pieuicteu to inciease to 9% (up fiom 4% in 2u1u).
27
The expansion of ienewable
eneigy in the 0SA is contingent on a numbei of factois, but the necessity foi ensuiing
giiu stability thiough backup capabilities is a key consiueiation foi investment in this
sectoi. Natuial gas is an attiactive option in this context but it is by no means the only
one; ieseivoii hyuio oi pumpeu stoiage coulu also seive to stabilise solai oi winu-
poweieu electiicity geneiation thiough stoiage capabilities (although these souices of
flexibility aie often not available close to centies of uemanu).

2S
Ameiican Chemistiy Council, 'Shale uas anu New Petiochemicals Investment: Benefits foi the Economy,
}obs, anu 0S Nanufactuiing ', (Washington, BC: Ameiican Chemistiy Council, 2u11).
26
Bowney, 'Fueling Noith Ameiica's futuie'.
27
EIA, 'EIA piojects 0.S. non-hyuio ienewable powei geneiation incieases, leu by winu anu biomass',
(Washington, BC: 0S Eneigy Infoimation Auministiation, 2u12).

1S4
6>E<C: ^IT. /CGd:;=:K LGLIFDKCGQGR:C C:L:RBJH: :H:;=C>;>=D E:L:CB=>GL >L =F: "L>=:K -=B=:@ GO
*A:C>;BY S`P`IS`V^
SU


Nuch uebate has centieu aiounu the impact of shale gas uevelopment on ienewable
eneigy anu climate change goals. Wheieas pioponents invoke the aigument that gas is
the cleanest fossil fuel anu can uisplace coal while seiving as a backup fuel foi
inteimittent ienewable powei, opponents claim that cheap anu ieliable gas-fiieu powei
geneiation will uiveit investment away fiom ienewable eneigy piojects, anu that even
the compaiatively low caibon footpiint of natuial gas will nonetheless equal incieases
in oveiall uBu emissions as global uemanu foi eneigy continues to giow. Eviuence can
be piesenteu in favoui of both siues, as theie is still much unceitainty ovei climate
change policies anu the longei-teim incentives foi maiket playeis to invest in
ienewable anuoi gas-baseu powei geneiation. Aftei all, the planning hoiizons foi
eneigy infiastiuctuie investments, as well as uBu emission ieuuction goals, aie both
measuieu in uecaues; shoulu countiies such as the 0SA - wheie fossil fuels constitute
ovei 8u% of total piimaiy eneigy supply - ueciue on caibon ieuuction iegulations
(such as cap-anu-tiaue oi an emissions ceiling), this will affect the opeiating maigins of
a substantial poition of the eneigy inuustiy, paiticulaily those playeis that have chosen
the 'wiong fuel'. Compounuing this longei-teim unceitainty is the outlook foi natuial
gas piices, which histoiically have been fai moie vaiiable than coal (see Figuie S-6
above), as well as the neeu to quantify the oppoitunity cost involveu in choosing gas
ovei ienewables (anu, inueeu, vice veisa).

28
Ibiu.

1SS
6>E<C: ^IU. /CGd:;=:K $%S :A>@@>GL@ >L =F: "L>=:K -=B=:@ GO *A:C>;B
Sc


As an unconventional fossil fuel, shale gas has spaikeu a ielateu uebate on whethei
auuitional caibon emissions aie emitteu fiom its ielatively unique methou of extiaction.
It is not the puipose of this section to unpack in any uetail the aiguments put foiwaiu in
this context, but meiely to uiaw attention to the uiffeiences in life-cycle emissions
analyses ielateu to shale gas.
Su
Robeit Bowaith anu fellow ieseaicheis at Coinell
0niveisity have put foiwaiu a contioveisial claim that fugitive methane emissions fiom
shale gas uevelopment contiibute to an oveiall uBu footpiint equal to coal ovei a 1uu-
yeai time scale.
S1
Bowevei, otheis have counteieu that life-cycle analysis of emissions
fiom natuial gas neeu to account foi the ielative efficiencies of uiffeient fossil fuels useu
foi powei geneiation. Foi example, it has been aigueu that the numbeis in the Coinell
stuuy "aie baseu on the high heating values (BBv) of shale gas anu coal foi C02
emissions, without taking into account the highei efficiency of shale gas in powei
geneiation, which woulu iesult in less C02 pei unit powei output."
S2
0ne stuuy has
noteu a caveat in this iespect, highlighting the vaiiability of emissions uue to site-
specific factois, such as the piessuie of the fluius biought to the suiface; the
effectiveness of on-site gas captuiing equipment; the contiol efficiency of any flaiing
that is uone; the chemical composition of the gas anu hyuiocaibon liquius at the uiill

29
EIA, 'AE0 2u11'.
Su
See EIA, 'Emissions of uieenhouse uases in the 0niteu States 2uu8', (Washington, BC: 2uu9), }insheng
Wang, Baviu Ryan anu Euwaiu }. Anthony, 'Reuucing the gieenhouse gas footpiint of shale gas', ")'$;9
E%:-F9 S9, no 12 (2u11).
S1
Robeit W. Bowaith, Renee Santoio anu Anthony Ingiaffea, 'Nethane anu the gieenhouse-gas footpiint
of natuial gas fiom shale foimations', +:-,(8-F +C();' 1u6 (2u11): 679-9u.
S2
Wang, Ryan anu Anthony, 'uieenhouse gas footpiint of shale gas'.

1S6
site; anu the uuiation of uiilling anu completion woik befoie the stait of iegulai
piouuction.
SS

Noie geneially, the uebate on the iole of gas in the tiansition to ienewables has evokeu
iueological aiguments conceining the use of fossil fuels. A piovisional assessment of the
impact of shale gas on the enviionment anu climate change caiiieu out by 0K
ieseaicheis aigues that 'whilst woilu uemanu foi fossil fuels iemains high, any new
souices of fossil fuel (even if ielatively low caibon pei unit of useful eneigy) will be
puichaseu, combusteu anu consequently auueu to the global emissions buiuen. It will
not substitute foi othei fossil fuels anu in this iegaiu claiming shale gas as a viable low
caibon option foi the 0K cannot be ieconcileu with the spiiit of 0K commitments on
climate change.'
S4
This statement makes it cleai that natuial gas may be a buiuen oi
boon to the caibon agenua uepenuing on one's ciiteiia anu expectations. uiven the
complexity of the issues anu the changing incentives of state, maiket anu societal actois
unuei vaiious political, economic anu social conuitions, it is likely that the evolution of
the gasienewables ielationship will be fai moie nuanceu than the staik positions on
eithei siue of the uebate. In othei woius, natuial gas will at times constiain anu at
otheis enable investments in ienewable eneigy. Possible technological anu iegulatoiy
bieakthioughs may yet altei the supply balance in the 0SA anu elsewheie, contiibuting
to a substantially ieviseu outlook foi longei-teim investments in both ienewable anu
non-ienewable eneigy infiastiuctuie.
^]P]a -FBH: EB@ QCGK<;=>GL ;G@=@ BLK LB=<CBH EB@ QC>;:@
Piouuction costs of shale wells, paiticulaily theii level in ielation to geneial maiket
piices, foim a ciucial ueteiminant of the uegiee of futuie unconventional gas
uevelopment in the 0SA anu elsewheie. Bowevei, theie is a notable absence of conciete
pei-well piouuction costs available in the public uomain. Fiom what can be gleaneu
fiom vaiious coipoiate piesentations anu piivate consulting fiims, pei-well piouuction
costs foi shale gas wells in the 0SA tenu to iange fiom $2-9 million. uiven the eaily
stages at which Euiope is assessing its shale gas potential, figuies foi pei-well
piouuction costs aie even moie tentative, with estimates ianging fiom $Sm up to $2um
(see Figuie S-9).

SS
Al Aimenuaiiz, 'Emissions fiom Natuial uas Piouuction in the Bainett Shale Aiea anu 0ppoitunities foi
Cost-Effective Impiovements', (Ballas, TX: Southein Nethouist 0niveisity, 2uu9), SS.
S4
Woou et al., 'Shale gas piovisional assessment', S1.

1S7
6>E<C: ^Ic. (G=BH Q:CIR:HH QCGK<;=>GL ;G@=@ OGC @FBH: EB@
V^


As uiscusseu in Chaptei S, the iange of shale gas piouuction costs is influenceu by a
numbei of physical anu commeicial factois. The foimei incluues factois such as the
geological chaiacteiistics of the play in question (e.g. uepth, peimeability, total oiganic
caibon content, etc.), the numbei of fiac stages, the length of the hoiizontal sections of
the wellboie anu the numbei of uiilling uays. Becisions on uiilling piogiammes iely on
evaluations of the possible, piobable anu pioveu ieseives following test uiilling anu
seismic monitoiing iesults (which commonly yielu a chance of success expiesseu in
peicentage teims). Commeicial factois, on the othei hanu, incluue taxes, ioyalty iates
anu the cost of seivices anu mateiials foi uiilling, completion anu builuing the
suppoiting infiastiuctuie foi gatheiing, piocessing anu compiessing piouuceu gas.
0nce in the piouuction stage, well peifoimance inuicatois such as IP iate, the E0R of
gas fiom the well, the ieseives-to-piouuction iatio anu the uecline cuive all affect the
net piesent value of the well (as well as the iate of ietuin foi the uiilling company).
Examples of the way in which shale gas uiilling companies evaluate potential wells anu
quantify finuing anu ueveloping costs aie piesenteu in Annex B.
Theie aie seveial inuiiect factois that have been known to significantly affect the cost-
competitiveness of shale gas wells in the 0SA, eithei positively oi negatively. 0ne such
factoi, foi example, is the cost of watei. A consulting iepoit notes that an inuiviuual
shale gas well commonly iequiies the acquisition anu tieatment of between 2-6 million
gallons of watei. Cuiiently, the costs of this watei aie estimateu to iange between

SS
Nohsen Bonakuaipoui et al., 'The economic anu employment contiibutions of shale gas in the 0niteu
States', in >Q@ B:%I(: >).-;C8 (Washington BC: IBS Ceia, 2u11); Centiica Eneigy, '0nconventional uas in
Euiope'; Cleantech, 'Investment uuiue'; Cuauiilla Resouices, 'Economic Impact in Lancashiie'; FX Eneigy,
'Polanu; A unique play on the stiong Euiopean gas maiket', (FX Eneigy, 2u12); Befley et al., 'Economic
Impact'; IEA, '0il anu uas Naikets'; Naik Kaisei, 'Piofitability assessment of Baynesville shale gas wells',
")'$;9 S8, no 1 (2u11).

1S8
$u.2SNcf to as high as $1.S8Ncf.
S6
This iange ieflects unceitainties conceining watei
quantities as well as the appiopiiate tieatment stiategy (which, in tuin, aie impoitantly
affecteu by sub-suiface inteiactions between fiactuiing fluius anu shale iocks). The
Woilu Eneigy Council, moieovei, believes that steauily incieasing costs ielateu to watei
ieclamation anu chemical cleanup have the potential to uiive up piouuction costs to $6-
8Ncf.
S7
0thei such issues beaiing on piouuction costs incluue: changes to tax cieuits
foi unconventional fuels; enviionmental consiueiations limiting both sub-suiface
uiilling piactices anu lanu access foi well uiilling anu completion activities (see Section
4.1 foi a moie uetaileu tieatment of this issue); anu ieviseu fiscal iegimes in 0S states
situateu atop unexploieu shale gas ueposits. Analysts often note a numbei of potential
seivice sectoi bottlenecks, such as the availability of lanu-baseu iigs equippeu to
hoiizontal uiilling specifications anu the sufficiency of skilleu human iesouices. An
absence of these may inciease the cost base anu challenge the commeicial viability of
well-uiilling piojects.
S8

It is, theiefoie, not suipiising that the iange of piouuction costs is so gieat. Nonetheless,
analysts have attempteu to pioviue 'iules of thumb' that extiapolate fiom uiilling
expeiience. It is commonly aigueu, foi example, that most of the life-cycle costs of
ueveloping a single shale gas well aie expenueu unuei the categoiies of finuing anu
uevelopment (F&B) anu lease opeiating expenuituies (L0E).
S9
These bioauei
categoiies can be fuithei sub-uiviueu into constituent cost components. Accoiuing to
IBS CERA, the well capital expenuituies that foim pait of F&B costs can be uiviueu into
thiee main categoiies - uiilling (4u%), completions (incluuing fiacking, Su%) anu
facilities (1u%).
4u
Bowevei, foi Euiope these cost iatios may not ieflect the absence of
upstieam infiastiuctuie in seveial countiies with shale gas piospects. Theie is also
some scope foi uebate as to the laigest cost components foi ueveloping a shale play.
Some stuuies have noteu that F&B costs iepiesent the most significant piopoition of
total well costs anu as such aie pivotal foi ueteimining bieak-even piices.
41
Bowevei,
othei analysts have pointeu out that F&B costs make up a consiueiable piopoition of
total expenuituie only in the fiist thiee yeais, but subsequently the costs aie moie
evenly uispeiseu when taking into account the full life cycle of a well.
42
This bias may be
uue to the obseivation that gas uiilling fiims typically iequiie a pay-out within the fiist
thiee yeais of theii initial investment.
4S


S6
Black & veatch, 'uiowing shale iesouices; unueistanuing implications foi Noith Ameiican natuial gas
piices', (piepaieu foi the state of Alaska by Black & veatch Nanagement Consulting, 2u1u).
S7
WEC, 'Suivey of Eneigy Resouices', 14.
S8
Rogeis, 'Shale gas': 1S4.
S9
uny, '0nconventional uas', 8u.
4u
Bonakuaipoui et al., 'Economic anu employment contiibutions', 1S. The cost of lanu acquisition seems
to have been consiueieu sepaiately.
41
Nichelle Foss, 'The 0utlook foi 0S uas Piices in 2u2u: Beniy hub at $S oi $1u.', (0xfoiu Institute foi
Eneigy Stuuies, 2u11).
42
uuainone et al., '0nconventional minuset'.
4S
A.E. Beiman, 'Shale gas - the eye of the stoim' (papei piesenteu at the Niuulefielu Investment
Confeience, Calgaiy, Canaua, 14 }uly 2u11, 2u11).

1S9
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aa


6>E<C: ^IPP. )LK>;B=>?: ;G@= JC:BZKGRL GO B @FBH: EB@ QCGd:;=Y O<HH H>O: ;D;H:
a^


The piouuction costs of natuial gas neeu to be assesseu in ielation to gas piices in oiuei
to ueteimine whethei the iesouice is economically viable. Bowevei, estimates of the so-

44
uuainone et al., '0nconventional minuset'.
4S
Ibiu.

16u
calleu 'bieak-even' piice of natuial gas, which is necessaiy to iecoup pei-well
expenuituies, vaiy anu aie subject to much contestation. As noteu by the IEA,
conventional wisuom in 2uu8 conveigeu aiounu a piice iange of $6-8NBtu foi shale
gas to be economic. Since then, this iange has been piogiessively loweieu anu, wiiting
in 2u1u, the IEA estimateu a piice between $S-6NBtu foi Noith Ameiica.
46
Eaily
estimates foi bieak-even costs in Euiope (specifically Polanu anu ueimany) weie
pioviueu by an analysis caiiieu out by the 0xfoiu Institute foi Eneigy Stuuies anu iange
fiom $8-12NBtu.
47
The IEA's assumptions iegaiuing costs weie estimateu on a life-
cycle piouuction basis only anu weie hence limiteu to finuingueveloping costs,
opeiating expenuituies anu uecommissioning costs (all of which weie uiscounteu by
the cost of capital).
48
Bowevei, neithei tianspoitation costs noi the cost of liquius
piouuction weie taken into account, uespite the lattei having been noteu as a significant
factoi positively affecting shale well economics in the 0SA (see Chaptei S).
6>E<C: ^IPS. 5C:BZI:?:L QC>;:@ OGC <L;GL?:L=>GLBH EB@ QCGK<;=>GL
ac


The effect of shale gas uevelopment on piices has alieauy been felt in the 0SA. As shown
in Figuie S-1S anu Figuie S-2S, 0S Beniy Bub piices began a shaip uecline in 2uu8,
which coiiesponueu with, amongst othei factois, the steauy inciease in natuial gas
piouuction in the 0SA. 0f couise, 0S maiket conuitions aie quite vaiiable, as aveiage
Beniy Bub spot piices have iangeu fiom unuei $S to ovei $12 pei NBtu in the past five
yeais. Nuch of this impact has been uue to the global iecession in 2uu8, contiibuting to

46
IEA, '0il anu uas Naikets', 18S.
47
uny, '0nconventional uas', 87.
48
IEA, 'uoluen age', 49.
49
Centiica Eneigy, '0nconventional uas in Euiope'; Economist Intelligence 0nit, 'Bieaking new giounu: A
special iepoit on global shale gas uevelopments', (Lonuon: Economist Intelligence 0nit, 2u11); uny,
'0nconventional uas'; Koin, 'Piospects in Euiope'; Woou Nackenzie, 'ulobal unconventional gas tienus',
(Woou Nackenzie, 2uu9); Neulock, }affe anu Baitley, 'Shale uas anu National Secuiity'; Noniz, }acoby anu
Neggs, 'Futuie of natuial gas'.

161
a pionounceu fall in the 0S gas piice anu a coiiesponuing ieuuction in the numbei of
iigs actively uiilling foi gas.
Su
It was theiefoie initially anticipateu that uepiesseu piices
in the 0SA woulu ease inuigenous piouuction of gas, as the bieak-even extiaction costs
woulu no longei be coveieu by wellheau piices. Bowevei, contiaiy to this belief, the
maigins have impioveu as the technological leaining cuive has uiiven uown pei-well
uevelopment costs.
S1
Noieovei, gas piouuceis 'solu piouuction foiwaiu' on gas futuies
anu the expectation of highei piices. This heuging stiategy, pioppeu up by a bullish
foiwaiu piice cuive, helpeu to cushion piouuceis fiom uepiesseu gas piices in the
seconu half of 2uu8.
Bowevei, some ieseaich has iecently concluueu that the piouuction costs claimeu by
vaiious shale gas-piouucing companies aie optimistically low anu that in ieality these
inuepenuent piouuceis have actually been selling theii gas at laige negative economic
maigins.
S2
A stuuy unueitaken by Weijeimais et al. in 2u11 compaieu conventional vs.
unconventional gas piouuceis accoiuing to eainings, capital, shaieholuei ietuin, value
uiivei inventoiy anu maigin analysis; it was ievealeu that unconventional piouuceis
iegulaily unueipeifoimeu in ielation to theii conventional gas-piouucing counteipaits.
A key conclusion of the stuuy was that sustaineu shale gas piouuction anu the
avoiuance of a liquiuity ciisis ciucially ielies on bettei well-flow iates, lowei piouuction
costs anu significant ieseaich anu uevelopment (R&B) in oiuei to enable a lowei F&B
cost base.
SS
Anothei stuuy that mouelleu anu simulateu shale play economics in
Baynesville, 0SA similaily concluueu that, given high initial capital expenuituies foi
ueveloping shale gas iesouices, 'the majoiity of wells fail to bieak-even on a full-cycle
basis at pievailing gas piices |~$4NBtuj'.
S4
Compounuing these challenging economics
is the ielatively steep uecline cuives foi shale gas wells, implying that continuous
uiilling is iequiieu to maintain a flat piouuction piofile.
0ne element that must be factoieu in to any examination of the stiong anu sustaineu
giowth in 0S shale gas piouuction is NuL piouuction - a topic alieauy toucheu upon in
Chaptei S (see Table S-11, Table S-21anu Table S-22, foi example). Foi uecaues, natuial
gas tiaueu at a ielative piice to oil of between 6:1 anu 1u:1. Ciuue oil piices have since
iisen anu Noith Ameiican gas piices have uioppeu to yielu iatios of almost 2u:1 at the
time of wiiting. Bigh oil piices mean that 0S uiilling iigs aie migiating fiom uiy shale
plays, such as the Naicellus, to liquius-iich plays in the Niu West, such as the Anauaiko,
Bakken anu Peimian. As the piice of NuLs is ueteimineu by the piice of oil, such plays
aie much moie commeicially attiactive, but the significant amounts of uiy gas
inciuentally piouuceu fiom such plays aie solu on the gas maiket iegaiuless of the
alieauy-low maiket piices. If this tienu continues, the 0S maiket foi natuial gas coulu
be in foi an extenueu peiiou of veiy competitive piices.
SS
See Box 6-2 foi auuitional
elaboiation of this point.

Su
Rogeis, 'Shale gas': 12S.
S1
EIA, 'AE0 2u11'.
S2
Weijeimais et al., '0nconventional gas ieseaich initiative'. See also Beiman, 'Eye of the stoim', Foss, '0S
uas Piices in 2u2u'.
SS
Weijeimais et al., '0nconventional gas ieseaich initiative'.
S4
Kaisei, 'Piofitability assessment'.
SS
Bentek Eneigy LLC, '0S Eneigy Naikets In Tiansition: Nat uas, 0il & NuLs Rewiite The Sciipt' (papei
piesenteu at the Euiopean Commission, Biussels, 2u12); uuy Chazan, 'Statoil to switch focus to 'liquiu-
iich shales'', 2-)()F-(: G-,'., 8 Febiuaiy 2u12, 2u12.

162
Fuitheimoie, it iemains to be seen whethei the maigins unueipinning shale play
economics can be impioveu by the technological leaining cuive. Analysts at ARI
Inteinational, a consulting fiim, have pioviueu eviuence on impioveu well peifoimance
in the foim of ieuuceu uiilling uays, incieases in the aveiage IP iates of piouucing wells
anu evei-longei lengths of hoiizontal sections of wellboies.
S6
These factois have
contiibuteu to a ieuuction by half in total uiilling anu completion costs in the last five
yeais of shale gas uiilling, anu poitenu futuie efficiency gains that may offset the
piecipitous fall in 0S wellheauspot piices.
6>E<C: ^IPV. "- LB=<CBH EB@ QCGK<;=>GL BLK B?:CBE: BLL<BH 4:LCD 4<J QC>;:@
^T


Bisiegaiuing the numeious uebates ievolving aiounu shale gas well economics anu the
extent of cost optimisation, it is alieauy appaient that shale gas uevelopment in the 0SA
has hau a significant effect on the outlook foi futuie gas piices. Inueeu, wheieas the
AE02u11 iefeience case piojects gas piices to ieach $7.u7NBtu in 2uSS, a scenaiio of
high E0R of shale gas yielus a piice of $S.SSNBtu. Conveisely, a low shale E0R case
pieuicts piices as high as $9.26NBtu.
S8
That the estimateu iange of piices vaiies so
significantly as a iesult of uiffeient piouuction iates foi shale gas beais testament to its
impoitance foi the futuie of the 0S eneigy balance. Bowevei, it iemains to be seen what
impact the piogiessive uecline in piices - fiom an aveiage of $4.SuNbtu in 2u1u, to
$4.uuNbtu in 2u11, to the iecent ten-yeai lows of aiounu $2Nbtu - will have on the
maigins of inuepenuent unconventional gas piouuceis ovei the coming yeais.
Setting the 0S case in a wiuei global context, the IEA's Woilu Eneigy 0utlook has
ieviseu its natuial gas piice assumptions in all thiee of its scenaiios uue to what it
consiueis to be impioveu piospects foi the commeicial piouuction of unconventional

S6
Kuuskiaa, 'Economic anu maiket impacts', 9.
S7
BP, 'Statistical ieview 2u11'.
S8
EIA, 'Effect of Incieaseu Natuial uas Expoits'.

16S
gas. In paiticulai, the iepoit notes that "highei piojecteu output of unconventional gas
acts to keep incieases in the piice of natuial gas below the level envisageu in WE0-
2u1u, incieasing its competitiveness against othei fuels." Inueeu, although aveiage gas
impoit piices in Euiope have since iecoveieu fiom an eailiei five-yeai low of
$6.S4Nbtu in August 2uu9 (oi t4.S1Nbtu), each IEA WE0 since 2uu8 has nonetheless
ieviseu its piojections of gas impoit costs foi Euiope into the coming uecaues. As shown
in Figuie S-14, the aveiage impoit piices unuei the IEA iefeience anu 'new policies'
scenaiios, although steauily iising, have nonetheless been iepeateuly ieviseu
uownwaius in iecent yeais (the WE0 2u11 'uoluen Age of uas' scenaiio is auueu foi a
iefeience 'lowei bounu' piice estimate).
6>E<C: ^IPa. )'* :@=>AB=:@ GO >AQGC= QC>;: OGC '<CGQ: <LK:C C:O:C:L;: @;:LBC>G
^c


J@C G<( 5+:/", 5$ H10%:( ,% )/,(
0nlike the oil maiket, natuial gas maikets aie cuiient not globally integiateu. At the
time of wiiting, natuial gas piices span a iange fiom aiounu $u.7S pei million Biitish
theimal units (NBtu) in Sauui Aiabia to just ovei $2NBtu in the 0SA anu $16NBtu in
the LNu-uepenuent Asian maikets. E0 piices fall between 0S anu Asian piices, with the
piice of gas tiaueu at the 0K National Balancing Point (NBP) aveiaging $9.21NBtu
uuiing Novembei 2u11. But even within the E0 itself, theie can be significant
uiffeiences between the 'spot' piices in Noith West Euiopean Nembei States like the
0K anu long-teim oil-inuexeu piices in Cential anu Eastein Euiopean Nembei States.
6u

In spite of the fiagmentation in the global gas system, the last uecaue has seen giauual,
but unmistakable, change that has leu to the iipple effects of the unconventional gas

S9
IEA, 'uoluen age'; IEA, 'Woilu Eneigy 0utlook', in V%$:= ")'$;9 U#8:%%W (Paiis: 0iganisation foi
Economic Co-opeiation anu Bevelopment, vaiious).
6u
EIA, 'Effect of Incieaseu Natuial uas Expoits', S.

164
ievolution in the 0SA being felt woiluwiue. The natuial gas system has gone fiom being
compiiseu of uistinct iegional oi national maikets to one wheie inteiiegional tiaue
flows have a noticeable impact on physical supply-uemanu uynamics anu in some
ciicumstances even laige shifts in piices. ulobal giowth in the tiaue of LNu has
unueipinneu this tiansfoimation. Wheieas the concept of a 'woilu gas maiket' was
almost unthinkable ten yeais ago, a suige of new global LNu liquefaction capacity, much
of which is inheiently uestination flexible oi 'self-contiacteu', has intiouuceu the fiist
elements of inteiiegional gas piice competition.
61

In eaily 2u1u, the uevelopment of the incieasingly globaliseu LNu maiket coinciueu
with two othei key factois to cieate a 'peifect stoim'
62
that iesulteu in a glut of global
gas supply: a) the boom in unconventional gas piouuction in the 0SA; anu b) uemanu
levels below those anticipateu uue to the economic iecession.
6S
This section explains
how these issues came togethei, heialuing significant changes in the natuial gas system
that alloweu unconventional gas to significantly impact Euiopean maikets yeais befoie
any piospective inuigenous piouuction within Euiope itself. It also looks at the
implications on investment in infiastiuctuie, as well as the implications on the way
natuial gas is piiceu in the E0.

61
}ensen, 'LNu Revolution': 8.
62
Bowaiu v. Rogeis, 'LNu Tiaue-flows in the Atlantic Basin: Tienus anu Biscontinuities ', (0xfoiu: 0xfoiu
Institute foi Eneigy Stuuies, 2u1u), 41.
6S
Foi an oveiview, see IEA, 'WE0 2u1u'.

16S
^]S]P )L;C:B@>LE +#, H>_<:OB;=>GL BLK C:EB@>O>;B=>GL ;BQB;>=D
ulobal LNu tiaue volumes have been steauily giowing in the last uecaue anu incieasing
LNu liquefaction anu iegasification capacity looks set to continue to uiive this tienu foi
the foieseeable futuie.
6>E<C: ^IP^. ,HGJBH +#, =CBK: ?GH<A:@ BLK +#, B@ B Q:C;:L=BE: GO EHGJBH EB@ ;GL@<AQ=>GL
ba


Figuie S-1S above shows a two-folu inciease in global LNu tiaue volumes in the peiiou
2uuu-2u1u. In piopoitional teims, this giowth iate fai exceeus inciemental giowth in
global gas consumption, iesulting in an evei gieatei peicentage of the gas consumeu
globally - cuiiently aiounu 1u% - being tianspoiteu by LNu. It is expecteu that
inteiiegional gas tiauing will inciease fiom S9u bcm in 2uu9 to aiounu 1 1Su bcm in
2uSS. Noie than half of this giowth will come fiom LNu, incieasing the shaie of LNu in
inteiiegionally tiaueu gas fiom S1% in 2uu8 to 42% in 2uSS.
6S


64
BP, 'Statistical ieview 2u11'.
6S
IEA, 'WE0 2u11', 9S.

166
6>E<C: ^IPb. '" +#, >AQGC=@ JD 2:AJ:C -=B=:
bb


As a majoi consumei of natuial gas, Euiope is iobustly contiibuting to this tienu. Figuie
S-16, above, shows a stiong giowth in LNu impoits into Euiope fiom 2uu8 to 2u1u. In
this peiiou, Noith West Euiope saw the commissioning anu stait-up of substantial new
LNu teiminal impoit capacity. The Zeebiugge expansion in Belgium, togethei with thiee
new 0K teiminals (Isle of uiain Phase II, South Book LNu anu Biagon LNu), auueu a
total LNu impoit capacity equivalent to 4S.S bcm a yeai - a volume gieatei than the
total gas uemanu in the Netheilanus alone.
67
As Figuie S-17 below shows, the E0
cuiiently has a iegasification capacity of ovei 1Su bcm, which looks set to uouble in the
peiiou to 2u2u.
68


66
Souice: Euiostat. NB: Theie aie uiffeiences in the way uiffeient Nembei States have iepoiteu LNu
impoit volumes must be taken into account when consiueiing this chait.
67
Noiten Fiisch, 'Cuiient Euiopean uas Piicing Pioblems: Solutions Baseu on Piice Review anu Piice Re-
0penei Piovisions', in >)8'$)(8-%)(: ")'$;9 <(T ()= E%:-F9 1'.'($FC E(&'$ @'$-'. (Bunuee: Centie foi
Eneigy, Petioleum & Nineial Law & Policy, 0niveisity of Bunuee, 2u1u), 9.
68
Kuhn anu 0mbach, 'Stiategic Peispectives', 44.

167
6>E<C: ^IPT. $<CC:L= BLK QHBLL:K '"IST +#, C:EB@>O>;B=>GL ;BQB;>=D MB@ GO -:Q=:AJ:C S`PPN
bc


In 2u1u, Euiope accounteu foi 22% of the woilu's iegasification capacity, Koiea anu
}apan 44% anu Noith Ameiica 2S%.
7u
uiven the steep uecline in actual anu foiecast
natuial gas impoits to the 0SA (examineu fuithei latei in this section), it is likely that
these iatios will change in the coming yeais. The shaip inciease in 0S gas piices in the
wintei of 2uu1u2 hau given iise to a iash of iegasification teiminal pioposals,
71
but
given that the latest EIA eneigy outlook sees the 0SA becoming a net expoitei of LNu in
2u16 anu an oveiall net expoitei of natuial gas in 2u21,
72
most of the piojects awaiting
final investment uecisions aie unlikely to move foiwaiu. With a numbei of planneu LNu
iegasification piojects in the 0SA on holu, Euiope looks set to become the iegion with
the fastest giowing iegasification capacity globally, soon oveitaking the 0SA to become
the seconu laigest iegional maiket foi LNu aftei Asia in teims of iegasification potential
(see Table S-1).
(BJH: ^IP. +#, C:EB@>O>;B=>GL =:CA>LBH@ JD C:E>GL MB@ GO 8<L: S`P`N
TV

0:E>GL %Q:CB=>GL $GL@=C<;=>GL /HBLL:K
Asia 418 S9 1S1
Euiope 17S 24 244
Niuule East anu Afiica S 4 11
Noith Ameiica 16S 49 282
Latin Ameiica 14 2 8
(G=BH TTS PVT bTa

69
Souice: uas Infiastiuctuie Euiope, 'uIE LNu Investment Batabase', (2u11).
7u
IEA, 'uoluen age', 71.
71
As of }une 2u1u, 49 bcm of iegasification capacity was unuei constiuction in the 0SA, biinging the
foiecast foi total 0S capacity to 214 bcm by 2u1S. Fifteen piojects weie awaiting final investment
uecisions. IEA, '0il anu uas Naikets', 262.
72
EIA, 'Annual Eneigy 0utlook 2u12: Eaily Release 0veiview', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u12).
7S
IEA, '0il anu uas Naikets', 2S4.

168
The laige inciease in LNu impoit capacity in Noith West Euiope has coinciueu with the
stait-up of a numbei of laige LNu liquefaction plants aiounu the woilu. In a much-
anticipateu uevelopment, Qatai launcheu six 7.8 million-tonne-pei-annum (mtpa) LNu
tiains between Apiil 2uu9 anu Becembei 2u1u, auuing 8u bcm to global liquefaction
capacity (Table S-S). The suuuen iise in Qataii output is ieflecteu in the piofile of E0-27
LNu impoits as illustiateu in Figuie S-18, below. Along with new LNu uevelopments in
Russia, Yemen anu Peiu, the Qataii piojects helpeu to biing total global liquefaction
capacity to aiounu S7u bcm in miu-2u11.
74

(BJH: ^IS. fB=BC7@ L:R H>_<:OB;=>GL =CB>L@
T^

/CGd:;= /BC=L:C@ $BQB;>=D #GY GO =CB>L@ -=BC= KB=:
Qataigas 2 Qatai Petioleum,
ExxonNobil, Total
7.8 mtpa 2 Api. 2uu9
Qataigas S Qatai Petioleum,
ConocoPhillips,
Nitsui
7.8 mtpa 1 Sep. 2u1u
Qataigas 4 Qatai Petioleum,
Shell
7.8 mtpa 1 Bec. 2u1u
Rasuas S Qatai Petioleum,
ExxonNobil
7.8 mtpa 2 Sep. 2uu9
Feb. 2u1u

6>E<C: ^IPU. '" +#, >AQGC=@ JD GC>E>L
Tb


At this point, it is woith touching on the appaient mismatch between global liquefaction
anu iegasification capacity. As of }une 2u1u, the woilu's iegasification capacity stoou at

74
IEA, 'uoluen age', 167.
7S
Kanai, 'Becoupling 0il anu uas Piices', 26.
76
Souice: Euiostat.

169
ioughly 77u bcm - ioughly 2.S times its liquefaction capacity.
77
While this means theie
will be global competition foi LNu shipments when woilu gas supply tightens,
78
suiplus
iegasification capacity pioviues a veiy impoitant flexibility foi seasonal loau-balancing
puiposes anu may impiove secuiity of supply. Foi example, the value of }apan's excess
iegasification capacity was cleaily uemonstiateu following the 2u11 eaithquakes anu
tsunami, because it alloweu extia spot supplies to ieach gas-fiieu powei plants in oiuei
to biiuge the shoitfall in electiicity geneiation causeu by the loss of the Fukushima
ieactois.
79

With the expecteu completion of piojects in Austialia, Angola anu Algeiia, the tienu in
liquefaction giowth looks set to continue into the immeuiate futuie, incieasing oveiall
capacity by an expecteu Su% in the five-yeai peiiou fiom 2uu8 to 2u1S.
8u
Looking
fuithei aheau, the Papua New uuinea anu uoigon piojects will auu significant LNu
supplies to Asian maikets. Final investment uecisions weie taken in 2uu9 anu they aie
scheuuleu to stait by 2u14.
81
Also of inteiest aie thiee piojects in Queenslanu, which
aie the fiist in the woilu to be baseu on CBN. Baseu on cuiiently opeiating anu
sanctioneu piojects, Austialian LNu expoit capacity coulu exceeu 7u bcm by 2u1S,
making it the seconu-laigest global LNu expoitei aftei Qatai.
82

(BJH: ^IV. +#, H>_<>OB;=>GL QHBL=@ <LK:C ;GL@=C<;=>GL JD ;G<L=CD
UV

$BQB;>=D
/HBL= MJ;AN MA=QBN -=BC= KB=:
Algeiia Skikua (iebuilu) 6.1 4.S 2u1S
uassi Touil 6.4 4.7 2u1S
Angola Angola 7.1 S.2 2u12
Austialia Pluto 6.S 4.8 2u12
uoigon 2u.4 1S.u 2u14
ulaustone LNu 1u.6 7.8 2u14
Queenslanu Cuitis 11.6 8.S 2u1S
Inuonesia Bonggi Senoio 2.7 2.u 2u14
Papua New uuinea PNu LNu 9.u 6.6 2u14

Yet fuithei uown the line, piojects totalling ovei Suu bcm of auuitional liquefaction
capacity aie being evaluateu to come online in the peiiou 2u1S-2u2u. Liquefaction
piojects typically take foui oi moie yeais to peimit anu builu, anu aie planneu to iun
foi at least 2u yeais. These long leau times mean the maximum amount of supply that
can be attaineu within the next five yeais is faiily well known, although pioject uelays
often iesult in lowei capacity than anticipateu.
84
Foiecasts aheau of this five-yeai
winuow aie subject to gieatei unceitainty anu it can be expecteu that many moie LNu
piojects aie iepoiteu in the tiaue piess than aie evei actually built.

77
IEA, '0il anu uas Naikets', 2SS.
78
Weijeimais et al., '0nconventional gas ieseaich initiative': 4u4.
79
IEA, 'uoluen age', 71.
8u
IEA, '0il anu uas Naikets', 14, 168, 71; IEA, 'WE0 2u11', 167.
81
IEA, '0il anu uas Naikets', 171.
82
IEA, 'WE0 2u11', 168.
8S
Souice: IEA, 'uoluen age', 68. Euiopean Commission analysis.
84
Ibiu., SS.

17u
With Beniy Bub gas tiauing below $SNbtu uuiing the milu wintei of 2u12,
8S
an
incieasing numbei of applications foi liquefaction piojects weie submitteu in the 0SA.
These woulu allow applicants to expoit uomestic supplies of natuial gas to highei
piiceu oveiseas maikets as LNu. As well as the iecent successful iequest to builu the
Sabine Pass liquefaction teiminal in Louisiana, seven moie applications foi liquefaction
piojects have been submitteu. If appioveu by the iegulatoi, these piojects woulu see
ioughly 18% of cuiient 0S gas piouuction shippeu to maikets woiluwiue.
86
Bowevei,
the uebate on whethei to allow such expoits is ongoing. Pioponents have emphasiseu
job cieation at the LNu plants, while opponents, such as inuustiial consumeis, stiess the
impact on 0S business in light of finuings that moie natuial gas expoits woulu leau to
highei gas piices.
87

Notwithstanuing this uebate, the long-teim effectiveness of any effoit to iesist maiket
foices that natuially incentivise gieatei 0S LNu expoits may be unueimineu by the
possibility of gas ie-expoits fiom Canaua. Canaua has an existing fiee tiaue agieement
with the 0SA anu theiefoie 0S law iequiies the Bepaitment of Eneigy to giant gas
expoit applications to Canaua without mouification oi uelay.
88
Without a uestination
clause, cheap 0S pipeline impoits coulu eithei be uiiectly shippeu on to Asian maikets
via Canauian teiminals, oi be useu to meet uomestic Canauian uemanu, theieby fieeing
gieatei volumes of Canauian-piouuceu gas foi expoit.
Noieovei, any effoit to keep natuial gas piices in the 0SA aitificially low may piove
self-uefeating in the long iun. As Section 4.S shows, low gas piices aie as uangeious to
eneigy secuiity as high piices because they unueimine investment in extiaction anu
piouuction. This means that, shoulu gas expoits fiom the 0SA be constiaineu, low gas
piices woulu only be a tiansitoiy phenomenon until the piice mechanism ieuuceu 0S
gas piouuction to sustainable levels foi uomestic uemanu. Piices woulu then iise again.
The uiamatic iise in investment in global iegasification anu liquefaction capacity
outlineu so fai in this section stanus in contiast to seemingly slow piogiess in othei
majoi natuial gas infiastiuctuie piojects. The peiiou 2u1u-2u1S will see Euiopean
iegasification capacity inciease by ioughly 2S%. Neanwhile, only two majoi new
inteiiegional pipeline piojects - Neugaz anu the much-awaiteu Noiu Stieam pipeline
between Russia anu ueimany - will have come online in the same peiiou. In the woius
of the IEA: "Acioss iegions, LNu iegasification teiminals seem to be making moie
piogiess than pipelines."
89

0ne explanation foi this uispaiity is the fact that an incieasing piopoition of
unuevelopeu gas ieseives aie locateu fuithei away fiom majoi maikets. LNu plays a
vital iole in biinging this gas to the consumei when uistance, geogiaphical oi political
obstacles make pipeline tianspoit impossible. Looking to the futuie, technological

8S
uiegoiy Neyei, 'Nilu wintei auus to piessuie on 0S gas', 2-)()F-(: G-,'., 1u }anuaiy 2u12, 2u12.
86
Eu Ciooks, '0S inuustiy hits at LNu expoit plan', 2-)()F-(: G-,'., 1u }anuaiy 2u12, 2u12; 0S
Bepaitment of Eneigy, 'Eneigy Bepaitment Appioves uulf Coast Expoits of Liquefieu Natuial uas:
Conuitional Authoiization foi Sabine Pass LNu Teiminal Coulu Biing Thousanus of }obs', (Washington BC:
Bepaitment of Eneigy, 2u11).
87
EIA, 'Effect of Incieaseu Natuial uas Expoits'. 'Statement of Chiistophei Smith, Beputy Assistant
Secietaiy foi 0il anu Natuial uas, 0S Bepaitment of Eneigy ', in 6)-8'= @8(8'. @')(8' +%,,-88'' %) ")'$;9
()= L(8#$(: 1'.%#$F'. 0niteu States Senate (Washington BC: 2u11).
88
Section S(c) of the Natuial uas Act. 0S Congiess, 'Expoitation oi impoitation of natuial gas ', in Nm 6@+
PNPI (Washington BC: 19S8).
89
IEA, '0il anu uas Naikets', 144, 2S1.

171
piogiess will continue to uiive this tienu. The woilu's fiist floating LNu liquefaction
pioject
9u
was commissioneu by Shell in Nay 2u11.
91
Floating LNu pioviues a way of
ueveloping stianueu gas ieseives fai out at sea, which woulu otheiwise be too uifficult
to pipe to lanu-baseu liquefaction plants.
Anothei explanation foi the uiffeience in giowth between pipeline anu LNu piojects lies
in theii uistinct investment iisk piofiles. Section 4.2.1 uesciibes the 'investment holu-up
pioblem' faceu by companies looking to invest laige amounts in ielatively inflexible
eneigy infiastiuctuie piojects, such as pipelines. Such assets aie subject to a gieat ueal
of locational specificity, meaning that they aie uepenuent on the availability anu piice of
iesouices fiom a limiteu geogiaphical aiea. They aie also usually 'ueuicateu assets' that
aie paiticulai to a ceitain customei. Beuicateu assets sink investments into a pie-
uefineu maiket anu cieate a bilateial ielationship between the suppliei anu buyei that
incentivises baigaining ovei ients 'A &%.8. The anticipation of this uilemma complicates
the uecision to invest 'A ()8'. Seen in this light, the ieuuceu locational specificity anu
ueuication of an LNu teiminal may sometimes make it a less iisky investment option,
even though opeiating costs may be maiginally highei when compaieu with a
pipeline.
92

^]S]S (F: +#, =CBK: BLK EHGJBH EB@ ABCZ:=@
LNu maikets aie uifficult to monitoi because theie is no single supply point whose piice
fluctuations act as a iefeience foi maikets woiluwiue anu no piominent hubs at which
physical supplies fiom a numbei of souices aie commingleu anu tiaueu.
9S
Neveitheless
the past yeais have seen ample eviuence that LNu is changing the chaiacteiistics of
global gas maikets. Wheieas the high cost of tianspoiting gas hau pieviously iestiicteu
tiaue to specific iegions, fluctuations in supply, uemanu anu piices aie incieasingly
being tiansmitteu thioughout the globe. The woius of one analyst captuie the essence
of this tiansfoimation in the simplest teims (although a numbei of impoitant caveats
will be uiscusseu):
fn)(8#$(: ;(. -. '7%:7-); D$%, ( :%F(:/ .8(8-%)($9/ )%)S
$'.-=')8-(: F%,,%=-89/ -)8% ( ,%I-:'/ -)8'$)(8-%)(:/ &$-,($9
&$%=#F8 .-,-:($ 8% F$#=' %-:3g
94

The vast majoiity of LNu is still solu via a 'tiauitional' mouel: unuei long-teim, oil-
inuexeu, take-oi-pay contiacts, wheie the buyeis of the gas have the maiket powei to
lay off some of the maiket iisk to theii enu-use customeis (i.e. wheie the buyeis aie a
foim of goveinment monopoly oi iegulateu public utility in the ietail maiket). In oiuei
to spieau exploiation iisks, pioject uevelopeis aie noimally joint ventuies of
companies that opeiate as if they weie shaieholueis in a coipoiation, iathei than as

9u
Floating LNu sees liquefaction facilities installeu on laige ocean-going vessels that aie mooieu above
offshoie gas fielus. LNu anu othei piouucts aie then loaueu uiiectly on to caiiieis foi ueliveiy to maiket,
eliminating the neeu foi pipelines to shoie oi lanu-baseu plants.
91
The Shell floating LNu vessel will be stationeu at the Pieluue fielu, off the coast of Westein Austialia, foi
an anticipateu ueployment peiiou of 2S yeais befoie potentially being moveu to othei assets in the
iegion. IEA, 'uoluen age', 69, 177.
92
Spanjei, 'Regulatoiy inteivention': S2S2. Although the mobile natuie of floating LNu vessels means that
although they aie veiy expensive investments, they cannot be consiueieu an entiiely sunken
infiastiuctuie cost in the same way that a pipeline oi onshoie liquefaction plant might be.
9S
}ensen, 'LNu Revolution': 21.
94
Kuhn anu 0mbach, 'Stiategic Peispectives', 18.

172
inuepenuent anu competitive coipoiate entities. Competition uoes exist between
piojects, but not among the inuiviuual paiticipants in the pioject itself.
9S

This tiauitional mouel, howevei, is being challengeu. Contiact teims have looseneu on
both piice anu volume, anu can be negotiateu foi shoitei peiious of time (see Figuie
S-19).
96
Anu incieasingly, one oi moie joint ventuie paitneis aie contiacting foi
uestination-flexible volumes that they can maiket inuepenuently. The uevelopment of
LNu piojects with ue-integiateu anu competitive 'links' in the chain ovei the last uecaue
has meant that cioss shipping - with its inheient inefficiencies - has become
incieasingly common. This is suppoiteu by an incieasing numbei of uncommitteu LNu
caiiieis that aie fiee to opeiate in the shoit teim maiket. In some iespects, the
tiansfoimation iesembles the onshoie gas maiket libeialisation piocess coveieu eailiei
in Sections 4.2.2 anu 4.2.S.
97

6>E<C: ^IPc. -FGC=I=:CA =CBK>LE >L +#,
cU


The Nigeiian LNu pioject at Bonny Islanu, which began commeicial opeiation in 1999,
is a goou example of the new mouel. Although the fiist thiee tiains of the pioject weie
oiiginally contiacteu unuei tiauitional teims, tiains 4 anu S weie contiacteu with Shell
anu Total to be uestination-flexible. The shift towaius incieaseu uestination flexibility is
also ieflecteu in Atlantic's LNu ventuie in Tiiniuau anu the Egyptian LNu uevelopment
east of Alexanuiia. These facilities liquefy volumes of gas foi selleis at a fixeu fee (so-
calleu LNu tolling) allowing selleis to then maiket this LNu uiiectly to buyeis.
99

The inheient physical possibility of flexible tianspoit with LNu coupleu with the
changes within the LNu inuustiy just uesciibeu have iesulteu in incieaseu numbeis of

9S
Foi an excellent oveiview, see }ensen, 'LNu Revolution': S.
96
EIA, 'The ulobal Liquefieu Natuial uas Naiket: Status & 0utlook', (Washington, BC: 0S Eneigy
Infoimation Auministiation, 2uuS).
97
}ensen, 'LNu Revolution': S, 29.
98
Incluuing contiacts of thiee yeais oi less. Souice: }ames T. }ensen, 'Fosteiing LNu Tiaue: Bevelopments
in LNu Tiaue anu Piicing ', (Biussels: Eneigy Chaitei Secietaiiat, 2uu9).
99
Ibiu., 2S.

17S
vaiying anu moie complex LNu tiauing ioutes. 0nueipinning anu uiiving this
uiveisification is the piice incentive to move natuial gas fiom low to high-value
maikets. Bigh piices in Asia anu Euiope thus iepiesent a potential oppoitunity foi LNu
selleis who aie able to unueicut tiauitional supplieis in these maikets. This piocess, in
tuin, contiibutes towaius gas piice conveigence acioss the vaiious iegions in a global
maiket that is giowing less fiagmenteu.
1uu

LNu caigo 'aibitiage'
1u1
in the Atlantic Basin between the 0SA anu continental Euiope
can be tiaceu back to the eaily to miu-2uuus following the stait-up of the Tiiniuau anu
Nigeiian piojects.
1u2
The Atlantic Basin cuiiently has the gieatest piopoition of
uestination-flexible volumes - a full 41% of capacity in 2uu8 - meaning that supplies to
the basin (i.e. between the Noith Ameiican anu Euiopean gas maikets) can be expecteu
to be the most ieactive to uemanu fluctuations.
1uS
As the Niuule East is capable of acting
as a swing suppliei to both the Atlantic anu Pacific Basins, Asian LNu maikets have
become incieasingly involveu in intei-basin aibitiage following the auuition of new
capacity in the iegion fiom 2uuS. As liquefaction capacity in the Niuule East giows anu
the inuustiy libeialises, Euiope has founu itself in an inteiesting competitive buying
position as the closest majoi LNu maiket to majoi Niuule Eastein supplies i.e. the
maiket with the lowest tianspoitation costs compaieu with competing Asian oi 0S
uestinations.
1u4


1uu
N. }. 0uueman, 'Auvisoiy lettei on the emeigence of unconventional gas', Lettei to Ni N.}.N. veihagen,
The Ninistei foi Economic Affaiis, Agiicultuie anu Innovation, 2u11.
1u1
The teim is in inveiteu commas because tiue aibitiage involves the simultaneous buying anu selling of
the same piouuct in uiffeient maikets at uiffeient piices. In spite of this, the geneial iuea of taking
auvantage of a piice uiffeience between two oi moie maikets to achieve a neai iisk-fiee piofit at neai
zeio cost holus.
1u2
Boiiss Siliveistovs et al., 'Inteinational Naiket Integiation foi Natuial uas. A Cointegiation Analysis of
uas Piices in Euiope, Noith Ameiica anu }apan', in B:%I(:-a(8-%) %D L(8#$(: B(. H($W'8. V%$W-); E(&'$.
(Beilin: Beutsches Institut fi Wiitschaftsfoischung, 2uu4), 16.
1uS
}ensen, 'Fosteiing LNu Tiaue', 2S.
1u4
}ensen, 'LNu Revolution': 16-17, 21, 2S, SS; Rogeis, 'LNu Tiaue-flows', 1.

174
6>E<C: ^IS`. S`P` :9QGC= K:@=>LB=>GL@ GO EHGJBH +#, @R>LE @<QQH>:C@
P`^

"#$#% &'()* +,-. /012%0# &34)5 +,-.


6%0708#8 #78 69+#19 &3:); +,-.


In the woius of the IEA: "Euiope, whethei it has noticeu it oi not, is now effectively
competing with China foi LNu."
1u6
The constant piice-uiiven iebalancing of LNu
expoits fiom key inteiiegional swing supplieis, such as those shown in Figuie S-2u,
means that pieviously isolateu national anu iegional gas maikets aie incieasingly
inteiacting with each othei. Bowaiu Rogeis has pioviueu a uetaileu account of the
iecent supply, uemanu anu piice uynamics of the thiee majoi iegional gas maikets in
Noith Ameiica, Euiope anu Asia that uemonstiates how these maikets have become
connecteu thiough LNu.
1u7
The following subsection will uesciibe how the links
between 0K anu 0S gas hub piices have enableu many E0 Nembei States to benefit
fiom the unconventional gas ievolution in the 0SA. But befoie we continue, an
impoitant caveat shoulu be auuiesseu.
Although theie is a giowing consensus that gas maikets aie globalising, the maikets aie
not fully globaliseu yet. The IEA highlights that theie aie still countiies that iemain
laigely insulateu fiom bioauei maiket uevelopments anu that two-thiius of the woilu's
gas is still consumeu in the countiy wheie it is piouuceu.
1u8
Wheieas the agency uoes

1uS
BP, 'Statistical ieview 2u11'.
1u6
IEA, '0il anu uas Naikets', 1S8.
1u7
Rogeis, 'LNu Tiaue-flows'.
1u8
IEA, '0il anu uas Naikets', 1S8.
4;<
34<
4:<
3<
==<
/9%$> ?-2%0,#
@) A B27$)
?-2%0,#
CD%9E2
F088G2 C#H$
?H0# I#,0J0,
=;<
;<
K'<
:<
=(<
;<
=<
;'<
:<
;*<

17S
see the inteiiegional tiaue in gas giowing in the yeais aheau, it believes this giowth will
only be giauual - fiom 19% of all gas consumeu in 2uu9 to 2S% in 2uSS. Similaily, it
expects consiueiable piice uiffeiences between the 0S, Euiopean anu }apanese gas
maikets to peisist into 2uSS, uespite a giauual tienu towaius piice conveigence.
1u9

Claims of a global maiket foi natuial gas have theiefoie been uownplayeu as "ovei
simplistic" anu "at best piematuie" by notable obseiveis who highlight that the
inheient physical chaiacteiistics of the commouity will always put it at a tianspoitation
uisauvantage when compaieu with oil anu oil piouucts, uampening momentum towaius
the iealisation of a tiuly global maiket.
11u

^]S]V '" 2:AJ:C -=B=:@ BLK =F: C:;:L= kEB@ EH<=7
Although the thiee majoi iegional gas maikets aie incieasingly connecteu, the
especially stiong connection between Noith Ameiican anu Euiopean maikets in the
Atlantic Basin was cleaily eviuent in the coupling of 0K anu 0S hub piices between
2uu9 anu 2u1u.
111
This connection - a uiiect piouuct of iapiuly incieasing LNu-
ieceiving teiminal capacity in Noith West Euiope - enableu many E0 Nembei States to
benefit fiom the iecent natuial gas glut iesulting fiom the financial ciisis anu the
incieaseu unconventional gas piouuction in the 0SA.
6>E<C: ^ISP. '<CG BC:B BLK '"IST >LK<@=C>BH QCGK<;=>GLY =G=BH >LK<@=CD :9;H<K>LE ;GL@=C<;=>GL
PPS


The geneial backuiop to the piice coupling seen in 2uu9-2u1u was the global economic
ciisis, which causeu both pipeline gas anu LNu uemanu to be ieuuceu in most countiies
of the woilu. Seasonally aujusteu gas uemanu uata foi 0ECB Euiope showeu that
consumption in wintei 2uu9-1u fell back to 2uuS-2uu4 levels befoie being buoyeu by
the especially colu wintei in the following yeai.
11S
The uiamatic fall in E0 inuustiial

1u9
IEA, 'WE0 2u11', 6S, 9S.
11u
Rogeis, 'LNu Tiaue-flows', 77; Stevens, 'Bype anu ieality', 6.
111
IEA, '0il anu uas Naikets', 1S8.
112
Souice: Euiostat.
11S
Anouk Bonoi, 'Economic iecession anu natuial gas uemanu in Euiope: what happeneu in 2uu8-
2u1u.', (0xfoiu: 0xfoiu Institute foi Eneigy Stuuies, 2u11), S.

176
piouuction that was the souice of this shaip uiop in uemanu is illustiateu in Figuie
S-21.
The slump in global gas uemanu coinciueu with an incieasing anu unexpecteu
withuiawal of Noith Ameiica fiom the LNu maiket. Figuie S-22 below shows that in
2uu6 the EIA - like most analysts - was expecting the 0SA to impoit incieasingly laigei
volumes of LNu to offset falling local piouuction anu incieasing consumption. As
iecently as 2uu8, the auministiation was iepoiting in its Annual Eneigy 0utlook that it
expecteu 0S gas maikets 'to be tight thioughout the piojection because of competition
foi LNu supplies acioss the woilu'.
114
Significant investments weie being maue in
iegasification facilities anu majoi impoiteis of gas weie biacing themselves foi a
sellei's maiket in the foieseeable futuie in spite of the imminent laige inciease in
Niuule Eastein liquefaction capacity.
11S

6>E<C: ^ISS. 6GC:;B@= "- LB=<CBH EB@ >AQGC=@
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Insteau, total yeai-on-yeai 0S gas piouuction incieaseu by 4.S% in 2uu8, 2.S% in 2uu9
anu then again by S.S% in 2u1u as a iesult of incieaseu unconventional gas
piouuction.
117
This ieuuceu LNu impoit iequiiements to a meagie ca.1u% of total 0S
iegasification capacity uuiing that peiiou.
118
As a iesult of a significant piopoition of 0S
LNu impoit volumes being flexibly solu unuei shoit-teim contiacts,
119
the 0SA

114
EIA, 'AE0 2uu8', 78.
11S
0uueman, 'Auvisoiy lettei'.
116
Souice: Refeience scenaiio figuies fiom successive 0S Eneigy Infoimation Auministiation Annual
Eneigy 0utlook iepoits, 2uu4-2u11.
117
Souice: EIA.
118
IEA, '0il anu uas Naikets', 14.
119
They iepiesenteu 8u% of 0S tiaue in LNu in 2uuS anu 7u% in 2uu4. Bon Naxwell anu Zhen Zhu,
'Natuial gas piices, LNu tianspoit costs, anu the uynamics of LNu impoits', ")'$;9 "F%)%,-F. SS, no 2
(2u11): 22u.

177
effectively became "a laige viitual gas expoitei", with LNu caigoes oiiginally uestineu
foi 0S shoies uiveiteu to othei customeis.
12u

6>E<C: ^ISV. "- LB=<CBH EB@ >AQGC=@ BLK :9QGC=@
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In fact, not only was the 0SA a laige 7-$8#(: expoitei of natuial gas, but its (F8#(: natuial
gas expoits weie also giowing (see Figuie S-2S above). The oveiwhelming majoiity of
these expoits weie uispatcheu via tiunk pipelines to Canaua anu Nexico. Bowevei,
iecently ieleaseu uata also ieveals a staitling two-folu jump in LNu expoits in the yeai
2u1u (Figuie S-24). The figuies aie maue even moie suipiising when consiueiing some
of the new expoit uestinations foi 0S LNu. The 0SA hau only one opeiational LNu
liquefaction plant in 2u1u,
122
anu its location in Alaska maue it unsuitable foi supplying
the 0K anu Spanish maikets. In fact, the giowth in LNu expoits in 2u1u was uiiven by
ie-expoits: shipments that weie pieviously impoiteu, offloaueu into above-giounu LNu
stoiage tanks at iegasification teiminals anu then subsequently ieloaueu on to new
tankeis foi ueliveiy to othei countiies.
12S
This highly iiiegulai piactice is a testament to
the scale of the uisiuption to the establisheu global supply anu uemanu equilibiium foi
natuial gas uuiing the peiiou.

12u
IEA, '0il anu uas Naikets', 181.
121
Souice: EIA, '0.S. Natuial uas Impoits & Expoits: 2u1u', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u11).
122
ConocoPhilips' Kenai LNu plant.
12S
EIA, 'Natuial uas Impoits & Expoits'.

178
6>E<C: ^ISa. "- +#, :9QGC=@ BLK EB@ QC>;:@
PSa


0n the othei siue of the Atlantic, newly completeu ieceiving teiminals in Wales, Fiance
anu Italy enableu a numbei of E0 Nembei States to absoib some of the LNu oiiginally
eaimaikeu foi the 0S maiket fiom swing supplieis such as Tiiniuau anu Tobago.
Bowevei, combineu with the laige inciease in liquefaction capacity fiom Qatai,
12S
the
uisplaceu 0S supplies still occasioneu a fall in Euiopean spot piices that staiteu miu
2uu8 anu continueu well into 2uu9. Figuie S-2S below shows that the woilu's two
majoi spot maikets both saw extiemely low piices in 2uu9 ($4NBtu at the 0S Beniy
Bub anu $SNBtu at the 0K National Balancing Point).
126
It also ieveals a iemaikably
close coiielation between those two maikets fiom eaily 2uu9 to eaily 2u1u - a piice
coupling that was a uiiect iesult of both satuiateu supply anu a laigely shaieu pool of
LNu supplieis that weie able to feeu these two maikets.

124
Souice: Ibiu.
12S
1uS bcm of global liquefaction capacity came online ovei the 2uu9-2u1u timefiame. IEA, '0il anu uas
Naikets', 17u-1.
126
Ibiu., 196.

179
6>E<C: ^IS^. 4:LCD 4<J BLK #B=>GLBH 5BHBL;>LE /G>L= EB@ QC>;:@
PST



Wiiting uuiing this peiiou of Atlantic Basin piice conveigence, some believeu the
supply-anu-uemanu funuamentals unueipinning this buyeis' maiket foi gas woulu
sustain it until the miuule, oi even the enu, of the uecaue.
128
In fact, the close coiielation
between Beniy Bub anu NBP piices came to an enu aiounu Apiil 2u1u as a iesult of
unfoieseen uemanu-siue events that effectively ieuuceu oveisupply. The majoi factoi in
Euiope was the extiemely colu weathei in the fiist thiee anu the last two months of
2u1u, which bioke iecoius establisheu ovei many uecaues in seveial countiies.
0nceitainty anu supply uisiuptions iesulting fiom the Aiab Spiing ovei the couise of
2u11 weie othei factois which continueu to push Euiopean hub gas piices away fiom
low Beniy Bub levels anu towaius the highei ueiman boiuei piice - an inuicatoi of oil-
linkeu contiact gas piices in Noith West Euiope.
Noie significantly, Asian LNu uemanu iose by 18% in 2u1u, iemoving peihaps half of
the global LNu suiplus.
129
This stiong tienu woulu continue into 2u11 as natuial gas
impoits to }apan incieaseu shaiply in oiuei to offset the shoitfall in baseloau nucleai
powei geneiation iesulting fiom the Fukushima uisastei. In 2u11, Kansai Electiic
almost quauiupleu its LNu impoits fiom Tiiniuau anu Tobago thiough the use of shoit-
teim contiacts, fiom S8 24u mt the yeai befoie to 216 696 mt. The shipments weie
unusual because of theii longei-than-usual voyage compaieu with othei supplieis, but
this concietely illustiates how the inteiiegional flexibility of LNu is enabling the global
eneigy system to moie easily absoib supply shocks anu iegional maikets to become
incieasingly inteilinkeu.
1Su
The coiollaiy is that spot piices in Euiope can be expecteu
to climb shoulu the tienu of giowing Asian consumption continue without sufficient
new gas supplies enteiing the global maiket.


127
Souice: Euiopean Commission, 'Quaiteily Repoit on Euiopean uas Naikets, 0ctobei 2u1u - Becembei
2u1u', in H($W'8 UI.'$7(8%$9 D%$ ")'$;9 (Biussels: 2u11).
128
'In the Atlantic basin, anu in Euiope in paiticulai, it is haiu to see tight supplies befoie 2u1S, uespite
the iapiu uecline of Euiopean uomestic piouuction.' IEA, '0il anu uas Naikets', 142. 'it will be many
yeais befoie the tiue staits to tuin the othei way (to a sellei's maiket). In the view of the Eneigy Council,
this coulu take 1u yeais oi moie iathei than S yeais.' 0uueman 'Auvisoiy lettei'.
129
Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 8.
1Su
Takeo Kumagai, '}apan's Kansai Electiic hikes Tiiniuau LNu impoits Tokyo', E:(88. 2u11.
0 $/MMBtu
2 $/MMBtu
4 $/MMBtu
6 $/MMBtu
8 $/MMBtu
10 $/MMBtu
12 $/MMBtu
14 $/MMBtu
16 $/MMBtu
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1
Henry Hub 1MA mid-point NBP 1MA mid-point

18u
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Looking at the bioauei context, Figuie S-26 shows how the ielationship between Noith
Ameiican, Euiopean anu }apanese spot piices appeais to have changeu since 2uu9.
Befoie that time, they pieuominantly tiaueu in a naiiow banu, with tempoiaiy piice
uiffeiences ieflecting local conuitions, such as stoiage. Bowevei, in 2uu9 anu 2u1u, the
uiffeiences have giown anu appeai to be moie lasting, with Euiopean piices hoveiing
somewheie between the low 0S piices anu highei pieuominantly oil-inuexeu }apanese
LNu piices. }ames }ensen calls this the emeigence of a bipolai gas-piicing woilu, wheie
Atlantic basin aibitiage puts uownwaiu piessuie on Euiopean piices.
1S2
By this view,
iegional gas piices ieflect ielative maiket exposuies to: a) the unit piice of oil at the top
enu: anu b) low Beniy Bub piices.
As foi Euiope, a mouest but peisistent uiffeience between lowei NBP piices anu highei
ueiman boiuei piices ieflects both the effects of oil-inuexation anu ueep systemic
factois that continue to hinuei the libeialisation of the E0 gas maiket.
1SS
It is a ieminuei
that, although many Nembei States in Noith West Euiope weie able to piofit fiom the
availability of cheap LNu in 2uu9 anu 2u1u, the iemainuei of the continent ieceiveu
only small amounts of that auuitional supply as the E0 gas system iemains ielatively
fiagmenteu. Buyeis in Cential anu Eastein Euiope paiu on aveiage tu.SSNWh moie
foi theii gas than theii Westein Euiopean counteipaits in 2uu8, a figuie that shaiply

1S1
Souice: BP, 'Statistical ieview 2u11'. Note: cif = cost insuiance fieight (aveiage piices).
1S2
}ames T. }ensen, 'LNu - Cieating a "Woilu uas Naiket".' (papei piesenteu at the NIT Eneigy Initiative
Fall Reseaich Confeience, Cambiiuge, Nassachusetts, 2u11).
1SS
The situation at the time of wiiting is foietolu in Fiisch, 'Euiopean uas Piicing Pioblems', 14.

181
incieaseu to t 4.86NWh in 2uu9.
1S4
This "two-tiei piice system" foi natuial gas in the
E0
1SS
is the topic of the next section of this iepoit.
^]S]a (F: G>HIEB@ QC>;: H>LZ
With the physical iationale foi oil-inuexation uiminishing, the incieaseu accessibility of
low-piiceu LNu impoits has piessuieu gas buyeis into ienegotiating the teims of theii
existing oil-inuexeu gas puichase contiacts. Piogiess in libeialising the E0 gas maiket
has been a key enablei of this uevelopment anu the continual iemoval of baiiieis to
accessing spot-inuexeu supplies in Euiope has piompteu a numbei of expeits to
question the futuie of oil-linkeu gas piicing.
As mentioneu, natuial gas piices aie set via two piincipal mechanisms in the E0. 0il-
piouuct linkage was establisheu in the 197us on the piinciple that the price of gas should
generally be competitive with the prices of alternative (non-gas) fuels. The economic logic of
this 'maiket value piinciple' oi 'netback' piicing mechanism was that enu-useis hau a
ieal choice between buining gas anu oil piouucts, anu woulu switch to the lattei if given
a piice incentive to uo so.
1S6

To this uay, the majoiity of the E0's pipeline-impoiteu gas iemains inuexeu to the piice
of oil oi oil piouucts thiough long-teim take-oi-pay contiacts whose teims aie
confiuential to the buyeis anu selleis of that gas.
1S7
The continuing iationale of oil-
inuexation, howevei, is being incieasingly questioneu because of the viitual elimination
of oil piouucts fiom mouein stationaiy eneigy sectois. Wheieas oil is still the fuel of
choice in the tianspoitation sectoi, less than S% of the electiicity geneiateu in 0ECB
Euiope comes fiom oil, a figuie that has halveu ovei the peiiou 2uuu to 2uu9.
1S8

A numbei of factois aie uiiving this tienu, incluuing: 1) iising oil piices; 2) the spieau of
moie efficient tuibines that aie pooily suiteu to oil piouucts; S) the cost of maintaining
oil-buining equipment anu oil stocks; anu 4) tightening enviionmental stanuaius that
penalise the use of oil as a fuel.
1S9
Taken togethei, these factois mean that theie is
almost "no commeicial scenaiio in which useis installing new fuel-buining equipment
will choose to use oil piouucts iathei than gas in stationaiy uses."
14u
With gas uemanu
giowth in Euiope foiecast to become incieasingly concentiateu in the powei sectoi, the
logic of oil-inuexation seems evei moie tenuous (although see Section 6.S.2 foi the
possibility of oil-gas 'ie-coupling' in the futuie).
141


1S4
Euiopean Commission, 'Non papei: The inteinal eneigy maiket - time to switch into highei geai', eu.
Biiectoiate-ueneial foi Eneigy (2u11).
1SS
Fiisch, 'Euiopean uas Piicing Pioblems', 1.
1S6
Kanai, 'Becoupling 0il anu uas Piices', 2; }onathan Stein, 'Continental Euiopean Long-Teim uas
Contiacts: is a tiansition away fiom oil piouuct-linkeu piicing inevitable anu imminent.', (0xfoiu: 0xfoiu
Institute foi Eneigy Stuuies, 2uu9); }onathan Stein, 'Is theie a iationale foi the continuing link to oil
piouuct piices in Continental Euiopean long-teim gas contiacts. ', (0xfoiu: 0xfoiu Institute foi Eneigy
Stuuies, 2uu7); Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 2.
1S7
In spite of this confiuentiality, publicly available boiuei piice uata has alloweu the key vaiiables of
these contiacts to be infeiieu ovei time.
1S8
IEA, 'WE0 2u11', S4S.
1S9
Kanai, 'Becoupling 0il anu uas Piices', 2; Stein, 'Euiopean Long-Teim uas Contiacts'; Stein anu
Rogeis, 'Tiansition to Bub-Baseu Piicing', 2.
14u
Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 2.
141
See, foi example, IEA, 'uoluen age', 22.

182
Alteinatively, gas piices may be set fieely by the foices of supply anu uemanu foi
natuial gas itself - not oil - in a paiauigm known as spot tiauing oi gas-to-gas
competition. Spot tiauing has the theoietical auvantage of allocating iesouices anu
setting piices moie efficiently than oil-inuexation. This uoes not necessaiily mean that
consumei piices will always be cheapei,
142
but by allowing the piice mechanism to
moie uiiectly incentivise gas piouuction, uampen consumption anu ieallocate physical
supplies when supplies get tightei, spot piicing helps to ensuie stable anu sustainable
piices foi both consumeis anu piouuceis of natuial gas (see Section 4.S).
Spot piicing has become pievalent in an incieasing numbei of libeialiseu maikets the
woilu ovei, incluuing Noith Ameiica, the 0niteu Kinguom anu Austialia. The IEA
estimates that one-thiiu of the woilu's gas may be piiceu in gas-to-gas competition. In
spite of iecent effoits to libeialise the E0 gas maiket, howevei, just one quaitei of
continental Euiopean gas is spot tiaueu. Bolu-out auvocates of oil-inuexation maintain
that a continuing lack of liquiuity anu uepth on ceitain E0 gas tiauing hubs may leau to
excessive volatility anu the iisk of piice manipulation. 0il-inuexation, by this view,
constiains volatility thiough aveiaging piovisions anu by pioviuing a link to the ueep,
liquiu anu global maiket foi oil.
14S

0ntil iecently, uiscussion of the meiits anu uemeiits of oil-inuexation in Euiope was, to
some extent, an acauemic exeicise. The maiket powei of many selleis of pipeline-
impoiteu gas meant that they weie laigely able to ueciue the teims of its sale anu these
selleis piefeiieu oil-inuexation. Bowevei, this situation changeu as the giauual piocess
of libeialisation impacteu on gas maiket stiuctuies in continental Euiope. The auvent of
competition anu thiiu-paity access means that customeis have incieasing access to
alteinatives to the oil-linkeu supplies once foiceu upon them by theii tiauitional utility
pioviueis. This may explain Inteinational uas 0nion uata showing that the ielative
shaie of spot piicing in Euiopean wholesale gas piice foimation incieaseu fiom 1S.S%
to moie than 28% between 2uuS anu 2uu9, wheieas oil inuexation uecieaseu fiom
79.1% to 67% in the same peiiou.
144


142
'If a geneial anu uuiable tiansition to moie spot inuexeu piices weie to occui, the iesult is likely to be
lowei gas piices on aveiage in Euiope in the neai to meuium teim, (at least foi some types of consumeis)
while spaie supply capacity exists in the Euiopean maiket. But in the long teim, gas piices coulu actually
tuin out to be highei at ceitain times than they woulu otheiwise have been; foi example, stiong uemanu
uuiing colu winteis oi thiough a suige in gas-fiieu powei uemanu coulu see piices iise steeply.' Ibiu., 76.
14S
Ibiu., 72-7S.
144
Nike Fulwoou, 'Tienus in Wholesale uas Piice Foimation Nechanisms: iesults on the 2uu9 Iu0 Suivey
', >)8'$)(8-%)(: B(. 6)-%) H(;(a-)' 2u11, Inteinational uas 0nion, 'Wholesale uas Piice Foimation: A
global ieview of uiiveis anu iegional tienus ', (0slo: Inteinational uas 0nion, 2u11).

18S
(BJH: ^Ia. '<CGQ:BL @QG= EB@ QC>;:@ B@ B Q:C;:L=BE: GO G>HI>LK:9:K EB@ QC>;:@ >L jW2gF
Pa^

((6 B?:CBE: #g' ,$) ((6W,$)
}anuaiy 2u11 22.24 2S.84 86%
Becembei 2u1u 24.1S 26.1S 92%
Novembei 2u1u 19.Su 2S.98 7S%
0ctobei 2u1u 18.S6 2S.S4 7S%
Septembei 2u1u 18.9S 2S.u7 76%
August 2u1u 18.12 24.21 7S%
}uly 2u1u 19.S2 2S.SS 8S%
}une 2u1u 19.28 22.62 8S%
Nay 2u1u 16.78 21.8u 77%
Apiil 2u1u 1S.SS 21.S6 6S%
Naich 2u1u 11.99 21.uu S7%
Febiuaiy 2u1u 1S.72 2u.74 66%
}anuaiy 2u1u 14.48 2u.u2 72%
*?:CBE: S`P` PT]VU SV]Pc T^p

With legal anu technical baiiieis to giowing volumes of spot-tiaueu gas
uisappeaiing,
146
the shaip fall in spot piices witnesseu in 2uu9 anu 2u1u occasioneu
wiuespieau uissatisfaction amongst the utilities lockeu into buying gas on oil-inuexeu
teims as they weie giauually piiceu out of the maiket.
147
Table S-4 above shows that
spot gas piices on the Butch TTF tiauing hub weie an aveiage of 2S% lowei than oil-
inuexeu gas piices foi Noith West Euiope ovei 2u1u anu }anuaiy 2u11.
148
With spot
piices so low, miustieam gas playeis sought to ieplace as much of theii oil-inuexeu
wholesale volumes with spot gas as was possible within the limits imposeu by
infiastiuctuie anu theii existing take-oi-pay contiacts. As a iesult of the abunuant
supplies on the spot maiket, even aftei buyeis hau ieuuceu theii nominations of oil-
inuexeu gas to the minimum off-take limits anu ieplaceu the uiffeience with spot
volumes, a laige uispaiity between spot anu oil-inuexeu piices still existeu. This foiceu
utilities into eithei selling gas to consumeis at a loss oi being unueicut by competitois
able to souice cheapei gas fiom LNu teiminals oi the 0K maiket.
149
Some estimates put
pipeline impoits in Contiact Yeai 2uu82uu9 at 92% of take-oi-pay levels, implying
that some miustieam playeis may have been compelleu to iisk contiactual penalties
because of these testing maiket conuitions.
1Su


14S
Note: the Table shows TTF uay-aheau piices compaieu with the Platts Noith West Euiope uas
Contiact inuicatoi (NWE uCI), which inuicates a typical piice foi long-teim oil-inuexeu supplies. The final
column shows TTF as a peicentage of NWE uCI. Souice: Stein anu Rogeis, 'Tiansition to Bub-Baseu
Piicing', S.
146
Physically tiaueu volumes on the seven continental spot maikets - Zeebiugge (Belgium), TTF (the
Netheilanus), NCu (ueimany), uaspool (ueimany), PEu (Fiance), PSv (Italy) anu CEuB (Austiia) -
incieaseu fiom just ovei 1uu bcm in 2uu7 to almost Suu bcm in 2uu9. IEA, 'WE0 2u1u', 2u7.
147
Rogeis, 'LNu Tiaue-flows', 1; Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', SS. 'The auvances in
gas maiket libeialisation cuiiently being implementeu in Euiope at laige, but in ueimany in paiticulai
aie playing an impoitant pait in cieating the changes in the Euiopean gas maiket enviionment which can
now be obseiveu.' Fiisch, 'Euiopean uas Piicing Pioblems'.
148
Foi an in-uepth oveiview, see also Euiopean Commission, '2uu9-2u1u Repoit on piogiess in cieating
the inteinal gas anu electiicity maiket', eu. Biiectoiate-ueneial foi Eneigy (Luxembouig: 0ffice foi
0fficial Publications of the Euiopean Communities, 2u11).
149
Foi a moie complete explanation of this piocess, see Rogeis, 'LNu Tiaue-flows', 24.
1Su
Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 2S.

184
0nueistanuably, the situation placeu enoimous piessuie on utilities facing the iapiu
eiosion of theii maiket shaie. Caught between theii long-teim contiactual obligations
anu piessuie fiom theii (piincipally inuustiial) customeis to supply cheapei gas, these
utilities have in tuin piesseu theii supplieis foi contiact ienegotiations on piice anu
volumes.
1S1
As Bowaiu Rogeis wiites, Euiope's newfounu ability to substitute pipeline
impoits with cheapei LNu hau paitially unueimineu the 'national incumbent' gas
puichasei in Euiope.
1S2
Exemplifying this point, Bi Beinhaiu Reuteisbeig, the chaiiman
of E.0N Ruhigas, maue a stiong anu public plea to auapt long-teim contiacts to the
changeu ciicumstances in 0ctobei 2uu9.
1SS

In iesponse, supplieis such as uasTeiia, Statoil anu, in the enu, uazpiom maue seveial
concessions to theii customeis. Souices suggest that seveial companies weie alloweu to
'ioll ovei' volumes not taken below minimum take-oi-pay levels to futuie yeais. uBF
Suez, Bistiigas anu Swissgas weie gianteu a paitial uecoupling fiom oil-baseu piicing
by uasTeiia uuiing theii 2uu9 contiact extension negotiations, anu Statoil's customeis
weie alloweu to link up to 2S% of theii volumes to spot piices in eaily 2u1u. It was only
in Febiuaiy 2u1u that uazpiom anu E.0N Ruhigas announceu that they hau agieeu on
linking 1S% of theii volumes to spot piices foi the following thiee yeais.
1S4
Rebounuing
ciuue piices in 2u1u will have buoyeu uazpiom's ievenues, but figuies fiom the IEA
ieveal that its haiu-line stiategy on oil-inuexation may have cost it in the longei iun:
uazpiom's shaie of E0 gas impoits ueclineu a substantial 4% in 2u1u as it giauually lost
maiket shaie to competitois moie willing to spot-inuex theii piicing foimulas.
1SS

The steauy iecoveiy of Euiopean hub piices since then has maue the benefits of spot-
inuexation less appaient, blunting the immeuiate competitive challenge to oil-
inuexation. In spite of this "neai-teim illusion of stability", howevei, the cuiient balance
of expeit opinion suggests that the E0 will move slowly away fiom oil-inuexation
because of the peisisting iisk of futuie exposuie to uiscount hub piices.
1S6
}onathan
Stein has been one of the most piominent auvocates of this view. In 2uu7, he
questioneu the iationale of the continuing linkage of piices in long-teim gas contiacts to
those of oil piouucts.
1S7
Then, in 2uu9, he aigueu that a tiansition away fiom oil
piouuct-ielateu piicing was inevitable anu imminent, anu that the enupoint of the
tiansition woulu be hub-baseu piices.
1S8
Commenting on poll iesults showing that only
16% of iesponuents at the 2u1u Euiopean Autumn uas Confeience agieeu to the
pioposition that iecent piicing anu contiactual changes towaius spot-inuexation weie
tempoiaiy, Stein wiote:

1S1
IEA, '0il anu uas Naikets', 19S.
1S2
Rogeis, 'LNu Tiaue-flows', 1.
1SS
Beinhaiu Reuteisbeig, 'Key issues to Auuiess Sustainabie Supply anu Bemanu of Natuial uas' (papei
piesenteu at the 24th Woilu uas Confeience, Buenos Aiies 2uu9). See also Klaus Schfei, 'Natuial gas
maikets in Euiope - Challenges anu uevelopments' (papei piesenteu at the 0NS 2u1u - Secuie Sustain
Supply Stavangei, 2u1u).
1S4
IEA, '0il anu uas Naikets', 2uu, Kanai, 'Becoupling 0il anu uas Piices', S; Stein anu Rogeis, 'Tiansition
to Bub-Baseu Piicing', 26.
1SS
IEA, 'WE0 2u11', S4S.
1S6
}ensen, 'Cieating a "Woilu uas Naiket".'. See also Fiisch, 'Euiopean uas Piicing Pioblems', 1; Kanai,
'Becoupling 0il anu uas Piices', S9; 0uueman, 'Auvisoiy lettei'.
1S7
Stein, 'Continuing link to oil piouuct piices'.
1S8
Stein, 'Euiopean Long-Teim uas Contiacts'.

18S
fVC(8 T' ($' %I.'$7-); C'$' -. ( D#)=(,')8(: ,-)=.'8
FC();' %) 8C' &($8 %D 8C' 8$(=-8-%)(: I#9'$. D$%, %)' TC-FC
T(. (&&$%&$-(8' D%$ 8C%.' -) ( =%,-)()8 &%.-8-%) T-8C (
$':(8-7':9 F(&8-7' ,($W'8/ 8% %)' TC-FC -)F$'(.-);:9 $'D:'F8.
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8C' 8$(=-); F#:8#$' %D "#$%&'() #8-:-8-'.3g
1S9


1S9
Stein anu Rogeis, 'Tiansition to Bub-Baseu Piicing', 27.

186
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@D@=:A
23 B$(FF'7( ()= E3 e')-'T.W- !"#$%&'() +%,,-..-%)/ 01+ 2345
The ielative stiengths of natuial gas in compaiison with othei fossil fuels have iecently
been emphasiseu by a numbei of notable stuuies.
1
In fact, many of the unceitainties
facing the eneigy system as a whole can potentially be consiueieu oppoitunities foi
natuial gas, i.e. climate change policies, the neeu foi back-up fossil fuel foi ienewable
eneigy anu so on. The aim of this chaptei is to use an eneigy system analysis appioach
to exploie the unceitainties suiiounuing the futuie of natuial gas, with a paiticulai
focus on the iole shale gas can play in this wiuei peispective. It will attempt to answei
the following questions:
Bow much uoes the puipoiteu goluen age of natuial gas uepenu on the
uevelopment of unconventional gas, anu shale gas in paiticulai.
In what ways will the eneigy system be affecteu with oi without significant
shale gas piouuction.
What conuitions woulu peimit shale gas to gain a significant iole in the futuie
eneigy system, up to the point of becoming a 'game changei'.
To answei these questions, the authois piesent not a foiecast oi piojection but an
'A&:%$(8-%) %D #)F'$8(-)89 aiounu the futuie of shale gas. Inueeu, the potential foi
uevelopment anu piouuction of this iesouice cannot be consiueieu in isolation fiom the
existing fuels, tiaue flows, technologies anu infiastiuctuies that make up the global
eneigy system. The extent to which shale gas can meaningfully penetiate this system is
contingent on the uynamic inteiactions of a consiueiable numbei of supply- anu
uemanu-siue uiiveis anu techno-economic uevelopments.
The methouological appioach followeu in this chaptei is a two-step analysis caiiieu out
fiom an eneigy system peispective. Fiist, we select the key factois affecting futuie gas
supply anu uemanu anu, as a coiollaiy, the pace anu scale of unconventional gas
uevelopment. A uiscussion of these factois will be ienueieu into a set of woikable
assumptions on what can be consiueieu the piimaiy ueteiminants of futuie shale gas
uevelopment. In paiticulai, we focus on the size anu piouuction costs of shale gas
iesouices, as well as global economic giowth as a uiivei of eneigy uemanu. A similai
analysis was iecently caiiieu out by the IEA
2
;

the key similaiities anu uiffeiences aie
elaboiateu in Annex I.
A mouel is then useu to constiuct a set of possible scenaiios foi futuie shale gas
uevelopment. The uiffeient tiajectoiies boine out by these scenaiios will be analyseu
anu compaieu, with a paiticulai focus on thiee main outputs - piouuction, inteiiegional
tiaue anu final use. In uoing so, it is hopeu that light will be sheu on the conuitions
unuei which shale gas can be integiateu into the global eneigy system.
S


1
Foi example, see IEA, 'uoluen age'.
2
IEA, 'uoluen Rules foi a uoluen Age of uas', in V%$:= ")'$;9 U#8:%%W (Paiis: 0ECB 2u12).
S
Bespite stiiving foi a systemic tieatment of factois affecting shale gas uevelopment, it is invaiiably the
case that not all of them can be consiueieu. Aspects such as enviionmental impacts oi legal anu
iegulatoiy issues aie not consiueieu in the piesent analysis.

187
As the mouel useu in the analysis uiviues Euiope into Eastein anu Westein paits (EE0
anu WE0), any iefeience to 'Euiope' as a whole in the subsequent text will be taken to
mean the sum of all of the countiies in these two gioupings (see Box 6-1 below).
5G9 bIP. '(-*/I()*2 BLK >=@ AB>L ;FBCB;=:C>@=>;@
The ETSAP-TINES Integiateu Assessment (ETSAP-TIAN) mouel is a multi-iegion paitial equilibiium
mouel of the eneigy systems of the entiie woilu uiviueu in seveial iegions, linkeu by tiaue vaiiables
of the main eneigy foims (coal, oil, gas) anu of emission peimits. It has been initially uevelopeu anu
is maintaineu by the Eneigy Technology Systems Analysis Piogiamme (ETSAP), a consoitium of
membei countiy teams that maintain anu expanu the analytical capabilities of the NARKALTINES
family of mouels.
S
These mouels aie useu by uiveise institutions, such as the IEA anu EIA, to geneiate
in-uepth national anu multi-countiy analyses of eneigy systems seveial uecaues into the futuie. The
ETSAP-TIAN mouel useu in this assessment is the veision uistiibuteu to the ETSAP paitneis (such as
Bu }RC) in Apiil 2u11, then fuithei uevelopeu by }RC towaius a moie uetaileu anu upuateu
iepiesentation of the global gas maiket.
The ETSAP-TIAN mouel useu in this assessment contains uetaileu uesciiptions of technologies anu
eneigy flows useu in all the uiffeient sectois of the eneigy system - e.g. iesiuential, inuustiial,
agiicultuial, etc.. The inteiaction of these vaiiables, which numbei in the millions, is uiiven by an
unueilying mathematical stiuctuie; in a piocess of :-)'($ %&8-,-.(8-%) an inteitempoial uynamic
paitial equilibiium on eneigy maikets is computeu. The mouel chooses eneigy supply seivices at
minimum global cost by simultaneously making uecisions on equipment investment, equipment
opeiation, piimaiy eneigy supply anu eneigy tiaue.
4
By incoipoiating the whole of the eneigy supply
chain, TINES is a veitically-integiateu mouel of the entiie eneigy system.
The ETSAP-TIAN mouel is paiticulaily amenable to exploiing possible long-teim eneigy futuies
baseu on uiffeient sets of assumptions - oi scenaiios - about the futuie uiiveis of the eneigy system.
This makes it paiticulaily amenable to exploiing possible long-teim eneigy futuies baseu on
uiffeient sets of assumptions - oi scenaiios - about the futuie uiiveis of the eneigy system.
Beginning with a base yeai, in this case 2uuS, the mouel is fuinisheu with ieal uata on the piocesses,
commouities anu flows making up the eneigy economy. Countiies aie gioupeu into 1S iegions. Foi
each iegion ETSAP-TIAN contains explicit uesciiptions of moie than 1 uuu technologies anu 1uu
commouities (eneigy foims, mateiials, emissions), logically inteiielateu in a Refeience Eneigy
System coveiing extiaction, piocessing, conveision, tiauing anu enu-uses of all eneigy foims. Logical
intei-ielationships exist between:
Technologies (oi piocesses): these iepiesent physical uevices that tiansfoim commouities
into othei commouities. Theie aie piimaiy piocesses that come uiiectly fiom the souice
(e.g. upstieam oi impoits of gas) oi piocesses that tiansfoim these commouities (e.g.
iefineiies that piouuce oil piouucts);
Commouities: these aie eneigy caiiieis, eneigy seivices, mateiials, monetaiy flows anu
emissions. A commouity is geneially piouuceu by some piocess(es) anuoi consumeu by
othei piocess(es);
Flows: this is the amount of a given commouity piouuceu oi consumeu by a given piocess.
Foi example, natuial gas is a commouity, wheieas natuial gas foi combineu cycle tuibine is a
commouity flow.
S

Tiaue vaiiables of eneigy commouities (anu of emission peimits) link the iegions, peimitting eneigy
foims such as coal, ciuue oil, petioleum piouucts anu gasLNu to be enuogenously tiaueu.

S
www.iea-etsap.oig
4
Loulou anu Labiiet, 'ETSAP TIAN'.
S
Ibiu.: 14.

188

*60 Algeiia, Angola, Benin, Botswana, Cameioon, Congo, Bemociatic Republic of Congo, Egypt,
Eiitiea, Ethiopia, uabon, uhana, Ivoiy Coast, Kenya, Libya, Noiocco, Nozambique, Namibia, Nigeiia,
Senegal, South Afiica, Suuan, 0niteu Republic of Tanzania, Togo, Tunisia, Zambia, Zimbabwe anu
0thei Afiica.
*"- Austialia, New Zealanu, 0ceania
$*# Canaua
$4) China
$-* Aigentina, Bolivia, Biazil, Chile, Colombia, Costa Rica, Cuba, Bominican Republic, Ecuauoi, El
Salvauoi, uuatemala, Baiti, Bonuuias, }amaica, Netheilanus Antilles, Nicaiagua, Panama, Paiaguay,
Peiu, Tiiniuau anu Tobago, 0iuguay, venezuela anu 0thei Latin Ameiica
''" Albania, Bosnia-Beizegovina, Bulgaiia, Cioatia, Czech Republic, Bungaiy, Naceuonia,
Nontenegio, Polanu, Romania, Seibia (Kosovo), Slovenia, Slovakia
6-" Aimenia, Azeibaiujian, Belaius, Estonia, ueoigia, Kazakhstan, Kyigyzstan, Latvia, Lithuania,
Noluova, Tajikistan, Tuikmenistan, 0kiaine, 0zbekistan, Russian Feueiation
)#[ Inuia
8/# }apan
2'* Bahiain, Islamic Republic of Iian, Iiaq, Isiael, }oiuan, Kuwait, Lebanon, 0man, Qatai, Sauui
Aiabia, Syiia, 0niteu Aiab Emiiates, Yemen anu Tuikey, Cypius
2'q Nexico
%[* Banglauesh, Biunei Baiussalam, Cambouia, Chinese Taipei, Inuonesia, Bemociatic People's
Republic of Koiea, Nalaysia, Nongolia, Nyanmai, Nepal, Pakistan, Philippines, Singapoie, Sii Lanka,
Thailanu, vietnam anu 0thei Asia
-3% South Koiea
"-* 0niteu States of Ameiica
g'" Austiia, Belgium, Cypius, Benmaik, Finlanu, Fiance, ueimany, uieece, Icelanu, Iielanu, Italy,
Luxembouig, Nalta, Netheilanus, Noiway, Poitugal, Spain, Sweuen, Switzeilanu, 0niteu Kinguom
As a paitial equilibiium mouel, ETSAP-TIAN is vulneiable to the stanuaiu ciiticisms of the
simplifying assumptions maue in economics. Foi example, lineai optimisation means that the system
chooses technologies that aie most cost-effective, unencumbeieu by enuogenous political oi
socioeconomic constiaints. Bowevei, even if the mouel assumes competitive eneigy maikets with
peifect foiesight, its choice of fuels, technologies, investments anu tiaue patteins is, in fact, subject to
many constiaints, such as supply bounus (in the foim of supply cuives) foi the piimaiy iesouices;

189
technical constiaints goveining the cieation; opeiation anu abanuonment of each technology;
balance constiaints foi all eneigy foims anu emissions; timing of investment payments anu othei
cash flows; anu the satisfaction of a set of uemanus foi eneigy seivices in all sectois of the economy.
(Eneigy uemanu is enuogenous, wheieas eneigy .'$7-F' uemanu is exogenous - aspects such as
passengei kilometies oi iesiuential space heat, which aie piojecteu by a set of uiiveis such as uBP
giowth anu population, numbei of householus anu sectoial outputs.)
It is impoitant to iemembei that no mouelling effoit can lay claim to a completely accuiate oi even
compiehensive account of the eneigy system, let alone pioviue a fully uefensible pieuiction of its
futuie. Thus, the main goal of using the ETSAP-TIAN mouel is not to foiecast the futuie but to
exploie the possibilities piesenteu by shale gas in ways that can suppoit uecision-making. 0seu in
this way, the ETSAP-TIAN mouel is an appiopiiate anu poweiful tool of analysis foi consiueiing the
bioauei tienus affecting the futuie global eneigy mix.
K@? [(= E/",%0- E%0 -</'( */- )(4('%:+($,
Eneigy maikets aie subject to much unceitainty, as many of the events shaping them
cannot be anticipateu anu futuie uevelopments in technologies anu iesouices cannot be
foieseen with ceitainty. To unueistanu the potential impact of unconventional gas on
eneigy maikets it is necessaiy to take into consiueiation the key unceitainties that can
be consiueieu pivotal foi ueteimining uppei anu lowei bounus of futuie shale gas
uevelopment. These factois can be categoiiseu in teims of the natuial gas supply chain -
i.e. upstieam exploiation anu piouuction, miu anu uownstieam piocessing anu
tianspoit, anu, finally, enu use. In the following, a set of key factois aie biiefly uiscusseu.
Foi each of them a ieasonable aiea of unceitainty is uefineu in a quantitative mannei,
by setting in a tianspaient way iefeience figuies anu lowei anu uppei bounus. The
ways in which these uiffeient figuies can impact on the eneigy system have been
exploieu thiough the ETSAP-TIAN mouel.
b]P]P "Q@=C:BA LB=<CBH EB@ C:@G<C;:@ BLK ;G@=
3%$4($,5%$/' /$) 1$"%$4($,5%$/' */- 0(-%10"(-
0nconventional gas incluues tight gas, coal-beu methane anu shale gas. The pievailing
liteiatuie suggests that the lattei cuiiently has the most significant giowth piospects
because new technologies have enableu economically viable extiaction of gas fiom
peimeable shale ieseivoiis. This iepoit has pioviueu a iange of estimates on the
technically iecoveiable iesouice base of shale gas. This is one of the key input
assumptions useu in the scenaiio analysis. The figuie below summaiises the uata
collecteu in Chaptei 2.

19u
6>E<C: bIP. *@@<AQ=>GL@ GL =F: EHGJBHY =:;FL>;BHHD C:;G?:CBJH: C:@:C?:@ GO @FBH: EB@

It is useful to consiuei these unconventional gas iesouice estimates in the context of the
woilu's existing conventional gas ieseives. Figuie 6-2 below ieveals that the Foimei
Soviet 0nion (FS0) anu the Niuule East iegion ietain the laigest conventional natuial
gas ieseives. Russia in paiticulai possesses a vast potential foi expanuing anu
ueveloping its conventional ieseives, which aie iemotely locateu anu unueiuevelopeu
(such as in the Yamal Peninsula oi othei paits of eastein Sibeiia). Bence, the piojecteu
inciease in expoits fiom these two iegions is a significant consiueiation when gauging
the futuie penetiation of inuigenous unconventional gas, paiticulaily in impoit-
uepenuent iegions such as Euiope. The inciease in expoits fiom the FS0 anu the Niuule
East, in tuin, ielies on capacity constiaints anu the piice uiffeiential between impoits
anu potential inuigenous piouuction. In Euiope it is uown to uevelopments in iegional
gas piicing, competition fiom othei maikets anu the coiiesponuing expansion of
flexible LNu caigoes, which will ciucially affect the quantities of gas bought unuei long-
teim pipeu gas contiacts.
Finally, othei unconventional fuels may look set to auu to the global ieseive base;
unconventional oil iesouices, incluuing extia-heavy oil anu keiogen oil, have a laige
potential; howevei, many technical, commeicial anu political obstacles neeu to be
oveicome befoie they can be fully uevelopeu.
6
The systemic appioach auopteu heie foi
the scenaiio analysis means that, even if the specific unceitainty suiiounuing
unconventional oil is not exploieu heie, any of the following scenaiios takes into
account the potential competition between unconventional oil anu unconventional gas.

6
IEA, 'WE0 2u11'.

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192
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S`S` S.2S S.24 1S.4u
S`V` 2.68 4.42 1S.17

To bettei captuie iegional uiffeiences in piouuction costs, the authois have constiucteu
a mouifying factoi baseu on the EIA's Financial Repoiting System (FRS), which is a
statistical uatabase on the functional anu financial peifoimance of majoi 0S eneigy-
piouucing companies, incluuing theii opeiations abioau.
8
Bata on the upstieam cost of
finuing, ueveloping anu piouucing gas anu oil wells weie useu to ueiive a total pei-unit
piouuction cost foi the six iegions foi which uata is available (see Table 6-2). These
weie compaieu against a Euiopean base case to constiuct multiplieis foi these
iespective iegions. The iationale foi using this uataset is that the expeitise of 0S uiilling
anu seivice companies is cuiiently a key ingieuient foi initially exploiing shale gas
iesouices in iegions of inteiest. Nost of the companies iepoiting thiough the FRS have

7
The aveiage is the mean value of the minimum anu maximum costs of exploiting thiee categoiies of
ieseives: iecoveiable, enhanceu iecovei, anu unuiscoveieunew uiscoveiy Foi each categoiy, a thiee-
step supply cuive is assumeu, wheie the minimum cost is the cost of the lowest step of the supply cuive
foi iecoveiable ieseives, while maximum costs aie foi the highest step of enhanceu iecoveiy.
8
EIA, 'Batabase: The Financial Repoiting System Public Bata', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u12).Beai in minu that FRS companies have iepiesenteu 4u-6u% of the total 0S eneigy-
piouucing inuustiy ovei the last Su yeais; theiefoie, aggiegate piouuction statistics of FRS companies aie
only a iepiesentative sample of the total

19S
poitfolios that incluue shale gas exploiation activities in uiffeient countiies (alongsiue
theii conventional oil anu gas assets).
(BJH: bIS. "Q@=C:BA ;G@=@ OGC 60- ;GAQBL>:@Y S``bIS``U BLK S``TIS``c
c

oWJG: S``bIU S``TIc 2GK>OD>LE OB;=GC
"L>=:K -=B=:@ GO *A:C>;B 41.49 SS.76 u.6S
$BLBKB S8.7S 24.76 u.46
'<CGQ: 72.S2 SS.S7 1.uu
6GCA:C -G?>:= "L>GL 16.7 2u.96 u.S9
*OC>;B 42.24 4S.S2 u.8S
2>KKH: 'B@= 17.u9 16.88 u.S2
%=F:C 'B@=:CL 4:A>@QF:C: 21.18 16.S6 u.S1
%=F:C g:@=:CL 4:A>@QF:C: SS.88 26.64 u.Su

Resouice anu uata availability issues piecluue a moie accuiate iepiesentation of
iegional uiffeiences in shale gas piouuction costs, so the inteipietation of this uata
shoulu be appioacheu with the usual level of caution.
1u
Even so, the upstieam
piouuction costs incuiieu by majoi 0S eneigy fiims iepiesent a pioxy, albeit an
impeifect one, foi the ielative level of investment neeueu in each iespective iegion.
As the upstieam costs noteu above aie foi conventional oil anu gas wells, extiapolating
these to shale gas iequiies a uiffeientiation of the key cost components of conventional
gas veisus unconventional shale gas piouuction.
11
In technological teims, the key
uiffeience between conventional anu shale gas extiaction lies in the lattei's use of
hoiizontal uiilling anu hyuiaulic fiactuiing techniques foi taigeting gas tiappeu in
continuous iock foimations. Compaieu with conventional gas, this iequiies lengthiei
wellboies, a gieatei amount of lanu, moie watei (oi uiilling muu), moie fiequent tiuck
tiips anu expenses unique to fiactuiing anu uiiectional uiilling. To pioviue a
conseivative iepiesentation of these costs, the mouifying factoi above has only been
applieu to the piopoition of expenses in Chaptei 2 that iepiesent auuitional costs
iequiieu to uiill anu uevelop a hoiizontal, hyuio-fiackeu shale gas well. These aie
essentially the uay iate costs uiscusseu in Table S-16, which covei the iig iental,
uiiectional uiilling cost, muu seivicing, anu bit anu evaluation expenuituie. Togethei,
these components aie estimateu to make up aiounu 2S% of total pei-well piouuction
costs of shale gas in 2u1S (followeu by 18% anu 14% in 2u2S anu 2uSu iespectively,
ieflecting technological leaining cuives anu gieatei economies of scale). The

9
EIA, 'Peifoimance Piofiles of Najoi Eneigy Piouuceis', (Washington, BC: 2uu9). Note: 0pstieam costs
aie finuing costs plus lifting costs. Natuial gas was conveiteu to equivalent baiiels of oil at u.178 baiiels
pei thousanu cubic feet. Sum of elements may not auu to total uue to inuepenuent iounuing. Souice: 0.S.
Eneigy Infoimation Auministiation, Foim EIA-28 (Financial Repoiting System).
1u
Inueeu, upstieam costs foi 0S eneigy fiims opeiating abioau may not ieflect aveiage costs foi all
maiket playeis in a given iegion. Noieovei, theie is consiueiable vaiiation in cost components within the
uiffeient iegions that may influence total piouuction expenuituie. Notably, opeiating expenuituies anu
piouuction taxes vaiy uue to uiffeient laboui, seivice, iegulatoiy anu infiastiuctuial constiaints in
uiffeient countiies.
11
0ne caveat unueipinning this appioach is that the piouuctivity of shale gas wells in the 0SA aie highei
than foi conventional wells, meaning a potentially lowei pei-unit piouuction cost ovei the entiie life of a
shale well uespite moie substantial capital expenuituies. Bonakuaipoui et al., 'Economic anu employment
contiibutions', 8.

194
calculations have yielueu the following costs of shale gas foi the 1S woilu iegions in
2u2u.
6>E<C: bIa. -FBH: EB@ QCGK<;=>GL ;G@= :@=>AB=:@ OGC S`S`

As shown, conseivative cost estimates uiive up the iange of unceitainty. Foi the eneigy
mouel useu to caiiy out the scenaiio analysis, supply cuives have been uefineu by
assuming that a piopoition of the estimateu ieseives pioviueu in Chaptei 2 can be
uevelopeu at a ceitain cost. In an optimistic case of high pioven ieseives anu low
piouuction costs foi example, 4S% of potential shale gas ieseives in any iegion aie set
to be extiactable at the 'optimistic' piouuction cost uesciibeu in Table 6-1, while Su%
aie set to be extiactable at the 'most likely' piouuction cost anu S% aie set to be
extiactable at the 'conseivative' piouuction cost. Conveisely, a conseivative scenaiio of
low pioven ieseives anu high piouuction cost will make only S% of ieseives
extiactable at the 'optimistic' cost, with Su% extiactable at the 'most likely' cost anu
4S% at the 'conseivative' piouuction cost.
12
Figuie 6-S below shows how, in an
optimistic case, the 0SA can piouuce aiounu Su uuu bcm of shale gas iesouices at
aiounu $S.uu pei gigajoule (u}), followeu by an auuitional Su uuu bcm at a piouuction
cost of aiounu $9.uuu}. 0n the contiaiy, in the conseivative case, the 0SA can piouuce
aiounu 1 uuu bcm of shale gas iesouices at aiounu $S.uuu}, followeu by an auuitional
9,uuu bcm at a piouuction cost of aiounu $9.uuu}.

12
As the ETSAP-TIAN mouel optimises the balance of fuels anu technologies baseu on cost, just
consiueiing scenaiios of highest oi lowest figuies woulu eithei piecluue commeicially viable shale gas
piouuction in any iegion (incluuing the 0SA anu Canaua) oi on the contiaiy, assume that shale gas is
stiongly competitive in any iegion. The supply cuive appioach leaus to a moie iealistic assumption,
wheie even a conseivative scenaiio can yielu some level of piouuction.

19S
It is infoimative to compaie the two shale gas supply cuives below with that useu in
anothei notable mouelling stuuy by NIT.
1S
The cuives useu in the afoiementioneu stuuy
lie cleaily between the two cuives useu in the piesent analysis; that is to say, the cuives
useu heie covei a wiuei iange. In paiticulai, the optimistic case useu in the piesent
stuuy assumes thiee times moie low-cost shale gas than the NIT stuuy uoes. The supply
cuives in the piesent stuuy theiefoie iepiesent moie extieme cases on both siues,
ieflecting the gieat unceitainty in the uata that has been iuentifieu anu auuiesseu by
eailiei chapteis. This is impoitant to beai in minu when consiueiing the iesults.
6>E<C: bI^. -FBH: EB@ @<QQHD ;<C?:@ OGC =F: "L>=:K -=B=:@ GO *A:C>;B >L S`P^

Togethei with its own piouuction cost, a fuithei factoi affecting the competitiveness of
shale gas is the piouuction cost of the othei types of unconventional gas, i.e. coal-beu
methane anu tight gas. The supply cuives foi both types of unconventional gas have
been built in line with IEA (2u11): the piouuction cost of coal-beu methane ianges
between $S anu $8u}, while the piouuction cost of tight gas ianges between $4 anu
$8u}.
G<( 0%'( %E $/,10/' */- 5$ / "/07%$Q"%$-,0/5$() &%0')
At the inteinational level, ieliance upon a system of voluntaiy national pleuges of
emission ieuuctions by 2u2u, as set out initially in the Copenhagen Accoiu, leaves
unceitainty conceining the likely stiuctuie of any futuie agieements that may emeige
to ieplace the Kyoto Piotocol. The absence of a cleai inteinational iegime foi mitigating
uBu emissions in tuin iaises questions about the likely stiingency of national policies in
both inuustiialiseu countiies anu majoi emeiging economies ovei the coming uecaues.
Paiticulaily in the powei sectoi, the ielative costs of uiffeient technologies may shift

1S
Noniz, }acoby anu Neggs, 'Futuie of natuial gas', S1.

196
significantly in iesponse to ieseaich, uevelopment anu uemonstiation, as well as C02
emissions piices.
A caibon tax woulu incieases the absolute cost of eneigy fiom fossil fuels. These costs
woulu be passeu on to the final consumei in the foim of highei piices that, in tuin,
woulu lowei oveiall uemanu. uiven the ielative efficiencies anu caibon emissions of
uiffeient eneigy technologies oi fuels, the technology mix of the whole eneigy system
woulu be affecteu. Bowevei, much uepenus on how substantial the caibon tax oi othei
climate change policies will be. In powei geneiation, gas-fiieu electiicity geneiation will
be less affecteu by a caibon tax than coal. But theie is, aftei all, a point at which gas-
fiieu powei geneiation loses its competitiveness to non-emission geneiating souices,
such as nucleai oi ienewables.
As the extent anu natuie of the uBu mitigation measuies that will be auopteu is one of
the key unceitainties suiiounuing the futuie uevelopment of the global gas maiket, the
scenaiio analysis incluues a specific sensitivity analysis exploiing the impact on the
global eneigy system, paiticulaily on gas, of a futuie 'caibon constiaineu' woilu, i.e. a
woilu committeu to halve C02 emissions by 2uSu.
5G9 bIS. (F: >AQB;= GO H>_<>K@ GL @FBH: EB@ QCGK<;=>GL ;G@=@
An impoitant issue to highlight when uiscussing shale gas piouuction costs is the piesence oi absence of
associateu liquiu hyuiocaibons, in the foim of natuial gas liquius (NuLs) that neeu to be sepaiateu in a
piocessing plant, such as butane, piopane oi ethane. Piouuction anu piocessing of such liquius can seive
to lowei pei-unit piouuction costs anu iaise the economic piofitability of wells. Thus, even if the
piopoition of total 'uiy' gas piouuction uwaifs total liquius piouuction fiom a given shale well, the
eneigy content anu maiket piice of the lattei makes foi a compelling business case to taiget liquiu-iich
shale plays. Noieovei, theie have been substantial iecent auuitions to pioveu 0S 'wet' gas ieseives - e.g.
gas that incluues lease conuensates anu natuial gas plant liquius; the EIA has iepoiteu a 9% inciease in
pioveu ieseives of natuial gas plant liquius anu a 14% inciease in lease conuensates fiom 2uu8 to
2uu9.
14

Bowevei, uespite its giowing iole in shale gas economics, the figuies on unit costs of piouuction pei well
that aie useu in the mouel uo not incluue liquiu piouuction. This omission was maue to bettei ieflect
existing estimates of bieak-even costs of shale gas wells, such as those founu in the IEA's iecent B%:=')
J;' %D B(. iepoit, which explicitly uo not account foi the value oi cost of liquiu piouuction.
1S

b]P]S 2>K@=C:BA
M/- ,0/$-:%0,/,5%$ "%-,- /$) "/:/"5,5(-
Bespite the iecent suige in inteiest in Euiope's unconventional gas, many analyses
neveitheless continue to pioject significant giowth in impoits of conventional pipeline
gas anu LNu foi the Euiopean gas maiket.
16
This seives as a ieminuei that the
piospects of unconventional gas gaining maiket shaie uepenus not only on its
competitiveness vis--vis othei fuels such as coal oi nucleai, but also on its ielationship
to conventional gas, as well as the vaiious ways in which gas is tianspoiteu. In this
iespect, the cost competitiveness of uiffeient moues of gas tianspoit (LNu anu pipeline)
is a factoi of inteiest foi consiueiing futuie gas-supply maiket uynamics anu the uegiee
of maiket penetiation of unconventional gas ieseives.

14
EIA, 'Summaiy: 0.S. Ciuue 0il, Natuial uas, anu Natuial uas Liquius Pioveu Reseives 2uu9 ',
(Washington, BC: 0S Eneigy Infoimation Auministiation, 2u1u).
1S
IEA, 'uoluen age', 49.
16
EIA, 'vaiious AE0s'; IEA, 'WE0 vaiious'.

197
Significant giowth in LNu infiastiuctuie anu tiaue has the potential to eithei fostei oi
uetei investments in unconventional gas piouuction; just as LNu can encouiage gas-
piouucing countiies to expoit theii inuigenous piouuction, so too can iegasification
teiminals foi impoiting countiies - given favouiable costs ielative to uomestic shale gas
piouuction - seive as an alteinative to the lattei. Analysts have alieauy begun to ponuei
a futuie scenaiio in which significant anu ongoing 0S anu Canauian shale gas
piouuction leaus to LNu flows fiom Noith Ameiica to Euiopean anu Asian maikets.
17
If
inteiiegional LNu tiaue sees such exponential giowth, this may ieuuce the incentive to
invest in shale gas piouuction outsiue of Noith Ameiica (paiticulaily given the
iegulatoiy anu seivice-sectoi bottlenecks that coulu moueiate its uegiee of
uevelopment in Euiope). Conveisely, if high ieseives anu low piouuction cost stimulate
consiueiable shale gas piouuction in all iegions, this may uilute the impoitance of LNu
by challenging the piofitability of long-uistance inteiiegional tiaue.
uiven these unceitainties, the scenaiio analysis must take into account the impoitant
iole playeu by gas tianspoitation costs, which will ciucially infoim the piice uiffeiential
between competing souices of natuial gas supply as inteiiegional gas tiaue uevelops (a
uiffeiential which must, of couise, iemain bounu by contiactual anu capacity
constiaints).
In Figuie 6-6 below, }ames }ensen has pioviueu a iough appioximation of the uiffeience
in costs of gas (anu oil) tianspoit in teims of uistance, type, uiametei anu capacity of
supply line. Natuial gas must be cooleu to minus 162C in oiuei to conuense it into a
liquiu foim. This ieuuces its volume by appioximately 6uu times, theieby allowing it to
be cost-effectively shippeu by tankei. Builuing anu iunning the liquefaction plants that
cool anu conuense the gas into a liquiu is expensive anu eneigy-intensive; howevei,
shipping LNu is less costly than pipeline tianspoit on a pei-NBtu basis. As a iesult of
this, LNu usually costs moie to ship than pipeline gas ovei uistances less than 1 Suu
miles. 0vei uistances of moie than 2 Suu miles, howevei, LNu is geneially cheapei to
tianspoit than even the most efficiently pipeu gas.
18


17
Rogeis, 'Impact of a globalising maiket'.
18
}ames T. }ensen, 'The Futuie of uas Tianspoitation in the Niuule East: LNu, uTL anu Pipelines' (papei
piesenteu at the The Annual Confeience of the Emiiates Centei foi Stiategic Stuuies & Reseaich, Abu
Bhabi, 2uu4).

198
6>E<C: bIb. )HH<@=CB=>?: ;G@=@ GO EB@Y G>H BLK ;GBH =CBL@QGC=B=>GL
Pc


The tiauitional LNu pioject has been uesciibeu as a 'chain' with foui, oi occasionally
five, links: 1) fielu uevelopment; 2) in some cases, a pipeline to the coast; S) the
liquefaction facility; 4) tankei tianspoitation; anu S) the iegasification teiminal.
2u
Foi a
typical LNu value chain, exploiation anu piouuction of feeustock supplies iepiesent 1S-
2u% of total capital costs, liquefaction compiises Su-4S% of costs, shipping accounts foi
anothei 1u-Su% anu gasification anu stoiage account foi the iemaining 1S-2S%.
21
Each
link in the chain is capital-intensive, with most LNu piojects costing seveial billion
uollais.
Theie is some uebate as to the uiiection in which LNu piouuction costs aie heauing. 0p
until the eaily 2uuus, technological piogiess hau leu to a shaip ueciease in the laige
initial capital cost, anu hence life-cycle opeiating cost, of liquefaction plants - the
piincipal cost component in the LNu chain. The aveiage investment foi a liquefaction
plant uioppeu fiom some $SSu a tonne pei yeai of capacity in the 196us, to
appioximately $2uu in the eaily 2uuus. Seveial factois accounteu foi this tienu. Stuuies
highlighteu economies of scale in the constiuction phase that ieuuceu the maiginal cost
of each auuitional liquefaction tiain built at the same gieenfielu site by 2u-Su%.
22
In a
similai vein, laigei LNu tiain sizes iesulting fiom the shift fiom steam-uiiven to gas
tuibine-uiiven compiessois uiove uown liquefaction costs as well.

19
}ames T. }ensen, 'The Bevelopment of a ulobal LNu Naiket: Is it Likely. If so, when.', (0xfoiu: 0xfoiu
Institute foi Eneigy Stuuies, 2uu4), 7.
2u
}ensen, 'LNu Revolution': 26.
21
Naxwell anu Zhu, 'Bynamics of LNu impoits': 219.
22
Sylvie Coinot-uanuolphe, 'LNu Cost Reuuctions anu Flexibility in LNu Tiaue auu to Secuiity of uas
Supply', in ")'$;9 E$-F'. ()= G(A'./ N.8 d#($8'$ M[[m, eu. IEA (Paiis: 0iganisation foi Economic Co-
opeiation anu Bevelopment 2uuS), xxix.

199
Noie iecent analyses, howevei, contenu that investment costs foi liquefaction teiminals
have incieaseu by about 2u% ovei the last five yeais.
2S
Wiiting in 2uu9, the IEA
estimateu that LNu liquefaction plants commissioneu in the peiiou fiom 2uu9-2u1S
woulu cost about $8Sutonne compaieu with $4Sutonne foi those commissioneu in
2uuS-2uu8 (see Figuie 6-7 below).
24
Anothei stuuy pioviueu a similai iange of
liquefaction costs ovei the uecaue to 2uu9, captuiing theii iise fiom $Suutonne to
between $6uu-14uutonne pei annum.
2S

6>E<C: bIT. +#, H>_<:OB;=>GL QHBL= ;BQ>=BH ;G@=@
Sb


As foi othei links in the LNu chain, shipping costs have fallen maikeuly, as competition
between shipyaius ieuuceu the constiuction cost of LNu tankeis fiom about $28u
million foi a 1S8,uuu cu. metie ship in 199S to $1Su-16u million by the miu-2uuus.
27

Laigei tankeis, enjoying gieatei economies of scale also ieuuceu opeiating costs.
Tankei sizes have incieaseu fiom some 4u uuu cubic meties foi the fiist geneiation to
1SS uuu-14u uuu cubic meties.
28
In auuition, the EIA founu in a 2uuS iepoit that
iegasification teiminal costs seemeu to have fallen, although this tienu was moie
uifficult to veiify as the costs vaiieu moie by location.
29

All of the abovementioneu cost components of the vaiious stages of the LNu chain hinge
on supply-anu-uemanu uynamics, thus implying a consiueiable uegiee of unceitainty
foi the futuie. Noieovei, the extent to which the cost of LNu piouuction witnesses
substantial change also uepenus on the cost of iaw mateiials (steel, nickel anu
aluminium), laboui anu seivices (which come at a piemium uuiing peiious of
significant global investments in capacity), as well as a iange of pioject-specific factois
such as plant location anu constiuction times.

2S
Stefan Lochnei anu }an Richtei, 'The impact of iecent gas maiket uevelopments on long-teim
piojections foi global gas supply', ")'$;-'T-$8.FC(D8 S4 (2u1u).
24
IEA, 'WE0 2uu9', 4S1.
2S
Anuiew Noiiis anu Keith Nessengei, 'ulobal gas & LNu maikets & uB's Secuiity of Supply; a iepoit to
Bepaitment of Eneigy anu Climate Change', (Poyiy Consulting, 2u1u).
26
IEA, 'WE0 2uu9', 4S1.
27
Naxwell anu Zhu, 'Bynamics of LNu impoits': 221.
28
Coinot-uanuolphe, 'LNu Cost Reuuctions', xxx.
29
EIA, 'ulobal LNu Naiket', 42.

2uu
Foi the scenaiio analysis, the costs of iegasification anu liquefaction teiminals aie
calculateu on the basis of initial investment costs, fixeu opeiating anu maintenance
costs, the plant availability anu any losses incuiieu, which aie annualiseu accoiuing to
the lifetime of the plant anu subjecteu to a uiscount iate (in this case S%). Noie
specifically, the cost of liquefaction plants is in line with the moie iecent estimates,
which, as mentioneu, aie highei than those given foi the fiist half of the 2uuus. The
main set of scenaiios assume a capex of about $6 billion foi an LNu chain piouucing
1u.6 bcma (i.e. 8 mtpa).
Foi pipelines, the piimaiy ueteiminants of constiuction costs aie the length anu
uiametei of the pipeline, the opeiating piessuie (anu the coiiesponuing neeu foi highei
giaue steel) anu the teiiain.
Su
0peiating costs, in tuin, vaiy uepenuing on the numbei of
compiessoi stations anu the piice of theii geneiating fuel. The total pei-unit cost will
uepenu on aveiage capacity utilisation anu loau factois. Accoiuing to analysts at the IEA
anu Ceuigaz, the investment iequiieu to lay a long uistance, laige uiametei line amounts
to $1-1.S billion pei 1 uuukm.
S1
Since this figuie was piesenteu in 2uu4, some analysts
have founu that pipeline costs have incieaseu by Su% foi onshoie anu as high as 7u%
foi offshoie piojects.
S2
Recent analysis caiiieu out within the ETSAP community
concluues that an onshoie pipeline caiiying 2ubcm pei annum ovei a uistance of
1 uuukm costs between $u.47-u.8uNbtu.
SS
Foi sub-sea pipelines, eailiei IEA analysis
set the capex on a baseline Suukm, 12 bcmpa offshoie pipeline at $2 billion, implying a
total gas tianspoitation cost of $u.7u to $u.8uNBtu foi this uistance.
S4
As with foi LNu
tianspoit costs, the most iecent estimates have been useu foi pipelines in the scenaiio
analysis.
Bowevei, in oiuei to exploie the unceitainty suiiounuing gas tianspoitation costs anu
its potential impact on the uevelopment of inuigenous piouuction in the uiffeient woilu
iegions, a sensitivity analysis has been caiiieu out, by assuming LNu costs uecieasing to
the levels of the eaily 2uuus.
As foi capacity, Table 6-S anu Table 6-4 also show assumptions about meuium-teim
capacity foiecasts foi both inteiiegional LNu anu pipeu gas, which aie ueiiveu fiom
iecent IEA uata. The figuies foi 2u2u aie then piogiessively incieaseu until they aie
uoubleu in 2u4u to pioviue a iough appioximation of the maximum capacity available
in at this time.

Su
Theie aie, of couise, othei factois to consiuei that vaiy accoiuing to local conuitions, such as laboui
costs, seivice costs, secuiing iights of passage, honouiing safety iegulations, anu so on.
S1
Sylvie Coinot-uanuolphe et al., 'The challenges of fuithei cost ieuuctions foi new supply options
(pipeline, LNu, uTL) ', in MM)= V%$:= B(. +%)D'$')F' (Tokyo, }apan: Ceuigaz, 2uuS).
S2
Lochnei anu Richtei, 'Impact of gas maiket uevelopments'.
SS
Peinille Seljom, '0il anu Natuial uas Logistics', in >"J "G@JE G'FC)%:%;9 X$-'D E[4 (ETSAP, 2u11).
S4
IEA, 'WE0 2uu9', 4S1.

2u1
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Foi any given iegion, the intensity of unconventional gas exploiation anu uevelopment
uepenus on total gas uemanu. Bistoiically, this uemanu has been linkeu to the level of
uBP giowth. The scenaiio analysis will base its uBP assumptions on those founu in the
EIA's Inteinational Eneigy 0utlook 2u1u, which pioviues foiecasts to 2uSS of iegional
uBP levels.
0f couise, uBP anu total eneigy uemanu aie not peifectly coiielateu. As uiscusseu in the
IEA's WE0 2u11, the uegiee of inciease in eneigy uemanu ielative to uBP uepenus on a
given countiy's stage of economic uevelopment. Foi uevelopeu countiies, incieases in
eneigy uemanu aie tempeieu by efficiency impiovements anu satuiation effects.
S6
In
ueveloping countiies, howevei, theie is a highei 'elasticity' of eneigy consumption
ielative to uBP, implying moie substantial pei capita giowth in eneigy uemanu as these
countiies' living stanuaius impiove. The giaph below uemonstiates the ielationship

SS
IEA, 'WE0 2u11'.
S6
Ibiu.

2u2
between uBP anu natuial gas consumption in a set of mainly ueveloping iegions by
showing theii iespective values foi the iegions ovei the peiiou fiom 2uuS-2u1u.
6>E<C: bIU. ,[/ BLK EB@ ;GL@<AQ=>GL JD C:E>GLY S``^IS`P`
VT


At the time of wiiting, the global economic climate is gloomy, paiticulaily foi the
woilu's auvanceu economies as complex financial anu fiscal challenges continue to
thieaten oveiall iecoveiy fiom iecession. Cuiient piojections of global uBP
uevelopment, theiefoie, assign most of the giowth to ueveloping countiies, implying
moie substantial incieases in global eneigy uemanu as these countiies 'catch up' with
the auvanceu inuustiialiseu economies. In the longei teim, as well, most foiecasts
assume that non-0ECB countiies - in paiticulai China - will account foi most of the
economic giowth in the coming uecaues anu, as a coiollaiy, the majoiity of giowth in
eneigy uemanu (see Table 6-S below). Any output fiom the mouel will be highly
sensitive to these assumptions about global giowth. To captuie the consequent
unceitainty, the scenaiio analysis will uistinguish between low anu high giowth cases
as shown in Table 6-S. Bowevei, both cases uo not ueviate fiom the assumption of
ielative economic conveigence, i.e. low income iegions giowing fastei than high income
iegions.

S7
EIA, 'Inteinational Eneigy 0utlook 2u1u', (Washington, BC: 0S Eneigy Infoimation Auministiation,
2u1u).

2uS
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Natuial gas has the potential to captuie a gieatei shaie of the global mix of electiicity-
geneiating fuels (laigely by muscling in on coal's cuiient uominance). This, of couise,
uepenus on the natuial gas piice, which iepiesents the majoiity of opeiating costs foi
ielatively efficient combineu cycle plants anu the concomitant investment uecisions
within the inuustiy. The penetiation of natuial gas in the electiicity geneiation mix also
uepenus on the policies enacteu by goveinments to iegulate anu tax caibon emissions.
Inueeu, the IEA's WE0 foi 2u11 has iuentifieu caibon piicing anu subsiuies to
ienewables as the two goveinment policies that will have the most significant impact on
the electiicity geneiation mix ovei time.
S8
To exploie these issues a specific sensitivity
analysis has been caiiieu out in oiuei to assess the iobustness of the iesults (see Figuie
6-9).
M/- 1-( 5$ ,0/$-:%0, /$) ,<( */-P%5' :05"( '5$#
A cential question that has aiisen in the analysis is whethei to assume a coupling oi ue-
coupling of oil anu gas piices. Nuch has been wiitten iecently about the logic of the
piice linkage of gas to oil. As uiscusseu in Section S.2.4, commentatois have questioneu

S8
IEA WE0 2u11 p. 178

2u4
the long-teim viability of oil inuexation given the giauual uevolution of substitution
possibilities between gas anu oil piouucts. Analysts have also noteu that abunuant
unconventional gas piouuction in the 0SA has seiveu to weaken the linkage between oil
anu gas piices, leauing to a NYNEX ciuue-to-gas futuies contiact iatio of 4S:1 in }anuaiy
2u12, the highest in the last two uecaues.
S9
Thus, contempoiaiy wisuom holus that
global unconventional gas uevelopment will play a key iole in enabling a giauual bieak
fiom gas-oil piice linkages as the two fuels anu theii maikets uevelop theii sepaiate
ways.
Bowevei, unceitainties iegaiuing futuie technological uevelopments may tuin this logic
on its heau. A peisistently high oil-to-gas iatio woulu cieate incentives to invest in gas-
baseu tianspoit technologies that aie cuiiently ueemeu uncompetitive against a sectoi
uominateu by oil. Inueeu, in auuition to stimulating giowth in natuial gas-poweieu
vehicles (Nuvs), significant shale gas piouuction coulu also make gas-to-liquius (uTL)
technology attiactive. Although Shell's iecently completeu Peail uTL plant in Qatai
iepiesents a significant step foiwaiu foi inuustiy, the piocess that conveits uiy gas to
uistillates such as uiesel, heating oil anu jet fuel hau long been iegaiueu as a
piohibitively costly investment, justifieu only in aieas wheie gas ieseives aie 'stianueu'
anu coulu not access maikets.
4u
Bowevei, with a high enough oil-to-gas piice iatio anu a
laige enough iesouice base, uTL plants become incieasingly commeicially viable,
seiving as competitois to gasoline anu uiesel fiom conventional oil iefineiies.
Paiauoxically, then, some of the same foices that aie cuiiently uiiving a weuge between
oil anu gas piices can, in the longei teim, enable theii ie-coupling, by stimulating
investments in technologies such as uTL that once again make gas anu oil substitutable
fuels. 0f couise, much hinges on the natuial gas anu oil piice link ovei a peiiou of
uecaues: in its uiscussion of the potential of futuie gas-to-liquius piouuction, the EIA
Annual Eneigy 0utlook states that "only with the highest |oilj piices in the Refeience
case anu the low enu of uTL plant costs uo the bieak-even economics favoui |suchj
pioject|sj."
41
Significant shale gas uevelopment may veiy well enable such a scenaiio.
In the scenaiio analysis, a basic assumption has been useu acioss all the main scenaiios:
that natuial gas can be piiceu accoiuing to its own specific maiket economics, i.e.
inuepenuently fiom the conuitions pievailing in the oil maiket. Bowevei, as this is in
fact a stiong assumption, in oiuei to exploie this factoi of unceitainty a specific
sensitivity analysis has been caiiieu out, to assess how the iesults of the analysis change
if the assumption of uecoupling is iemoveu.
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The table below is by no means an exhaustive account of all the factois that will affect
unconventional gas uevelopment. Rathei, foi each bioauei categoiy some key uiiveis
have been selecteu that aie appiopiiate foi the scenaiio analysis anu in many cases
these uiiveis ieflect assumptions about othei factois affecting unconventional gas
piouuction (e.g. the costs of shale gas aie a function of capital anu opeiating

S9
Samantha Santa Naiia, +$#=' %-: 8% ;(. $(8-% )'($ (::S8-,' C-;C.333 TC% F($'.^ (Platts, 2u12, citeu 24 Apiil
2u12); available fiom http:www.platts.comweblogoilblog2u12u126ciuue-gas_iatio.html
4u
IEA, 'Eneigy Technology Peispectives', 267. Noieovei, in this context the compaiatively lowei costs of
LNu technology, which enhances the mobility of gas, also ieuuces the incentive to invest in uTL piocesses.
41
EIA AE0 2u1u, p. 4u

2uS
expenuituies as uiveise as the cost of watei oi the piice of mateiials foi builuing
gatheiing systems).
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$B=:EGCD &BC>BJH:@ #G=:@WB@@<AQ=>GL@ "L;:C=B>L=D $C>=>;BH>=D
0pstieam
0nconventional
gas iesouice size
Technically iecoveiable ieseives of
shale gas
Bigh Bigh
0nconventional
gas piouuction
costs
Costs pei u} foi F&B anu piouucing
shale gas, incluuing cost ieuuctions
ovei time
Bigh Bigh
Bownstieam
uas tianspoit
costs
Cost-competitiveness of impoiteu LNu
anu pipeu gas veisus inuigenous shale
gas piouuction
Neuium Neuium
0ilgas piice link

The uiffeience between oil anu gas
piices expiesseu as a iatio (in eneigy
equivalent teims)
Bigh Bigh
Final use
Total global
eneigy uemanu
ulobal uBP giowth is the main uiivei of
futuie uemanu foi eneigy seivices
Bigh Bigh
uas-fiieu powei
geneiation
The cost-competitiveness of CCuT in
ielation to othei powei geneiation
technologies
Neuium Neuium
uas use in
tianspoitation
sectoi
Bepenus on competing
fuelstechnology like biofuels, hybiius,
Evs, etc. Also ielies on favouiable
gasoil piice uiffeiential
Low Neuium
Regulation
Caibon tax A caibon tax ciucially alteis the eneigy
supply mix by incentivising
investments in ienewable caibon-
neutial eneigy
Neuium Bigh

Thiee of these factois have been chosen as pivotal, both in teims of theii futuie
unceitainty as well as how ciitical they aie foi the eventual penetiation of
unconventional gas in the global eneigy system. These aie the iesouice size anu
piouuction cost of shale gas on the one hanu anu global uBP giowth on the othei.
Theiefoie, the foui main scenaiios - ConLu, ConBu, 0ptLu anu 0ptBu - ieflect the
combination of assumptions iegaiuing these factois. Accoiuingly, theie aie two
scenaiios with eithei optimistic oi conseivative assumptions about shale gas
piouuction cost anu ieseive size (0ptCon), anu anothei two scenaiios with eithei
optimistic oi conseivative assumptions about global giowth (BuLu). To exploie the
impact of a lowei oil-gas piice iatio, an auuitional uiffeientiation was applieu to the
conseivative-low giowth scenaiio (as shown in Figuie 6-9). Combineu, these yielu five
scenaiios coveiing a iange of possible outcomes ovei the peiiou until 2u4u. A piimaiy
auvantage of employing this fiamewoik is that eithei set of assumptions about
highlow uemanu anu optimisticconseivative supply can be helu constant while
piobing the effects of each. Inteipieting the iespective iesults of these scenaiios, along
with some key sensitivities, will hence ieveal the iange of unceitainty unueipinning
futuie global shale gas uevelopment.

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Shale gas iesouices coiiesponuing
to the uppei-level estimates, most of
which aie ueployable at low
piouuction costs. Low uBP giowth
at iegional level
0PT-LuLC02: 0ptimistic low giowth with
the auuitional assumption of C02 ieuuction
0pt-LuBN0C: 0ptimistic low giowth with
the auuitional assumption of possible highei
nucleai penetiation
0pt-LuLCLNu: 0ptimistic low giowth with
the auuitional assumption of lowei LNu
tianspoit costs
$GL@:C?B=>?:I
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Shale gas iesouices coiiesponuing
to the lowei-level estimates, most of
which aie ueployable at high
piouuction costs. Low uBP giowth
at iegional level
Con-LuCP: Conseivative low giowth with
the auuitional assumption of oil anu gas
piices still coupleu in the long teim
Con-LuLCLNu: Conseivative high giowth
with the auuitional assumption of lowei
LNu tianspoit costs
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Shale gas iesouices coiiesponuing
to the uppei level estimates, most of
which aie ueployable at low
piouuction costs. Bigh uBP giowth
at iegional level
0pt-BuCP: 0ptimistic high giowth with the
auuitional assumption of oil anu gas piices
still coupleu in the long teim
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2u7
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In the following section, the authois exploie the vaiious conuitions unuei which shale
gas gains impoitance in the global eneigy mix, baseu on the key factois iuentifieu anu
uiscusseu above. The iesults of the scenaiio analysis sheu light on some of the piimaiy
issues shaping the uebate about unconventional gas: foi example, the iole of gas in the
global eneigy mix; whethei shale gas will constiain oi enable the globalisation of the
gas maiket (anu its impact on tiauitional buyei-sellei ielationships); the impact of
significant global gas piouuction on eneigy seivices such as electiicity anu
tianspoitation; anu, as a coiollaiy, the iole of natuial gas as a biiuging fuel to a caibon-
fiee eneigy futuie.
0veiall, the iesults convey an impiession of unceitainty, which is uiiven by the uiffeient
assumptions maue about the gas supply cuive anu oveiall uemanu foi eneigy. These
two factois aie shown to have significant effects on total piimaiy eneigy supply,
tianspoit anu tiaue. The key task is to exploie the vaiiability of these impacts anu ielate
them to shale gas uevelopment. Thus, it will be shown that the impact of uemanu
giowth is paiticulaily impoitant foi explaining gas maiket uynamics, but its impact is
less pionounceu when piobing changes in the iole of gas in the wiuei eneigy system.
Beie, uiffeient supply cuives assume ielatively gieatei impoitance, yieluing uiffeient
tiaue anu consumption patteins as they aujust to the cost of eneigy. A ciucial aiea of
assessment in this context is, fiist of all, whethei anu to what extent the futuie of the
eneigy system will be caibon-constiaineu. A seconu factoi of impoitance is the natuial
gas piicing enviionment - i.e. the uegiee to which piices aie ueteimineu by gas maiket
uynamics iathei than linkeu to oil piices. The effect of shale gas uevelopment on this
issue will also be exploieu.
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At the outset it is useful to note the key uiffeiences in the main scenaiio iesults. Figuie
6-1u, Figuie 6-11 anu Figuie 6-12 show some useful paiameteis to keep in minu when
inteipieting the tienus anu patteins ievealeu in the subsequent analysis. Inueeu, the
global eneigy uemanu anu supply balance is subject to consiueiable vaiiation
uepenuing on a countless numbei of vaiiables. Beie, we exploie the iange of
unceitainty aiounu economic giowth anu shale gas economics. Figuie 6-1u shows the
impact of uiffeient economic giowth tiajectoiies on piimaiy eneigy uemanu. In the long
teim, an optimistic giowth scenaiio implies a 17% highei level of total eneigy uemanu
in 2uSu (iising to Su% in 2u4u). As foi gas economics, optimistic assumptions about the
shale gas supply cuive ieveal, as can be expecteu, a moie substantial iole foi this fuel in
the global piimaiy eneigy supply, as shown in Figuie 6-11. But what is inteiesting is
that gas incieases in impoitance, even in the most conseivative case of low giowth anu
unfavouiable conuitions foi shale gas uevelopment; inueeu, fiom 2u1u to 2u4u the
shaie of gas in the global eneigy supply incieases fiom 2u% to just ovei Su% of the
total.
The pictuie is somewhat uiffeient when consiueiing the impact of shale gas on the
global uistiibution of eneigy uemanu. Inueeu, even unuei uiffeient giowth tiajectoiies,
the piesence oi absence of shale gas uevelopment uoes not significantly change the
ielative shaies of uiffeient souices of piimaiy eneigy - oil, gas, nucleai anu so on -
among the uiffeient iegions. In both cases, China iemains the piimaiy engine of giowth
as it incieases its shaie of global eneigy uemanu fiom 18% to 2S%.

2u8
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ECGR=FN


2u9
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b]S]S "Q@=C:BA EB@ QCGK<;=>GL
0bseiving changes in the upstieam sectoi, two key questions come to the foie. Fiistly,
what iole can unconventional gas play in the futuie piimaiy eneigy mix. In paiticulai,
how uoes an optimistic peispective foi shale gas uevelopment affect global anu iegional
gas piouuction.
0nuei conuitions of slow giowth anu conseivative assumptions about the iesouice
base, shale gas piouuction is piojecteu to iise at a slow but steauy pace to ieach a iate of
just ovei 1uu Ntoeyeai in 2uSu anu Suu Ntoeyeai, oi 1u% of total global gas uemanu,
by 2u4u. The optimistic anu high-giowth scenaiio, on the othei hanu, shows how, unuei
assumptions of extiemely competitive extiaction costs, plentiful iesouices anu high
uBP giowth, shale gas has the potential to make up a quaitei of total global gas
piouuction by 2uSu anu be close to 4u% by 2u4u.
Figuie 6-1S also shows how total gas piouuction becomes highei in the high-giowth
scenaiio. But the impact of highei giowth on shale gas piouuction only becomes
appaient at the veiy enu of the time hoiizon
0thei unconventional souices of gas iemain ielatively unaffecteu by uiffeient giowth
tiajectoiies. In all cases, both coal-beu methane anu tight gas piogiessively lose theii
maiket shaies such that, even in the conseivative scenaiio, shale is globally competitive
aftei 2u2u anu, by 2u2S, becomes the uominant souice of unconventional natuial gas.
42


42
This iesult is, of couise, ielateu to the assumptions maue foi the economics of CBN anu tight gas, as
iefeiieu in the pievious section's uiscussion on gas piouuction costs. No exploiation of the potential
impact of uiffeient assumptions aiounu CBN anu tight gas has been caiiieu out heie.

21u
6>E<C: bIPV. ,HGJBH EB@ QCGK<;=>GL

In the scenaiio most favouiable to shale gas uevelopment, theie aie a numbei of
iegional tienus woith highlighting. As shown in Figuie 6-14, the 0SA captuies the lion's
shaie of unconventional gas piouuction in 2u2u by piouucing 7u% of the woilu's total.
Bowevei, ovei time the 0S shaie ueclines to Su% as new entiants slowly entei the
unconventional gas-piouucing maiket. In paiticulai, East Asian maikets see a suige in
shale gas piouuction aftei 2u2u such that within 2u yeais these countiies pioviue 28%
of the global unconventional gas supply (with China alone piouucing thiee quaiteis of
this figuie). 0thei iegions witness moie moueiate but steauy giowth; significant
piouuction takes place in CentialSouth Ameiica (9%), in Euiope (8%), in Afiica (7%)
anu in Canaua (6%) in 2u4u.

211
6>E<C: bIPa. "L;GL?:L=>GLBH EB@ QCGK<;=>GL >L =F: GQ=>A>@=>; F>EFIECGR=F @;:LBC>G

Tiauitional conventional gas supplieis, on the othei hanu, uo not exploit theii potential
foi shale gas uevelopment. Thus, even in the optimistic case, neithei the Foimei Soviet
0nion (which incluues the Russian Feueiation anu Caspian iegion) noi the Niuule East
significantly piouuces ieseives uuiing the peiiou unuei sciutiny. Some significant shale
gas piouuction staits in FS0 at the veiy enu of the time hoiizon, but a moie caieful
analysis of the iesults shows how, uespite having potentially vast shale gas ieseives, the
maigins between conventional anu unconventional gas iemain tilteu in favoui of the
foimei. This tienu is moie stiongly visible in the Niuule East. This means that both
iegions' ielative shaie in total global gas piouuction ueclines piopoitionately to the
inciease in shale gas piouuction in othei iegions (yieluing an aveiage of S-4% less gas
ovei the peiiou fiom 2u1u-2u4u in a case of significant shale gas piouuction). In the
case of the Niuule East, shale gas piouuction checks the iise in this iegion's shaie of
total global gas piouuction, such that a peak shaie of 17% ieacheu in 2u2S begins to
uecline uespite incieases in piouuction fiom 1 uuubcm to ovei 1 Suu bcm in 2u4u.
Nuch of this lost maiket shaie is pickeu up by piouuction in the 0SA anu to a lessei
extent by Asia anu Euiope.

212
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In teims of cumulative piouuction, tiauitional gas-piouucing iegions also see a slight
ieuuction in theii output volumes compaieu with a situation of cheap anu plentiful
shale gas. Inueeu, a look at the optimistic anu conseivative scenaiios ieveals that the
Foimei Soviet 0nion (FS0) piouuces an aveiage of 2u% less conventional gas than
woulu be the case in a situation wheie shale gas ieseives aie less abunuant anu moie
expensive to uevelop. The uiffeience is gieatei foi the Niuule East, wheie theie is an
aveiage ieuuction of 1S% in total conventional gas piouuction between the two
scenaiios ovei the peiiou 2u1u-2u4u. These figuies imply that in an optimistic case
theie is enough ioom foi new souices of unconventional gas to be uevelopeu alongsiue
conventional piouuction, but theie is also some level of competitive substitution.
0veiall, it seems that shale gas will be uevelopeu unuei any combination of scenaiios.
Bowevei, this statement belies the vast uiffeiences in total volume piouuceu. As shown
in Figuie 6-16, shale gas piouuction is subject to high levels of vaiiation uepenuing on
which assumptions eventually beai fiuit.

21S
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Bow many wells woulu neeu to be uiilleu to sustain the most optimistic scenaiio of shale gas
uevelopment in Euiope. Theie is no easy way of calculating such a figuie anu any geneial estimations
must eithei make seveial simplifying assumptions oi 'explain away' ciucial factois such as success iates,
uecline cuives, well types (e.g. 'uiy', exploiatoiy, uevelopment), iamp-up peiious anu a whole host of
pioject anu play-specific ciicumstances.
Nonetheless, an attempt to pioviue an inuicative estimate is piesenteu heie. The cumulative piouuction
of shale gas in Euiope in an optimistic case of high uemanu, low costs anu plentiful ieseives woulu total
close to S tiillion cubic meties ovei the peiiou 2u2S-2u4u, an aveiage withuiawal iate of 2uu bcm pei
annum. Two inuepenuent assessments maue within this iepoit have estimateu the ultimate iecoveiy of
gas fiom a single well to stanu at appioximately S7 mcm ovei an assumeu lifetime of Su yeais.
4S

Extiapolating fiom the 0S expeiience ovei the last ten yeais, the authois assume the neeu foi ten
exploiatoiy wells anu the piesence of ten uiy holes foi eveiy 1uu shale gas-piouucing wells uiilleu.
44

Cumulatively, in this case 6S uuu wells woulu neeu to be uiilleu uuiing the peiiou 2u2S-2u4u to maintain
this iate of piouuction, oi ioughly 4 2uu wells uiilleu on an annual basis.
Bowevei, it must be stiesseu that the iange of unceitainty is wiue. Inueeu, in a conseivative case of low
giowth, costly piouuction anu scaice iesouices, the total numbei of wells uiilleu ovei the same peiiou
coulu be as low as 7 9uu (yieluing a cumulative piouuction of S74 bcm). Thus, these estimates shoulu be
seen as puiely inuicative, even though they ioughly coiiesponu to similai iatios iuentifieu in othei
souices.
4S

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It is noimally assumeu that in a caibon-constiaineu economy the ielative impoitance of
natuial gas is likely to inciease, as it is one of the most cost-effective means by which to
maintain eneigy supplies while ieuucing C02 emissions. But what if the caibon-

4S
See Sections 2.S anu S.S.6.
44
EIA, +$#=' U-: ()= L(8#$(: B(. "A&:%$(8%$9 ()= K'7':%&,')8 V'::. (2u12, citeu 27 Apiil 2u12); available
fiom http:www.eia.govunavngng_eni_wellenu_s1_a.htm
4S
uny, '0nconventional uas'; Rogeis, 'Shale gas'. Both stuuies assume the neeu foi 8uu wells uiilleu pei
annum to sustain a piouuction plateau of aiounu Su bcm.

214
constiaineu scenaiio is consistent with the objective of halving C02 emissions by 2uSu.
Aie the most optimistic piojections about the futuie iole of natuial gas in the global
eneigy mix consistent with a caibon emissions path towaius an aveiage global
tempeiatuie iise of no moie than 2C. Will natuial gas be a cost-effective biiuge to a
low-caibon futuie.
To assess these key issues, a specific sensitivity analysis was caiiieu out, auuing to one
of the two optimistic shale gas scenaiios uesciibeu so fai (the 0pt-Lu scenaiio) to take a
path consistent with the taiget.
Figuie 6-17 shows how the global eneigy mix can change in a stiongly caibon-
constiaineu scenaiio, with a ieuuction in oveiall C02 emissions of about 4u% in 2u4u
compaieu with 2u1u emissions levels. What is inteiesting is that a highei caibon tax
uoes not necessaiily pievent natuial gas - a subset of which incluues shale gas - fiom
being uevelopeu in an optimistic scenaiio.
46
Rathei, the amount of all natuial gas
piouuceu is lowei as the caibon tax piogiessively iises. The significant change comes in
2u4u, when the amount of gas piouuceu in a caibon-constiaineu woilu is Su% less than
one in which a lowei caibon tax is in place.
In othei woius, the stiict emission taigets mouelleu uo not piecluue a significant
giowth in natuial gas use. Theiefoie the mouelling iesults suppoit the potential iole of
natuial gas as a 'biiuging' fuel.
Bowevei, theie is one qualification the ieauei shoulu beai in minu in inteipieting these
iesults. Although the mouel useu heie factois in emissions of the uiffeient fuels when
buineu, it uoes not consiuei uBu emissions uuiing mining oi tianspoitation. 0nly a
complete life-cycle compaiison of all the majoi fuels in the eneigy system can
compiehensively auuiess the contioveisy suiiounuing the life-cycle emissions of shale
gas.

46
The ieauei shoulu beai in minu that the caibon content of conventional anu unconventional gas aie the
same in the mouel, anu that the analysis uoes not incoipoiate life-cycle emissions analysis fiom theii
uiffeiing methous of extiaction.

21S
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216
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0ne of the most significant effects of the 0S shale gas 'ievolution' so fai has been its
impact on the cuiient anu peispective 0S gas tiaue. Theiefoie, one of the main insights
to be analyseu thiough a global eneigy system appioach is the potential foi a global
shale gas uevelopment to change global gas tiaue. This means answeiing questions like
the followings:
What kinu of coiielation, if any, exists between shale gas uevelopment anu gas
tiauing. Aie shale gas anu LNu tiauing complementaiy oi competitive. Woulu
shale gas uevelopment ieuuce oi inciease gas tiauing. Woulu favouiable
conuitions foi gas tiauing help the uevelopment of shale gas. 0i in othei woius,
to what extent uo the answeis to the pievious question uepenu on futuie LNu
tianspoitation costs.
Bow uoes shale gas uevelopment impact the stiuctuie of gas tiauing. Aie theie
significant changes in the flows between iegions, with cuiiently expoiting
iegions penaliseu fiom the uevelopment of shale gas. Aie theie iegions
ueveloping shale gas foi expoit. Also, is theie a uiffeience between the impact of
shale gas on LNu tiauing veisus its impact on pipeline gas tiaueu between
iegions.
ulobal gas tiauing is likely to inciease in any scenaiio, inuepenuent of high oi low uBP
giowth oi optimisticconseivative conuitions foi shale gas. This is tiue foi both
liquefieu natuial gas, which incieases two to thieefolu uepenuing on which scenaiio is
consiueieu anu also foi pipeline tiauing, which witnesses aiounu a uoubling in total
volumes tiaueu between iegions uuiing the same peiiou (2u1u-2u4u). The main cause
behinu this inciease is the massive giowth in uemanu expecteu in Asia, piimaiily in
China, a countiy which is set to impoit between S7u-7Su bcm of LNu alone by 2u4u.
Bespite these geneial tienus, a closei look at the scenaiios ieveals that shale gas uoes
inueeu affect the total volume of tiaue, paiticulaily foi LNu. As uemonstiateu in Figuie
6-18 anu Figuie 6-19, when compaiing all scenaiios, it appeais that conuitions of high
giowth anu low shale gas uevelopment aie most amenable to inteiiegional tiaue. This
implies that shale gas piouuction is pieuominately ieseiveu foi inteinal use only; theie
aie no cases wheie significant auuitions to a iegion's gas expoits occui as a iesult of
shale piouuction.
Shale gas piouuction anu the global LNu tiaue show a paiticulaily stiong
inteiielationship. With all othei factois helu constant, the scenaiio with cheapei anu
moie plentiful shale gas leaus to a coiiesponuing ieuuction in inteiiegionally tiaueu
LNu volumes compaieu with the scenaiio of moie costly anu limiteu shale gas. This is a
iesult of the ielatively cheapei cost of inuigenous piouuction anu tianspoit of gas
T-8C-) iegions. In China, foi example, LNu impoits will see a 12% uiop in a situation of
consiueiable shale gas piouuction, coiiesponuingly ieuucing the expoits of LNu fiom
othei ueveloping Asian countiies, as well as the Niuule East.

217
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But woulu moie favouiable conuitions foi gas tiauing make a uiffeience to this iesult.
In othei woius, woulu a lowei tianspoit cost foi LNu favoui impoits ovei inuigenous
shale gas piouuction. Figuie 6-19 shows that the above holus if a lowei LNu cost is

218
assumeu foi both scenaiios, even if total LNu tiaue woulu be much highei in this case:
Again the impact of an optimistic shale gas scenaiio is that it ieuuces total tiaue.
Bowevei, a seconu insight comes fiom the compaiison between total LNu tiaue in the
conseivative-Bu scenaiio (Figuie 6-18) anu the optimistic scenaiio plus low LNu cost
(Figuie 6-19). This suggests that a shale gas uevelopment woulu only ieuuce LNu tiaue
volumes unuei conuitions of the cuiiently high LNu tianspoitation costs.
The NEA iegion expoits the most in any of the scenaiios, followeu by the Afiica, 0BA
anu A0S iegions. Low LNu tianspoitation costs inciease expoits fiom each of these
iegions, but paiticulaily fiom Austialia. LNu expoits fiom Austialia aie also the most
ieuuceu in the optimistic shale gas scenaiio.
Foi pipeline tiauing (Figuie 6-2u), the tienu is somewhat uiffeient as pipeu gas iecoius
incieases in all scenaiios, inuepenuent of giowth oi shale gas piouuction assumptions.
Looking east, in the conseivative case, the FS0 begins to expoit pipeu natuial gas to
non-Chinese eastein maikets in 2u2u anu volumes eventually tiiple to ieach 9ubcm by
2u4u. But in a case of significant shale gas piouuction, this tiaue link iemains
unuevelopeu. Nonetheless, the oveiall loss in FS0 expoits is negligible as this maiket is
compaiatively small in ielation to the link between the FS0 anu China, which is
unaffecteu by significant shale gas piouuction anu giows thieefolu to 27ubcm ovei the
same peiiou. As foi Noith Ameiica, similai ieuuctions in inteiiegional pipeline tiaue
occui uepenuing on the amount of shale gas output; compaiing the optimistic with
conseivative cases, the 0SA ieuuces the neeu foi pipeline impoits fiom Canaua by an
aveiage of 27% ovei the Su-yeai peiiou.
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219
Looking at impoits, Figuie 6-21 shows the two 'extieme' scenaiios foi LNu tiaue, i.e. the
conseivative shale gas with low LNu cost anu the equivalent scenaiio with optimistic
shale gas assumptions. In both cases, the main impoiting iegion is China, which is also
the iegion wheie LNu impoits ueciease the most, assuming high shale gas uevelopment.
LNu impoits also ueciease in the Westein Euiope anu 0thei Beveloping Asia iegions.
Figuie 6-22 shows how the impact of optimistic shale gas assumptions is less significant
in pipeline tiauing than in LNu. In fact, pipeline impoits seem moie iobust to the
uevelopment of shale gas than LNu, as can be seen by the small uiffeience in pipeline
impoits to China in the figuie below. Theie aie only maiginal ieuuctions in all othei
iegions.
Now tuining to Euiope in moie uetail (see Figuie 6-2S below), pipeu gas fiom the FS0
anu Afiica iecoiu steauy incieases in both the conseivative anu optimistic cases.
Bowevei, this uoes not mean that shale gas uoes not affect inteiiegional pipeline tiaue.
Assuming that high-capacitylong-uistance lines such as South Stieam, Nabucco anu
Noiu Stieam II aie constiucteu, theii competitiveness anu full capacity use is only
assuieu in a situation wheie shale gas ieseives aie costly to uevelop. 0theiwise, shale
gas anu pipeline impoits compete foi Euiopean maiket shaie anu, in a scenaiio of
optimistic shale gas iesouices anu low giowth, Euiope's pipeline impoits fiom the FS0
become less competitive ovei time.
This tienu is moie pionounceu in Westein Euiope than in Eastein Euiope. Inueeu,
wheieas the foimei ieuuces total impoits by about Su% with significant shale gas
piouuction, the lattei can only claim a net ieuuction of 1u% in the same scenaiio. This is
likely to be uue to the compaiatively low tianspoit costs foi pipeu gas ielative to new
piouuction fiom shale gas iesouices. This means that Eastein Euiope's impoits of
pipeline gas fiom the FS0 iecoiu steauy incieases ovei the peiiou fiom 2u1u-2u4u.
Even in an optimistic case of cheap anu plentiful shale gas, impoit uepenuence in this
iegion iemains flat at aiounu 7S%. Bowevei, this tienu also uepenus on the uegiee of
giowth in eneigy uemanu. Wheie theie is a ielatively high level of uBP giowth, shale
gas takes a piopoitionally smallei shaie of Euiope's total gas supply fiom FS0 impoits -
aiounu 1u% - ovei the peiiou until 2u4u.
As a final comment, the scenaiio analysis shows the low iobustness of the iesults with
iespect to LNu cost. Figuie 6-2S shows how the stiuctuie of E0 gas impoits is veiy
sensitive to LNu cost assumptions. If LNu costs iemain at the cuiient high levels then an
optimistic shale gas scenaiio mainly uecieases LNu impoits; in the low LNu cost
scenaiio, it is the pipeline ioutes that aie mainly affecteu.
Assuming a conseivative level of shale gas uevelopment unuei conuitions of high
giowth, Euiope's LNu impoits until 2u2S aie set to iise by an aveiage of S.6 bcm pei
annum (with most of the volumes souiceu fiom the Niuule East iegion). 0nly aftei this
peiiou uoes the slow expansion of shale gas piouuction stop this upwaiu climb. In an
optimistic case of shale gas uevelopment, on the othei hanu, LNu impoits see a much
shaipei ueciease. In this case, LNu impoits fall to zeio by 2u4u as significant inuigenous
shale gas ieuuces the neeu foi ielatively costly LNu.

22u
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221
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Foi the net gas-impoiting iegions, the impact of shale gas on eneigy uepenuence laigely
uepenus on the uegiee of piouuction anu the inciease in gas uemanu. Foi Euiope, the
iesults suggest that shale gas piouuction will not make the iegion self-sufficient in
natuial gas. Even in the most optimistic case of high uBP giowth, laige ieseive size anu
low piouuction cost, Euiopean shale gas uevelopment can only compensate foi the
uecline in conventional gas piouuction (as shown in Figuie 6-24). 0nuei such
ciicumstances, this implies that Euiope's impoit uepenuence will iemain ielatively flat
ovei the peiiou to 2u4u as shale gas ieseives seive the twin puipose of shoiing up
inuigenous piouuction anu keeping pace with iising gas uemanu. In this way, shale gas
manages to ieveise what woulu otheiwise be an inciease in oveiall gas uemanu; in the
best case, shale gas uevelopment has the potential to ieuuce Euiope's uepenuence on
gas impoits by an aveiage of 6% in 2u2u to moie than 2u% in 2u4u. In othei woius, by
2u4u, impoit uepenuence uecieases fiom 79% (in the conseivative scenaiio) to S7% in
case of significant shale gas piouuction.
In some iegions wheie uemanu giowth is stiong, even a suige in shale gas piouuction
cannot pievent an inciease in impoits. This is the case in Inuia wheie the gas uemanu
incieases six-folu, moie than offsetting inuigenous shale gas piouuction. But in othei
cases, such as China, significant shale gas piouuction can inueeu stiengthen a geneial
ueciease in impoit uepenuence uespite iising eneigy uemanu. Assuming cheap anu
abunuant shale gas ieseives, China will lowei its impoits fiom thiee quaiteis to half of
the total gas uemanu by 2u4u. Bowevei, if shale gas pioves moie costly anu uifficult to
finu, China's impoit uepenuence will ieach 6u% in the same yeai.

222
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22S
In the 0SA, the total volume of net impoits is ielatively unaffecteu by unconventional
gas uevelopment. The highei ueployment of shale gas in the optimistic cases is mainly
absoibeu by the 0S gas maiket, as natuial gas seives as a substitute foi coal in the
powei geneiation sectoi. Inueeu, if shale gas is cheap anu abunuant unuei lowei giowth
assumptions, coal will geneiate only 4uuTWh of electiicity in 2u4u, insteau of the 1 8uu
TWh iesulting fiom a case of limiteu shale gas piouuction. This substantial gap of 7S%
is filleu by gas-fiieu powei geneiatois, explaining not only the thieefolu iise in the
shaie of gas useu foi electiicity geneiation ovei the peiiou fiom 2u1u-2u4u but also the
lack of significant expoit of natuial gas.
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Piimaiily, shale gas can affect the eneigy system anu its evolution thiough its impact on
the cost of eneigy anu eventually, pioviueu the eneigy maikets aie competitive, on
eneigy piices. Significant giowth in shale gas piouuction can ieuuce the gas piice,
pioviueu that the gas maiket can uecouple fiom the oil maiket.
Figuie 6-2S anu Figuie 6-26 show the ielationship between uemanu, piouuction anu
piice in a case of low giowth anu eithei high oi low shale gas piouuction. As shown, the
gieatei the uiffeience in piice between a conseivative anu optimistic scenaiio, the moie
theie is an obseivable effect on gas uemanu. In Euiope, an optimistic case of shale gas
piouuction uoes less to change piices than equivalent scenaiios in the 0SA anu China,
wheie the piice uiffeiential between conseivative anu optimistic piouuction is aiounu
$2u}. The subsequent uiffeiences in the effect of shale gas uevelopment on uemanu aie
shown in Figuie 6-26.
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224
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As uiscusseu on the following pages, in teims of final eneigy use, the main impact of
favouiable shale gas uevelopment can be expecteu in the powei geneiation anu
tianspoitation sectois. As a mattei of fact, the scenaiio analysis shows how
unconventional souices help natuial gas to challenge the uominance of coal in
electiicity geneiation anu of oil in the tianspoit sectoi.
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With iegaiu to the powei sectoi, the fiist anu most immeuiate effect of cheap anu
plentiful shale gas is a stiong effect of substitution between fuels. This is appaient fiist
of all when compaiing the iatio of gas veisus coal in the electiicity geneiation mix, as
theie is a cleai uiffeience between the conseivative anu optimistic shale gas scenaiios.
As shown in Figuie 6-28, electiicity geneiation fiom natuial gas in the optimistic
scenaiio is about a thiiu highei than in the conseivative scenaiio.
While shale gas appeais not to challenge the uominance of coal, it uoes not seem to
uetei investments in ienewable eneigy. This is appaient when consiueiing the
uiffeience between the conseivative anu optimistic cases of shale gas uevelopment.
While in the lattei gas giows piopoitionately to the uecline in the use of coal (anu to a
lessei extent nucleai powei), the uiffeience in the amount of electiicity geneiateu by
ienewables is baiely noticeable.
Figuie 6-28 also shows how this iesult uoes not change if a moie positive assumption
about nucleai powei (0pt-Lu high nucleai) is useu, i.e. if the giowth of nucleai powei is
not significantly constiaineu by social acceptance. In this case, nucleai woulu gain some
weight in the electiicity mix, but basically at the expense of coal with CCS.
Finally, the last scenaiio uepicteu in Figuie 6-28 uemonstiates how the above pictuie
changes uiamatically in a stiongly caibon-constiaineu eneigy system (0pt-Lu caibon-

22S
constiaineu), wheie the C02 emission tiajectoiy is consistent with the taiget of limiting
the global tempeiatuie iise to 2C. Assuming that electiicity geneiation with CCS will be
available, this scenaiio piojects an electiicity mix which is piogiessively uecaiboniseu.
The shaie of 'caibon-fiee' electiicity is alieauy above Su% in 2uSu anu ieaches 9u% in
2u4u (if geneiation with CCS is incluueu in the figuie). With iespect to the iole of gas in
the electiicity mix: while in the long teim its use without CCS is less than a thiiu
compaieu to the othei optimistic shale gas scenaiios, this ieuuction is paitially
compensateu by an inciease in its use in plants with CCS. As alieauy seen in Figuie 6-17,
the stiict emissions taiget mouelleu uoes not piecluue a stiongei iole foi gas in the
eneigy system, even if the iesults of this section highlight how this conclusion ielies on
the futuie availability of CCS.
6>E<C: bIST. 'H:;=C>;>=D QCGK<;=>GL JD O<:H >L OG<C @;:LBC>G@. ;GL@:C?B=>?: ?@] GQ=>A>@=>;r GQ=>A>@=>;
R>=F F>EF L<;H:BCr GQ=>A>@=>; >L B ;BCJGL ;GL@=CB>L:K :L:CED @D@=:A

Bowevei, this bioauei tienu of substitution is not unifoim acioss iegions. Nuch
uepenus on iegional specificities, in paiticulai the ielative competitiveness of the
vaiious fuels anu technologies useu in the electiicity geneiation sectoi. A look at thiee
key iegions illustiates the uiffeient types of impacts that optimistic oi conseivative
shale gas piouuction can have in this iespect. In China, foi example (see Figuie 6-28
below), the uiffeience between a conseivative anu optimistic case foi shale gas uoes
little to change the unueilying evolution of the electiicity geneiation sectoi. Bemanu foi
electiicity in China will giow significantly even when using moie conseivative figuies
foi uBP giowth, while the shaie of gas useu foi electiicity geneiation iecoius steauily
incieases in both scenaiios. But oveiall theie is only a minoi uiffeience between
conseivative anu optimistic shale gas uevelopment tiajectoiies. This implies that coal's
uominance is not seiiously thieateneu by an inciease in .C(:' gas piouuction; insteau,
foices outsiue the unconventional gas maiket aie uiiving the inciease in gas-fiieu
powei geneiation.

226
6>E<C: bISU. $F>LB7@ :H:;=C>;>=D E:L:CB=>GL JD O<:H

6>E<C: bISc. "- :H:;=C>;>=D E:L:CB=>GL JD O<:H

The same cannot be saiu foi the 0SA, wheie changes in the electiicity geneiation mix
aie much moie uepenuent on piouuction of shale gas. Inueeu, Figuie 6-29 shows a staik
uiffeience between the conseivative anu optimistic cases; in the lattei, the peicentage
shaie of natuial gas in electiicity geneiation uoubles, fiom 21% to 44% by 2u4u (an

227
aveiage annual giowth iate of S.4%). This inciease, in tuin, causes a coiiesponuingly
massive ieuuction in the use of coal-fiieu powei geneiation, such that, by the enu of the
peiiou unuei sciutiny, coal geneiates just 4uu TWh of electiicity compaieu with 2 2uu
TWh geneiateu fiom natuial gas. In a scenaiio wheie theie is less 0S shale gas
piouuction howevei, gas use in powei geneiation actually witnesses a ueciease by 2u%
ovei the same peiiou (an aveiage uecline of 1.S%), while the shaie of coal stays
ielatively buoyant. This means that much of the futuie uevelopment of the 0S electiicity
geneiating sectoi hinges on the shale gas supply cuive.
As iegaius Euiope (see Figuie 6-Su), coal is set to lose ielative maiket shaie ovei time.
But unlike the 0S case, the uiffeience between a conseivative anu optimistic case of
shale gas piouuction is fai less uiamatic. In the foimei, coal loses slightly less of its
shaie of oveiall geneiation, uiopping an aveiage of u.S% pei annum compaieu with
u.6% in a moie optimistic case. uiven this slow evolution, the inciease in the ielative
shaie of gas useu foi powei geneiation is only visible aftei 2uSu, when gas takes a 2%
shaie fiom coal anu a 1% shaie fiom ienewable eneigy. This mouest uevelopment
suggests that shale gas will not significantly boost the competiveness of gas-fiieu powei
geneiation oi altei pie-existing patteins of uevelopment in electiicity geneiation. Since
none of the two scenaiios uepicteu in Figuie 6-Su take into account a significant caibon
tax iegime, ienewables lose theii ielative shaie in the electiicity geneiation mix as
oveiall uemanu iises, inuepenuent of whethei shale gas is piouuceu oi not.
6>E<C: bIV`. '<CGQ:7@ :H:;=C>;>=D E:L:CB=>GL JD O<:H


228
b]V]S ,B@ >L =CBL@QGC=
The penetiation of gas into the tianspoitation sectoi uoes not uepenu entiiely on shale
gas piouuction. Rathei, as uiscusseu in the pievious section, it is the extent to which oil
anu gas piices aie coupleu that will be a key ueteiminant of the futuie evolution of
piices foi both sets of commouities, as well as theii iespective final uses. This is
paiticulaily tiue foi tianspoit, wheie the ielationship between oil anu gas piices
stiongly affect the futuie evolution of this sectoi.
Figuie 6-S1 shows the uegiee of penetiation of natuial gas in the tianspoitation sectoi,
compaiing the values between conseivative anu optimistic shale gas uevelopment.
Ciucially, both scenaiios assume a uecoupleu oil anu gas piice, which essentially
favouis natuial gas as it can be piiceu accoiuing to its own inteinal maiket uynamics.
Thus, in both scenaiios natuial gas giows at a steauy iate anu, unuei favouiable
conuitions, the shaie of gas in tianspoit peaks at close to 1S% by 2uSu. Theieaftei, once
the cost-competitive gas (vis--vis oil) is absoibeu by the eneigy system, the inciease in
the shaie of natuial gas becomes less pionounceu as piice 'ie-coupling' begins to occui.
6>E<C: bIVP. ,HGJBH EB@ <@: >L =CBL@QGC= >L =F: HGR ECGR=F @;:LBC>G@

The iesults set out above seem paiticulaily optimistic. Bence, a contiast must be maue
with a case in which no significant oil-gas piice ue-linkage occuis. This is uone by
compaiing two vaiiants of the conseivative low-giowth scenaiio, ievealing a significant
iole playeu by the gas-to-oil piice iatio in ueteimining the use of natuial gas in the
tianspoitation sectoi. With coupling, theie is a lowei oil-gas iatio anu hence
investments in new technologies like gas-to-liquius aie moie constiaineu. This causes
the shaie of gas in tianspoitation to be at a significantly lowei level than a case wheie
gas anu oil piices aie moie stiongly linkeu. Figuie 6-S2 below shows this ielationship.

229
6>E<C: bIVS. (F: G>HIEB@ QC>;: CB=>G ;GAQBC:K R>=F =F: <@: GO EB@ >L =CBL@QGC=

K@F 3%$"'1-5%$
This section piesenteu an exploiation of unceitainty iathei than a pieuiction of the
futuie impact of unconventional gas. The lattei is only justifieu in cases wheie theie is
gieatei ceitainty suiiounuing the ieseive size anu piouuction cost of shale gas. As these
factois become incieasingly known, it will be possible to naiiow the iange of possible
outcomes. In the inteiim, highlighting the complex anu inteiielateu outcomes of futuie
gas supply anu uemanu uevelopments constitutes a necessaiy fiist step towaiu
unueistanuing the potential impact that shale gas can make on the global eneigy
system.
Each scenaiio piesenteu heie must be seen piimaiily as 'an inteinally consistent anu
iepiouucible set of assumptions about the key ielationships anu uiiving foices of
change'.
47
This set of assumptions has been ueiiveu fiom the authois' unueistanuing of
the cuiient situation of the global eneigy system, in paiticulai the gas system, anu have
been uiscusseu as extensively as possible.
The following summaiises some pieliminaiy conclusions as to what can be expecteu -
foi Euiope anu the iest of the woilu - fiom shale gas uevelopment, anu the key factois
that can affect this uevelopment:
0veiall, the scenaiio analysis highlights that shale gas uoes have the potential to
extensively impact global gas maikets, but only unuei optimistic assumptions
about its piouuction costs anu ieseives.

47
Nebojsa Nakicenovic et al., 'Special Repoit on Emissions Scenaiios', (ueneva: Inteigoveinmental Panel
on Climate Change, 2uuu).

2Su
In a scenaiio favouiable to shale gas uevelopment, natuial gas as a whole has the
potential to captuie Su% of the woilu's total piimaiy eneigy supply by 2u2S,
fuithei iising to SS% by 2u4u. This woulu make it suipass oil as the woilu's
foiemost souice of eneigy.
Although the stiict C02 emission taigets weie mouelleu to ieuuce natuial gas
piouuction - incluuing shale gas - these taigets uo not piecluue a significant
giowth in natuial gas use. The mouelling iesults theiefoie suppoit the potential
iole of natuial gas as a biiuging fuel.
Shale gas is ielatively evenly uispeiseu aiounu the woilu anu the majoiity of
iegions will likely witness at least some level of piouuction in the futuie. The
0SA anu China aie well placeu to become the top piouuceis of shale gas,
although significant piouuction also takes place in most othei iegions. The
scenaiio analysis suggests that shale gas will tenu to be useu within the iegions
wheie it is piouuceu; howevei, no single iegion will piouuce enough shale gas so
as to move fiom being a net impoitei to a net expoitei.
The global tiaue in natuial gas, uiiven by conventional gas, will inciease in any
scenaiio. Shale gas uevelopment, howevei, has the potential to moueiate the
uegiee of giowth, paiticulaily foi inteiiegional LNu flows. Low LNu costs woulu
mitigate the ieuuction in tiaue iesulting fiom wiuespieau shale gas
uevelopment.
Significant shale gas piouuction has the potential to lowei natuial gas piices,
although to what extent stiongly uepenus on the way natuial gas will be piiceu
in the futuie. In paiticulai, oil inuexation has the potential to ieuuce the fall in
gas piices iesulting fiom shale gas uevelopment.
The uegiee of penetiation of gas in tianspoit stiongly uepenus on the oil-gas
piice link. A weakei link implies gieatei potential foi shale gas to inuuce a
significant giowth of gas use in tianspoitation.
The impact on uemanu in an optimistic shale gas scenaiio is not equal acioss all
iegions. Nuch uepenus on the ielative competitiveness of fuels anu technologies
in each iegion. This is paiticulaily appaient foi electiicity geneiation. While
shale gas can inuuce a uiamatic change in the 0S electiicity geneiation mix, its
impact on China's mix is moie limiteu.
Shale gas piouuction will not make Euiope self-sufficient in natuial gas. The best
case scenaiio foi shale gas uevelopment in Euiope is one in which ueclining
conventional piouuction can be ieplaceu anu impoit uepenuence maintaineu at
a level of aiounu 6u%. With iegaiu to tiaue flows, the stiuctuie of E0 gas
impoits is veiy sensitive to the LNu cost assumptions.

I
*##'q'-

II
* -D@=:AB=>; C:?>:R A:=FGKGHGED
Theie aie seveial ieasons why the systematic ieview appioach has become so cential to
the 'eviuence baseu' movement. Fiist, expeiience in the meuical fielu anu elsewheie
suggests that policy anu piactice aie often baseu on inauequate eviuence. Seconu, the
incieasing volume of ieseaich finuings makes it uifficult foi policymakeis anu
piactitioneis to keep abieast of cuiient unueistanuing, cieating a neeu foi moie
effective synthesis of ieseaich iesults. Thiiu, a combination of the complexity of the
ielevant issues, the vaiiable quality of ieseaich eviuence anu the methouological anu
othei biases of inuiviuual ieseaicheis, leaus to conflicting iecommenuations by
uiffeient authois anu coiiesponuing unceitainty ovei whom to tiust. This pioblem can
be exaceibateu by the selective use of eviuence by poweiful inteiest gioups anu by the
paitial anu unbalanceu tieatment of ieseaich iesults by the meuia (a pioblem that is
paiticulaily ielevant to eneigy policy).
Whilst the use of systematic ieviews thus offeis a numbei of benefits foi auuiessing the
topic of this stuuy, the methouology uoes have its weaknesses. In paiticulai, systematic
ieviews commonly auuiess naiiowly-uefineu, 'micio-level' ieseaich on which questions
may be moie answeiable but of less inteiest to policy-makeis anu piactitioneis.
Systematic ieviews have also pioveu most successful in natuial sciences wheie theie is
a tiauition of eithei expeiimental oi quasi-expeiimental ieseaich. This iaises questions
as to whethei the 'golu stanuaiu' of methouological iigoui noimally iequiieu can be
auapteu to the fielu of eneigy, wheie eviuence may be econometiic oi even qualitative
anu wheie so-calleu 'giey liteiatuie' may play an impoitant iole as a souice alongsiue
peei-ievieweu stuuies.
In light of the above, a 'iealist' application of the methouology will be employeu by this
iepoit (see Table A-1).
1
Such an auaptation has infoimeu woik by the 0KERC to auuiess
inteiesting anu ielevant eneigy policy uebates such as the costs anu impacts of
ienewable eneigy inteimittency
2
anu global oil uepletion.
S


1
R. Pawson et al., 'Realistic synthesis: an intiouuction', in "@1+ 1'.'($FC H'8C%=. E$%;$(,,'
(Nanchestei: 2uu4).
2
Robeit uioss et al., 'The Costs anu Impacts of Inteimittency: An assessment of the eviuence on the costs
anu impacts of inteimittent geneiation on the Biitish electiicity netwoik', (Lonuon: 0K Eneigy Reseaich
Centie, 2uu6).
S
Soiiell et al., '0il uepletion'.

III
(BJH: *IP. -=BE:@ GO B =CBK>=>GLBH @D@=:AB=>; C:?>:R ;GAQBC:K =G =FG@: GO B kC:BH>@=7 C:?>:R
a

(CBK>=>GLBH @D@=:AB=>; C:?>:R 0:BH>@= C:?>:R
Iuentify anu iefine a specific ieview question Claiify scope anu puipose of ieview with client anu
aiticulate the key theoiies to be exploieu
Seaich foi piimaiy stuuies, using cleai pieuefineu
inclusion anu exclusion ciiteiia
Seaich foi ielevant eviuence, iefine inclusion
ciiteiia in the light of emeiging uata
Appiaise quality of stuuies using a pieuefineu
appiaisal checklist, emphasising ielevance to the
ieseaich question anu methouological iigoui
Appiaise quality of stuuies using juugement to
supplement foimal checklist anu consiueiing
ielevance anu iigoui fiom a 'fit foi puipose'
peispective
Extiact stanuaiu items of uata fiom all piimaiy
stuuies using a template
Extiact uiffeient uata fiom vaiious stuuies using an
eclectic anu iteiative appioach
Synthesise uata to obtain effective size anu
confiuence inteival anuoi tiansfeiable themes
fiom qualitative stuuies
Synthesise uata to achieve iefinement of ielevant
theoiy - i.e., to ueteimine what woiks foi whom,
how anu unuei what ciicumstances
Nake iecommenuations, especially with iefeience
to whethei finuings aie uefinitive oi whethei
fuithei ieseaich is neeueu
Nake iecommenuations, especially with iefeience
to contextual issues foi paiticulai policy-makeis at
paiticulai times

4
Souice: Soiiel, 'Impioving the eviuence base foi eneigy policy'.

Iv
5 [:O>L>=>GL@
The inuustiy-stanuaiu teim foi uiscussing the ultimate iecoveiy fiom an inuiviuual well
is the 'estimateu ultimate iecoveiy' (E0R), usually uenoteu E0Rwell anu also
sometimes iefeiieu to as the 'piouuctivity'. E0R is essentially iuentical to 0RR, although
0RR is usually piefeiieu when iefeiiing to aieas oi iegions laigei than a well. As
uesciibeu in uetail in Chapteis S anu 4, a common pioceuuie foi estimating the
iecoveiable iesouices fiom a countiy oi iegion is thiough extiapolating values of
E0Rwell acioss an aiea. Confusion can occui ovei whethei these iecoveiable
iesouices shoulu be inteipieteu as the ultimately iecoveiable oi the technically
iecoveiable.
It is impoitant to iemembei that the estimates of iecoveiable iesouices ueiiveu in this
way iely upon the extiapolation of existing estimates of E0Rwell, not just to aieas
cuiiently being piouuceu but often into new aieas which have expeiienceu little oi no
pievious piouuction. The estimates of E0Rwell aie baseu upon the use of cuiient
technology anu so extiapolating them into new aieas woulu be expecteu to give the
iecoveiable iesouices in those aieas using cuiient technology. 0ui inteipietation is
theiefoie that estimates ueiiveu using E0Rwell shoulu be seen as the technically
iecoveiable iesouices (which assume cuiient technology only), unless it is explicitly
stateu that futuie technological auvances have been incoipoiateu into the analysis. If, by
whatevei means, economic factois aie taken into account - foi example if an authoi
estimates that some aieas will have veiy low iates of piouuction oi will iequiie
excessively complex uiilling pioceuuies anu hence uiscounts iesouices in these aieas -
the iemaining iesouices aie the economically iecoveiable iesouices.
Since E0R anu 0RR aie iuentical teims, thioughout the iepoit the notation of 0RRwell
insteau of E0Rwell is useu to avoiu confusion.
In auuition to the competing uefinitions of iesouices anu ieseives, some othei
uefinitions aie ielevant to the inteipietation of publisheu estimates. These aie
summaiiseu anu explaineu in Box B-1.
5G9 5IP. 2:B@<C:A:L= GO LB=<CBH EB@ ?GH<A:@ BLK :L:CED ;GL=:L=
Natuial gas is geneially iepoiteu on a volumetiic basis eithei in impeiial (cubic feet) oi metiic (cubic
meties) units. In the impeiial system, a piefix of 'N' usually uenotes a thousanu (so NNcf is a million
cubic feet), while in the metiic system 'm' coiiesponus to a million (so mcm is a million cubic meties). Foi
iesouice estimates, the most common piefixes aie 'B' foi a billion anu 'T' foi a tiillion, both of which aie
commonly useu with cubic meties anu feet.
It is also impoitant to know the tempeiatuie anu piessuie at which natuial gas volumes aie iepoiteu.
The EIA anu API (the Ameiican Petioleum Institute) inuicate that volumes of gas in the 0SA aie measuieu
at 6u
o
F (1S.S6
o
C) anu 14.7S psi (1 atmospheie oi 1u1.S2SkPa).
1
The 0K's Bepaitment of Eneigy anu
Climate Change (BECC) on the othei hanu inuicates that Euiopean natuial gas uata is geneially iepoiteu
again at atmospheiic piessuie but at a slightly lowei tempeiatuie of 1S
o
C.
2
These uiffeient uefinitions
coiiesponu to a volumetiic uiffeience of aiounu 4%. The majoiity of the eviuence base piesenteu below
has been piouuceu by Noith Ameiican institutions oi by oiganisations ielying upon Noith Ameiican uata
anu so the volumes piesenteu aie most likely to coiiesponu to the EIA anu API uefinitions. At these
conuitions, cubic feet can be ueiiveu by multiplying cubic meties by SS.S i.e. 1 Tcm = SS.S Tcf.

1
C. Augustine, B. Bioxon anu S. Peteison, 6)='$.8()=-); L(8#$(: B(. H($W'8. (Boston, NA: Lexecon,
2uu6), BECC, 'ENS: Atmospheiic emissions Calculations', (Lonuon: Bepaitment foi Eneigy anu Climate
Change, 2uu8).
2
BECC, 'ENS'.

v
uas can also be iepoiteu in teims of 'uiy' oi 'wet' volumes: uiy gas is the volume of gas that iemains aftei
any liquefiable oi non-hyuiocaibon poitions of the gas stieam has been iemoveu, while wet gas incluues
both uiy gas anu these liquefiable oi non-hyuiocaibon components.
S
veiy little of the eviuence base
states whethei uiy oi wet volumes of the unconventional gases have been iepoiteu. SPEPRNS inuicates
howevei that when the gas is useu in the enu sectoi sepaiately fiom any liquefiable fiactions containeu
within it, iepoiteu iesouice figuies shoulu be of uiy gas.
4
Foi this ieason, it is likely that most of the
eviuence base iepoits uiy natuial gas figuies, which will be assumeu thioughout this iepoit.
uas can also be measuieu in teims of eneigy content. The most common unit as useu on the New Yoik
Neicantile Exchange (the Beniy Bub piicing point) is the Biitish Theimal 0nit (BT0), usually iepoiteu in
NBtu (convention useu heie) oi NNBT0 (both 1 million Biitish Theimal 0nits). An alteinative unit useu
to piice gas in the 0K on the Inteicontinental Exchange (ICE) at the National Balancing Point (NBP) is the
'theim', equivalent to 1uu uuu BT0. 0ne BT0 of uiy natuial gas at 6u
o
F coiiesponus to aiounu 1 uSS}.
Conveision between volumes anu eneigy uepenus on the caloiific value of the natuial gas, which vaiies
ovei time anu with the 'wetness' of the gas. Yeaily uata fiom the 0SA since 1949 inuicates that theie aie
aiounu 1 u29 BT0 in a cubic foot of uiy natuial gas with a stanuaiu ueviation of 4 BT0, while wet gas has
an eneigy content aiounu 7.S% highei than uiy gas.
S
0ne cubic foot of uiy natuial gas at 6u
o
F is theiefoie
equivalent to aiounu 1.u8N}.
.@? >(-%10"(-9 0(-(04(- /$) ,<( RSMS )(E5$5,5%$-
Although the majoiity of existing liteiatuie uses one oi moie of the categoiies of
iesouices uesciibeu in Chaptei 2, theie is one impoitant exception: the 0SA ueological
Seivice. The 0SuS states that it pioviues estimates of "unuiscoveieu" volumes of
unconventional gases in uiffeient geological aieas of the 0SA. Two of its most iecent
stuuies foi example pioviueu the 'unuiscoveieu' iesouices in aieas of the Naicellus,
Baynesville anu Eagle Foiu shales.
6
These iepoits uo not have a cleai uefinition of the
teim junuiscoveieu'.
0ne inteipietation of the iesouice figuies given by the 0SuS is given in a papei on its
methous foi estimating unconventional gas iesouices.
7
The 0SuS states that 'essentially
all of the moveable oil oi gas in almost any |unconventionalj accumulation that can be
envisioneu has become iecoveiable fiom a puiely technical stanupoint... moie
iestiictive conuitions aie imposeu, to the extent that assesseu petioleum volumes must
not only be technically iecoveiable but must also have the potential to be auueu to
ieseives'. This inuicates that the ciiteiia iequiieu foi gas to be incluueu in the iesouice
figuies aie moie stiingent than simply iequiiing the gas to be technically iecoveiable.
Although an upuateu methouological papei issueu in 2u1u appeais to contiauict this by
stating "0SuS oil anu gas estimates aie of technically iecoveiable iesouices", it latei
iefeis to figuies being "potential auuitions to ieseives" on the iequiieu uata foims.
8


S
Society of Petioleum Engineeis et al., 'Petioleum iesouices management system', (Allen, TX: Society of
Petioleum Engineeis, 2uu8).
4
Ibiu.
S
EIA, 'Annual Eneigy Review 2u1u', (Washington, BC: 0S Eneigy Infoimation Auministiation, 2u11),
Appenuix A4.
6
Coleman et al., 'Assessment of unuiscoveieu oil anu gas', R.F. Bubiel et al., 'Assessment of unuiscoveieu
oil anu gas iesouices in }uiassic anu Cietaceous stiata of the uulf Coast', (Reston, vA: 0noteu States
ueological Suivey, 2u11).
7
The 0SuS uses the teim 'continuous' foi unconventional oil anu gas iesouices to emphasise the
geological uiffeience between these anu conventional oil anu gas ueposits. These teims aie essentially
iuentical howevei. Schmokei, 'Assessment concepts foi continuous petioleum accumulations'.
8
Chaipentiei anu Cook, 'Impioveu 0SuS methouology'.

vI
Both of these methouology papeis theiefoie suggest that figuies pioviueu by the 0SuS
shoulu be inteipieteu as 'potential auuitions to ieseives'.
A possible confusion that iemains is whethei the 'potential auuitions to ieseives'
estimates pioviueu by the 0SuS foi shale plays incluue unuiscoveieu unconventional
gas in aieas outsiue known foimations. Contacts with the 0SuS inuicate that it uoes not.
To pioviue an equal basis foi compaiing the 0SuS figuies to the estimates pioviueu by
othei oiganisations, the 0SuS figuies aie hence inteipieteu as being a subset of
iemaining technically iecoveiable iesouices that excluue both: a) iesouices that have
alieauy been classifieu as ieseives; anu b) iesouices in unuiscoveieu aieas. An estimate
of ieseives anu unuiscoveieu iesouices must theiefoie be auueu to the 0SuS figuies in
oiuei to ueteimine an estimate of the iemaining technically iecoveiable iesouices of
the 0SA.
Similai to aggiegating ieseive figuies, it is only statistically coiiect to aiithmetically
sum estimates of ieseives anu iesouices if these coiiesponu to the mean estimates. As
inuicateu above, an estimate of 2P ieseives is closest, although not iuentical, to the
mean estimate of ieseives anu so these shoulu be auueu togethei to mean estimates of
'potential auuitions to ieseives' anu iesouices in unuiscoveieu aieas.
1P ieseive estimates within the 0SA aie publically available, while INTEK
9
also pioviue
estimates of 0S 'infeiieu ieseives'. The uefinition of the teim 'infeiieu ieseives' is
uncleai as it is useu by uiffeient oiganisations to mean uiffeient things. The 0SuS in
199S foi example useu it to iefei to ieseive giowth in conventional fielus,
1u
while the
EIA inuicateu that it most likely coiiesponus to 'piobable ieseives'.
11
This latei
uefinition is piefeiieu since it is moie iecent anu moie applicable to unconventional gas
iesouices. 'Piobable ieseives' aie uiffeient fiom the uesciiption of 'pioveu anu
piobable' 2P ieseives given above in that those ieseives classifieu as pioveu ieseives
have been subtiacteu. 'Piobable ieseives' woulu appeai, theiefoie, to be equivalent to
2P minus 1P ieseives.
It is theiefoie concluueu that an estimate of the iemaining technically iecoveiable
iesouices foi the 0SA may be ueiiveu fiom the sum of:
1) 0S pioveu ieseives;
2) 0S infeiieu ieseives;
S) the 0SuS mean estimates of potential auuitions to ieseives in known foimations;
anu
4) mean estimates of unuiscoveieu technically iecoveiable iesouices.
The auuition of contempoianeous estimates of total cumulative piouuction gives an
estimate of the total technically iecoveiable iesouice of the 0SA.

9
INTEK, 'Review of emeiging iesouices'.
10
Reseive giowth is inuicateu by the 0SuS to be "iesouices expecteu to be auueu to ieseives as a
consequence of extension of known fielus, thiough ievisions of ieseive estimates, anu by auuitions of
new pools in uiscoveieu fielus. Also incluueu in this categoiy aie iesouices expecteu to be auueu to
ieseives thiough application of impioveu iecoveiy techniques." uautiei anu Suivey, 'Assessment of 0S
iesouices'.
11
EIA, 'Estimation of ieseives anu iesouices'.

vII
.@C H-,5+/,(- %E -</'( */- 0(-%10"(
A total of Su souices pioviue oiiginal countiy oi iegional-level estimates of shale gas
iesouices anu these aie listeu in Table B-1. No uistinction is maue between whethei
total oi iemaining technically iecoveiable iesouices have been iepoiteu, as the
uiffeience is ielatively minoi anu can be easily tiansfoimeu fiom one to the othei.
As inuicateu pieviously, a numbei of souices uo not inuicate whethei they have
incluueu estimates of unuiscoveieu volumes of shale gas in theii estimates of TRR. The
likelihoou of this can be ueuuceu by examining whethei they only consiuei inuiviuual,
uiscoveieu shale plays anuoi make any iefeience to the potential foi shale gas to be
founu outsiue these plays. INTEK
12
estimates that theie aie 1.6 Tcm of unuiscoveieu
shale gas iesouices in the 0SA. Bence, it is possible to conveit estimates of 'uiscoveieu
TRR' in the 0SA to estimates of 'full TRR' by auuing in the INTEK figuie. Theie aie no
estimates of unuiscoveieu shale gas outsiue the 0SA since the focus to uate has been on
those shale plays that aie known to exist.

12
INTEK, 'Review of emeiging iesouices'.

vIII
(BJH: 5IP. -FBH: EB@ C:QGC=@ QCG?>K>LE GC>E>LBH ;G<L=CD H:?:H :@=>AB=:@ JD KB=:Y ;G<L=C>:@ GC
C:E>GL@ ;G?:C:K BLK =DQ: GO C:@G<C;: :@=>AB=:
*<=FGCWGCEBL>@B=>GL [B=: GO
C:QGC=
$G<L=C>:@WC:E>GL@
;G?:C:K
0:@G<C;: :@=>AB=:
Nohi anu Evans Sep-11 Continental iegions 0RR
0SuS
a
Aug-11 0SA 'Potential auuitions to
ieseives'
Neulock, }affe anu Baitley }ul-11 9 Noith Ameiican,
Euiopean anu Pacific
countiies
TRR
b

INTEK (foi EIA) }ul-11 0SA '0npioveu, uiscoveieu
TRR'
c

Petak Nay-11 0SA. Canaua ERR
u

Kuuskiaa Nay-11 0SA TRR
EIA (AE0) vaiious
e
0SA TRR (1999-2u1u) ERR
(1997 anu 1998)
Potential uas Committee Api-11 0SA TRR
Auvanceu Resouices
Inteinational (foi EIA)
Api-11 S2 inuiviuual countiies 0uIP anu TRR
Benning Nai-11 0SA, Canaua ERR
4

Kuuskiaa anu T. van
Leeuwen
}an-11 0SA TRR
Zou et al. Bec-1u China 0uIP
Neulock anu Baitley 0ct-1u 0SA, Canaua TRR
Kuuskiaa (a) 0ct-1u 0SA TRR
WEC Sep-1u Nine continental iegions 0uIP
Nohi anu Evans }ul-1u 0SA, Canaua 0RR
Noniz, }acoby anu Neggs }un-1u 0SA TRR
Bawson Nay-1u Canaua ERR
Skippei Nai-1u 0SA, Canaua TRR
Bennings Nai-1u 0SA 0uIP anu TRR
Kuuskiaa (b) Nai-1u 0SA, Canaua TRR
Petiel Robeitson
Consulting Ltu
Nai-1u Canaua 0uIP
Bowney }an-1u 0SA, Canaua TRR
Baivey anu uiay }an-1u 0K TRR
Kuuskiaa Bec-u9 0SA, Canaua, Polanu,
Sweuen, Austiia, South
Afiica
'Recoveiable iesouices'
Potential uas Committee }un-u9 0SA TRR
Theal Nay-u9 0SA, Canaua 0uIP anu TRR
ICF (iepoiteu by Ejaz) Nai-u9 0SA ERR
4

IBS CERA Feb-u9 Euiope TRR
Nackenzie }an-u9 Euiope TRR
ICF (viuas anu Bugman) Nov-u8 0SA, Canaua 0uIP anu TRR
Smeau anu Pickeiing }ul-u8 0SA TRR
Kuuskiaa }ul-u7 0SA 0RR
Sanuiea Bec-uS 0SA, ulobal 'Recoveiable ieseives'
Laheiieie }un-u4 ulobal 0RR
Kuuskiaa }an-u4 0SA TRR anu 0RR
Rognei }an-97 Continental iegions 0uIP
Kuuskiaa anu Neyeis }an-8S 0SA, Canaua, R0W TRR

IX
a) 0SuS estimate baseu on seveial stuuies.
1S

b) Neulock inuicates that iesouice shoulu be commeicially viable so his uefinition, although
uesciibeu as technically iecoveiable iesouices, coulu be closei to ERR. This is uiscusseu in
fuithei uetail in Section S.2.
c) TRR can be ueiiveu by auuing the EIA anu INTEK figuies foi contempoianeous pioveu anu
infeiieu ieseives, unuiscoveieu iesouices anu 'unpioveu uiscoveieu technically iecoveiable
iesouices', all of which aie iepoiteu sepaiately.
u) ICF's 2u11 iepoit
14
inuicates that theie is a total of 61.S Tcm of economically iecoveiable
iesouices in the 0SA anu Canaua. It pioviues a supply cost cuive inuicating that this volume is
only iecoveiable at gas piices gieatei than $14Ncf. Since this piice is foui times highei than
cuiient gas piices (aiounu $S.SNcf on 1S Becembei 2u11), the authois consiuei that all of ICF's
estimates aie bettei inteipieteu as TRR.
e) Theie have been a total of 1S Annual Eneigy 0utlooks between 1997 anu 2u11. The AE0 in 2uuS
useu the same unconventional gas figuies as 2uu2, while the 2u11 estimate was baseu entiiely
on INTEK (2u11) anu so is iepoiteu sepaiately. Theie aie theiefoie a total of 1S AE0s incluueu in
this iow.

1S
Coleman et al., 'Assessment of unuiscoveieu oil anu gas'; B.K. Bigley et al., 'Assessment of unuiscoveieu
oil anu gas iesouices of the Anauaiko Basin Piovince of 0klahoma, Kansas, Texas, anu Coloiauo, 2u1u',
(Reston, vA: 0niteu States ueological Suivey, 2u11); Bebia Bigley et al., '2uu2 0SuS assessment of oil anu
gas iesouice potential of the Benvei Basin Piovince of Coloiauo, Kansas, Nebiaska, South Bakota, anu
Wyoming', (Reston, vA: 0niteu States ueological Suivey, 2uuS); Baviu W. Bouseknecht et al., 'Assessment
of unuiscoveieu natuial gas iesouices of the Aikoma Basin Piovince anu geologically ielateu aieas, 2u1u',
(Reston, vA: 0niteu States ueological Suivey, 2u1u); Robeit C. Nilici et al., 'Assessment of unuiscoveieu
oil anu gas iesouices of the Appalachian Basin Piovince, 2uu2', (Reston, vA: 0niteu States ueological
Suivey, 2uuS); Richaiu N. Pollastio et al., 'Assessment of unuiscoveieu oil anu gas iesouices of the Benu
Aich-Foit Woith Basin Piovince of Noith-Cential Texas anu Southwestein 0klahoma, 2uuS', (Reston, vA:
0niteu States ueological Suivey, 2uu4); C.}. Schenk et al., 'Assessment of unuiscoveieu oil anu gas
iesouices of the Peimian Basin Piovince of West Texas anu Southeast New Nexico, 2uu7', (Reston, vA:
0niteu States ueological Suivey, 2uu8); Chiistophei S. Swezey et al., 'Assessment of unuiscoveieu oil anu
gas iesouices of the Illinois Basin, 2uu7', (Reston, vA: 0niteu States ueological Suivey, 2uu7); Chiistophei
S. Swezey et al., 'Assessment of unuiscoveieu oil anu gas iesouicesof the 0S poition of the Nichigan Basin,
2uu4', (Reston, vA: 0niteu States ueological Suivey, 2uuS); 0niteu States ueological Suivey, 'National
assessment of oil anu gas iesouices upuate', (Reston, vA: 0niteu States ueological Suivey, 2u1u).
14
Petak, 'Impact of natuial gas on CBP'.

X
$ 2:=FGK@ OGC :@=>AB=>LE =F: C:;G?:CBJH: C:@G<C;:@ GO @FBH:
EB@
3@? T(-"05:,5%$ %E /::0%/"<(-
A uetaileu uesciiption of the vaiious methous foi estimating the technically oi
ultimately iecoveiable iesouices foi conventional iesouices, accompanieu by a
compaiison of iesults, is given in Soiiell et al.
1
Seveial of these methous use non-lineai
iegiession to fit cuives to histoiic uata on piouuction oi uiscoveiies foi aggiegate
iegions. Such cuives typically tienu to an asymptote, which is inteipieteu as the
ultimately iecoveiable iesouices foi that iegion. Noie sophisticateu methous iely upon
uata fiom inuiviuual fielus.
Such methous aie not cuiiently useu foi unconventional ueposits anu appeai unlikely
to be appiopiiate foi a numbei of ieasons. Fiist, the conventional appioaches aie baseu
upon implicit oi explicit assumptions iegaiuing the size uistiibution of conventional gas
fielus anu the sequence in which these fielus aie uiscoveieu anu piouuceu (i.e. with the
laigest being founu fiist). These assumptions aie not applicable to unconventional
ueposits since these aie not locateu in uisciete fielus. Seconu, sufficiently long-time
seiies uata on iegional piouuction anu uiscoveiies is cuiiently unavailable foi
unconventional iesouices, even within the 0SA. Thiiu, continuous uiilling is necessaiy
to maintain piouuction levels within a shale play
2
, so the iegional piouuction histoiy is
moie uepenuent upon the economic anu political factois affecting uiilling activity than
on any geological featuies of the iesouice. Bence, pioceuuies ielying on plotting
cumulative piouuction against time aie unlikely to pioviue any useful infoimation.
Finally, shale geology is so vaiiable that aggiegating inuiviuual shale play piouuction oi
exploiation uata that coulu be useu to estimate the iecoveiable iesouices to a iegional
level is, at least at this stage in the uevelopment of the iesouice, neithei infoimative noi
useful.
3@C ;(,<%)- 1-() 7= UNGH[ E%0 ,<( RS H$(0*= U$E%0+/,5%$
!)+5$5-,0/,5%$
INTEK
S
unueitook a ieview of all shales within the 0SA foi the latest euition of the EIA's
Annual Eneigy 0utlook as shown in Figuie C-1. INTEK sought to estimate the 'unpioveu
uiscoveieu technically iecoveiable iesouices'
4
within 19 inuiviuual shale plays in the
0SA. Aggiegate estimates of the pioveu ieseives, infeiieu ieseives
S
anu unuiscoveieu
iesouices foi the whole of the 0SA aie pioviueu within INTEK's iepoit. The sum of

1
Soiiell et al., '0il uepletion'.
2
Petak, Fiitsch anu viuas, 'Ameiican Niustieam Infiastiuctuie'.
S
INTEK, 'Review of emeiging iesouices'.
4
Elsewheie in the iepoit these aie uesciibeu as 'unuevelopeu technically iecoveiable iesouices'. Neithei
of the two uefinitions pioviueu is paiticulaily satisfactoiy. The fiist uses the teim 'uiscoveieu' in a
mannei that uiffeis fiom the SPEPRNS uefinition uesciibeu in Section 2.1.1, which woulu uesciibe the
figuies piouuceu by INTEK as 'unuiscoveieu'. The seconu implies that pioveu anu infeiieu ieseives can
only be in uevelopeu aieas, which is not necessaiily the case. 0niteu States Secuiities anu Exchange
Commission, 'Noueinization of the 0il anu uas Repoiting Requiiements: Confoiming veision (pioposeu
iule)', in 1>L 4M4mSJ?[[, eu. 0niteu States Secuiities anu Exchange Commission (2uu8).
5
As inuicateu in Section 2.1.1, infeiieu ieseives aie assumeu to be equal to 'piobable' ieseives. The sum
of pioveu anu infeiieu ieseives will theiefoie give an estimate of the 2P ieseives.

XI
these, togethei with INTEK's estimates of the unpioveu uiscoveieu technically
iecoveiable iesouices fiom each shale play, gives an estimate foi the iemaining TRR foi
the entiie 0SA. The total TRR can then be estimateu by auuing a contempoianeous
estimate of cumulative piouuction. The unuiscoveieu iesouices aie inuicateu by INTEK
to be estimateu at 1.2 Tcm in Southein Califoinia anu u.4 Tcm in the Rocky Nountain
iegion.
Foi each shale play, INTEK fiist split the whole play aiea into two aieas it teimeu the
'active aiea' anu the 'unuevelopeu aiea'.
6
Foi a few plays INTEK juugeu the whole shale
play aiea to be 'active' anu so uiu not uiffeientiate the play, but in geneial each of the
two aieas within each shale play was consiueieu sepaiately. Baseu upon a vaiiety of
technical, commeicial anu inuustiial iepoits, INTEK estimateu the 0RRwell anu well
spacing within each aiea of each shale play. The piouuct of the 0RRwell anu well
spacing with the aieal extent of the aiea unuei consiueiation coupleu with an assumeu
'success factoi'
7
yielus an estimate of the 'unpioveu uiscoveieu technically iecoveiable
iesouices' within that paiticulai aiea. The sum of the 'active' anu 'unuevelopeu' aieas
finally gives the 'unpioveu uiscoveieu technically iecoveiable iesouices' within the
whole shale play.
INTEK's success factoi, a peicentage that can vaiy between u% anu 1uu%, was assumeu
to uepenu upon thiee factois: whethei the estimates foi 0RRwell anu the well spacing
cuiiently useu weie consiueieu to be iepiesentative of what can be expecteu acioss the
whole ('active' oi 'unuevelopeu') aiea; how much expeiience theie was of geological
factois that can affect piouuction; anu how much gas hau alieauy been piouuceu oi
auueu to ieseives. Choice of appiopiiate values foi the success factoi appeais to be
ielatively subjective anu vaiies between 1u% in the 'active' aiea of the Fayettesville
shale to 1uu% in the 'active' aieas of the Eagle-Foiu anu Bainett-Wooufoiu Shales. The
aiithmetic means success factoi acioss all the shale plays is 49%.
Cuiiently piouucing 0S shale gas plays aie veiy heteiogeneous, with piouuction iates
between neighbouiing wells vaiying by a factoi of thiee anu acioss an entiie shale play
by a factoi of ten.
8
A key issue foi this methou, theiefoie, is the valiuity of taking
estimates of well spacing anu the 0RRwell fiom one aiea anu applying these to a
seconu, potentially veiy uiffeient, aiea. It is commonly the case that some aieas within
the shale have significantly highei piouuctivity anu ultimate iecoveiy than otheis.
These aie commonly iefeiieu to as 'sweet spots' anu coiiesponu with the aiea INTEK
calleu the 'active' aiea. In auuition, theie also appeais to be significant vaiiation in the
piouuctivity of wells T-8C-) sweet-spot aieas, although this uistinction paitly uepenus
on how sweet spots aie uefineu.
9

uiven this heteiogeneity, it is impoitant not to assume single values foi the 0RRwell
anu well spacing acioss the whole aiea of a shale play. This is paiticulaily ielevant

6
Again this is not a paiticulaily satisfactoiy teim to use since some paits of the 'active' aiea have not yet
been uevelopeu.
7
INTEK iefeis to applying a 'iecoveiy factoi' to the piouuct of the 0RRwell anu well spacing. This is
easily confuseu with the iecoveiy factoi useu to estimate the TRR fiom the 0uIP. INTEK's iecoveiy factoi
moie closely iesembles the factoi that geologists apply to estimate the iiskeu 0uIP fiom the total 0uIP
anu so the teim 'success factoi' seems moie appiopiiate to avoiu confusion.
8
EIA, 'Estimation of ieseives anu iesouices'.
9
Kuuskiaa, 'Case stuuy #1. Bainett Shale: The stait of the gas shale ievolution', Stiicklanu, Puivis anu
Blasingame, 'Reseives Beteiminations'.

XII
when extiapolating histoiical 0RRwell anu well-spacing estimates, since these will
only be available fiom the aieas of the shale play that have been uevelopeu fiist anu
which tenu to be the most piouuctive. Bence, they aie unlikely to be iepiesentative of
what will be encounteieu in the iemainuei of the shale. It was foi this ieason that
INTEK split most shale plays into two aieas. INTEK assumeu a lowei value foi at least
one of thiee ielevant vaiiables, namely the 0RRwell, well spacing oi success factoi in
its 'unuevelopeu' (non-sweet-spot) aieas. Which vaiiable was lowei, anu to what extent
it was lowei, uepenueu on the shale play unuei consiueiation.
Finally, INTEK assumes that the sweet-spot aiea is the total aiea leaseu by shale gas
piouuceis.
1u
As uiscusseu in Section 2.2.2, this is unlikely to be an appiopiiate
assumption.
6>E<C: $IP. 2BQ GO "- @FBH: EB@ QHBD@ MHGR:C aU @=B=:@N
PP


3@D 3%+:/05-%$ %E RSMS /$) UNGH[ +(,<%)-
The INTEK appioach uiffeis in a numbei of impoitant iespects to that useu by the 0SuS.
Fiist, the 0SuS acknowleuges the consiueiable unceitainty in all of the above factois
anu uses Nonte Cailo sampling techniques to combine these unceitainties anu estimate
a piobability uistiibution foi the ielevant vaiiables. Seconu, when ueveloping estimates
such as the 0RRwell oi the aieal extent of the shale (anu in estimating the unceitainty
in these values), the 0SuS takes geological factois into account, such as the shale
thickness anu mineialogy. The 0SuS inuicates that these factois shoulu be plotteu as
maps anu that they can affect the assumeu success iatios anuoi 0RRwell. Bowevei,
little uetail is given as to how these factois aie actually useu. Thiiu, the 0SuS splits a

1u
S. Nome anu P. }ohnston, 'Fiom shale to shining shale: a piimei on Noith Ameiican natuial gas shale
plays', (New Yoik, NY: Beutsche Bank, 2uu8).
11
INTEK, 'Review of emeiging iesouices'.

XIII
paiticulai shale play into smallei 'assessment units',
12
anu assesses each of these
inuiviuually. It theiefoie uiffeientiates between sweet-spot anu non-sweet-spot aieas
on a smallei scale than INTEK. The iecent 0SuS assessment of the Naicellus Shale
1S
foi
example split the play into thiee assessment units. Each of these units is uiviueu into
sweet anu non-sweet spots; the 0SuS theiefoie iuentifieu six uiffeient aieas within the
Naicellus Shale, each with uiffeient sizes anu piouuctivities, while INTEK only split it
into two.
Fouith, the 0SuS peiiouically upuates its iesouice assessments foi inuiviuual 0S shale
plays oi aieas of the plays anu piouuces an enu-of-yeai summaiy combining all of the
latest suiveys it has caiiieu out.
14
The latest iesouices assessments weie summaiiseu
in Table 2-4. It can be seen that some aieas have not been examineu since 2uu2. 0ne
woulu expect that those assessments piouuceu aftei 2u1u woulu have ielieu upon the
upuateu assessment methou uesciibeu above, but this uoes not appeai to be the case.
The 0SuS iecently ieleaseu the uata
1S
it useu in its most iecent assessment foi the
Naicellus Shale.
16
This uata consists of the ianges assumeu foi the paiameteis iequiieu
to estimate potential auuitions to ieseives, foi example the mean 0RRcell anu
inuicates that the olu assessment methou was useu. While uata foi the othei
assessments unueitaken since 2u1u aie not available, it seems likely that the olu
methouology was useu foi all of these. As uesciibeu above, the eailiei assessment
methouology excluueu volumes of gas estimateu to exist in non-sweet-spot aieas anu so
is likely to unueiestimate the total play TRR
17
. This iepiesents anothei impoitant
uiffeience between the assessment iesults of the 0SuS anu INTEK.
Extiapolating a mean 0RRwell fiom this aiea to the whole of the sweet spot coulu
potentially oveiestimate the iesouice potential. If these estimates aie then extenueu
acioss the entiie shale play, the iesouice potential of the iegion coulu be gieatly
oveiestimateu. The 0SuS attempteu to mitigate this pioblem by mapping a iange of
geological factois anu using these to estimate the possible piouuctivities outsiue the
aiea cuiiently in piouuction, although it has not, in the assessments it has peifoimeu so
fai, attempteu to estimate the piouuctivity of non-sweet-spot aieas. Neveitheless, its
appioach is ielatively tianspaient anu has the auvantage that unceitainties aie
explicitly accounteu foi. In contiast, INTEK uoes not pioviue any uetail on how it
estimates eithei the 0RRwell oi the well spacing in unuevelopeu oi non-sweet-spot
aieas anu theie appeais to be little empiiical basis foi the values chosen.
The 0SuS ielies upon geological assessments to classify sweet spots, while INTEK uses
the aiea leaseu by companies as a pioxy. While the lattei is a simplei anu cheapei
appioach, it is likely to ovei-simplify the pioblem foi a numbei of ieasons. Fiistly, the
acieage uetails useu appeai to be significantly out of uate. Within the Naicellus Shale,
foi example, XT0 Eneigy, puichaseu by ExxonNobil in 2uu9 when it helu aiounu
28u uuu acies, is listeu as holuing 1Su uuu acies. Similaily, Talisman Eneigy Inc. is

12
An 'Assessment 0nit' is uefineu as aieas that 'encompasses fielus (uiscoveieu anu unuiscoveieu) which
shaie similai geologic tiaits anu socio-economic factois.' 0niteu States ueological Suivey, 'Chaptei uL
ulossaiy'.
1S
Coleman et al., 'Assessment of unuiscoveieu oil anu gas'.
14
0niteu States ueological Suivey, 'National assessment of oil anu gas iesouices upuate'.
1S
EIA, @C(:' ;(.Y &$%7'= $'.'$7'. (citeu).
16
Coleman et al., 'Assessment of unuiscoveieu oil anu gas'.
17
Chaipentiei anu Cook, 'Impioveu 0SuS methouology'.

XIv
iepoiteu to holu 64u uuu acies yet in a Nay 2u1u investoi iepoit inuicates that it helu
aiounu 218 uuu acies.
18

A seconu pioblem iegaiuing INTEK's choice of sweet-spot aieas is its ieliance upon a
iepoit publisheu in 2uu8.
19
Since only a limiteu numbei of wells hau been uiilleu by
that time (e.g. only 2S4 in Pennsylvania), the piouuctivity of the leaseu aieas was not
known with any confiuence.
2u
Theie is theiefoie no ieal justification why the aiea
leaseu in miu-2uu8 shoulu coiiesponu to the sweet-spot aiea. Fuitheimoie, as
mentioneu above, given the heteiogeneity of sweet-spot aieas, assuming cuiient
piouuctivity will likely pioviue an oveiestimate foi the iemainuei of the sweet-spot
aiea.
0ne final uiawback with the INTEK iepoit is its ieliance upon highly subjective
estimates of the 'success factoi' to tianslate histoiical piouuction expeiience into an
estimate of iecoveiable iesouices foi the whole shale. The upuateu 0SuS methouology
incluues a compaiable 'success iatio' that ieflects the peicentage of wells estimateu to
piouuce at least the minimum 0RR. The upuateu 0SuS methouology, which iequiies
estimating the success iatio, was not actually useu foi any of the assessments that weie
piesenteu in Table 2-4. Neveitheless, the new 0SuS methouology estimates success
iatios at a lowei level of spatial aggiegation, basing its assumptions to a gieatei extent
on the iesults fiom uiilling activity anu using piobability uistiibutions to ieflect the
associateu unceitainties. Bence, it shoulu have a lowei uegiee of subjectivity.
3@F U+:/", %E ,("<$%'%*= %$ 0(-%10"( (-,5+/,(-
The stuuies ievieweu above have focuseu upon estimating the volume of shale gas that
coulu be iecoveieu using cuiiently available technology. As the 0SuS comments:
oGC' 6@B@ %-: ()= ;(. '.8-,(8'. ($' %D 8'FC)-F(::9
$'F%7'$(I:' $'.%#$F'. (. %&&%.'= 8% -)S&:(F' $'.%#$F'.3
G'FC)%:%;-F(: ()= 'F%)%,-F (..#,&8-%). ($' F%).'$7(8-7'
()= :-,-8'=/ -) 8C(8 8C' &$%=#F8-%) =(8( #.'= D%$ F(:F#:(8-);
T':: 611. ($' F%)8',&%$($9 8% 8C' 8-,' %D 8C' (..'..,')8333
:($;' -,&$%7',')8. -) 8'FC)%:%;9 %$ -)F$'(.-); &'8$%:'#,
&$-F'. F%#:= &%..-I:9 -)F$'(.' $'F%7'$9 D(F8%$ .#I.8()8-(::9 -)
8C' D#8#$'3 X'F(#.' 8C-. )'T ,'8C%=%:%;9 -. 8-'= 8%
F%)8',&%$($9 T'::S&$%=#F8-%) =(8(/ .#FC -,&$%7'= $'F%7'$9
D(F8%$. ($' )%8 #.'= (. &($8 %D 8C-. (..'..,')8
,'8C%=%:%;9no
As inuicateu in Section 2.2, assessment methous that explicitly allow foi futuie
technological auvances aie likely to leau to substantially laigei estimates of iecoveiable
iesouices. 0nly thiee iepoits that attempt to quantify the effects of futuie technology
uevelopment have been iuentifieu, namely a 2uu4 iepoit by Kuuskiaa,
21
a papei by the
0S National Petioleum Council
22
anu a numbei of the EIA AE0s
2S
. In each case,

18
Talisman Eneigy, 'Investoi open house Nay 2u1u: Noith Ameiican opeiations', (Calgaiy, AB: Talisman
Eneigy, 2u1u).
19
Nome anu }ohnston, 'Fiom shale to shining shale'.
2u
Naicellus Shale Auvisoiy Commission, 'uoveinoi's Naicellus Shale Auvisoiy Commission iepoit',
(Canonsbuig, PA: 2u11).
21
Kuuskiaa, 'uas iesouices, unconventional'.
22
Boluitch, '0nconventional gas'.

Xv
technological piogiess is iepiesenteu by annual peicentage incieases in the
0RRwell.
24

This peicentage, extiapolateu ovei a given time fiame anu multiplieu by a
contempoiaiy estimate of TRR, will yielu an estimate of the 0RR. Foi example, if TRR in
a paiticulai iegion is estimateu at 2.8 Tcm anu technological piogiess is estimateu to
inciease 0RRwell by Su%, then all else being equal, the 0RR foi that iegion will be
S.7 Tcm.
Table C-1 illustiates the assumeu annual impiovement in iecoveiy anu the implieu
oveiall inciease ovei a Su-yeai time peiiou. The mean of all 'meuium' estimates of the
inciease in TRR that is estimateu to occui fiom futuie technological piogiess is S6%
ovei a Su-yeai peiiou (this mean has been weighteu by the numbei of iepoits giving
each technological piogiess anu so takes into account that moie than one AE0 is
incluueu in the fiist anu thiiu iows).
The EIA fiom 2uuu to 2uu9 iuentifieu thiee technologies that it expecteu woulu
contiibute to a gieatei 0RRwell foi shale gas (anu the othei unconventional
technologies but at uiffeient iates).
2S
These weie: "geology technology mouelling anu
matching", "moie effective, lowei uamage well completion anu stimulation technology"
anu "auvanceu well completion technologies, such as cavitation, hoiizontal uiilling, anu
multi-lateial wells". The fiist two of these contiibute an annual inciease in 0RRwell
anu the thiiu an aggiegate inciease, piesumably iesulting fiom switching fiom veitical
to these new uiilling technologies, ovei the timescale of the AE0s, geneially aiounu 2u-
2S yeais. It can be seen that uiffeient AE0s assumeu slightly uiffeient iates of piogiess.
These technologies aie assumeu to be complementaiy anu so the figuies inuicateu in
Table C-1 aie the sum of the contiibution fiom each, conveiteu into an annual inciease
anu the total inciease in the Su-yeai peiiou.
The latest two AE0s (2u1u anu 2u11) use a slightly uiffeient appioach anu inuicate that
the "pace at which technology peifoimance impioves anu the piobability that the
technology pioject will meet the piogiam goals" foi 0RR foi shale gas was 8% foi
'ueveloping' iesouices anu 7% foi 'unuiscoveieu' iesouices.
26
It is not cleai what these
teims mean oi how these peicentages aie actually useu anu as veiy little explanation is
pioviueu, they aie theiefoie not incluue in Table C-1.
Two of the thiee technologies (stimulation
27
anu hoiizontal uiilling) mentioneu above
aie inueeu the technologies that have spuiieu the iecent inciease in TRR estimates. The
iate at which they woulu inciease 0RRwell has been vastly unueiestimateu, howevei.
ARI
28
inuicates that the 0RRwell within the Bainett Shale aveiageu aiounu 11.S-14.1

2S
Foi example, EIA, 'AE0 2u1u'.
24
0thei metiics foi measuiing the impact of technological piogiess on iecoveiable volumes of shale gas
can also be useu. Foi example the usual metiic foi estimating impacts of technology on conventional oil
anu gas iecoveiy is by incieases in the iecoveiy factoi IEA, 'Woilu Eneigy 0utlook 2uu8', in V%$:= ")'$;9
U#8:%%W (Paiis: 0iganisation foi Economic Co-opeiation anu Bevelopment 2uu8).
2S
Foi example, EIA, 'AE0 2uu8'.
26
Foi example, EIA, 'AE0 2u1u'.
27
Stimulation, also known as hyuiaulic fiactuiing, involves '"pumping fluius" consisting piimaiily of
watei anu sanu...injecteu unuei high piessuie into the piouucing foimation, cieating fissuies that allow
iesouices to move fieely fiom iock poies wheie it is tiappeu'. Ameiican Petioleum Institute, 'Byuiaulic
fiactuiing'.
28
Kuuskiaa, 'Case stuuy #1. Bainett Shale: The stait of the gas shale ievolution'.

XvI
mcmwell between 198S anu 199u but in 2uu7-2uu8 hau incieaseu to aiounu 6S.2
mcmwell. This coiiesponus to aiounu a 41u% inciease in 0RRwell in about a 2u-yeai
peiiou anu has occuiieu piimaiily thiough the moie wiuespieau anu impioveu use of
hoiizontal uiilling anu stimulation.
The fastest iate of inciease in 0RRwell anticipateu in Table C-1, which incluues
incieases iesulting fiom switching fiom veitical to hoiizontal wells anu the use of
hyuiaulic fiactuiing, implies an inciease of only Su% ovei a compaiable timefiame.
This significant unueiestimation of the iole of technological piogiess in the past
uemonstiates the uifficulty in estimating futuie technological piogiess, even when
using a wiue iange of potential values.
Neveitheless, it is impoitant to note that it was not the intiouuction of 'new'
technologies, i.e. technologies that hau not been employeu elsewheie anu whose
potential was unknown, but the auaptation anu utilisation of existing technologies that
leu to the laige incieases seen in the 0RRwell. The potential foi the utilisation of
entiiely 'new' technologies foi shale gas iecoveiy has not been uiscusseu in any of the
EIA AE0s. This suggests that it is the existing technologies of stimulation anu hoiizontal
uiilling that will continue to be useu in the futuie anu that incieases in 0RRwell will be
uiiven by theii moie wiuespieau usage anu impiovements in how they aie useu. New
technological bieakthioughs can nevei be iuleu out, howevei.
These two technologies, stimulation anu hoiizontal uiilling, aie now much moie wiuely
useu than in 2uuu, when the estimates of technological piogiess in 0RRwell weie fiist
given by the EIA. It theiefoie seems likely that theie is less potential foi a step inciease
thiough switching fiom veitical wells without stimulation to hoiizontal wells with
stimulation, in auuition to theie now being a bettei unueistanuing of the cuiient anu
futuie potential of these technologies. Theie has also been a significant bouy of woik
analysing the geology of inuiviuual shale plays. 0ne woulu theiefoie expect shale
geology to be now also much bettei unueistoou anu hence the scope foi futuie
impiovements in 0RRwell to be bettei appieciateu. These two factois suggest that
such a step change in 0RRwell as witnesseu between 198S anu the piesent is less
likely to occui again in the futuie.
Bowevei, anothei way to look at the iole of technology is by examining the influence of
changes in the shale gas iecoveiy factois. Even a veiy small inciease in aveiage
iecoveiy factois can have veiy significant impacts on estimateu global iecoveiable
volumes of shale gas. Foi example, using ARI's global estimate of shale gas 0uIP of
aiounu 7u8.2 Tcm,
29
a 1% inciease in iecoveiy factois globally woulu leau to an
inciease in global 0RR of 7.1 Tcm - ovei twice the global piouuction of all natuial gas in
2u1u.
Su

In conclusion, the ianges of technological piogiess suggesteu by liteiatuie as piesenteu
in Table C-1 aie likely to iepiesent a bettei appioximation of the iole of futuie
technological piogiess than they have pieviously. Bowevei, the significant impact that
even a small impiovement in technology can have on the 0RR anu the possibility of
majoi futuie technological bieakthioughs, means that, in piinciple, estimates of 0RR
will always be moie unceitain than estimates of TRR. Estimates of futuie technological
piogiess must theiefoie be inteipieteu with consiueiable caution.

29
Auvanceu Resouices Inteinational, 'Woilu shale gas iesouices'.
Su
BP, 'Statistical ieview 2u11'.

XvII
(BJH: $IP. *@@<A:K CB=:@ GO =:;FLGHGE>;BH QCGEC:@@ >L "00WR:HH OCGA ?BC>G<@ @G<C;:@
VP

-G<C;: [B=: *LL<BH >L;C:B@: )AQH>:K V`ID:BC >L;C:B@:
Low Neuium Bigh Low Neuium Bigh
EIA AE0 2uu4-2uu9 u.S% 1.S% 2.u% 8% 49% 8u%
2uuS u.4% u.S% u.6% 1S% 16% 19%
2uu1-2uu2 u.6% u.8% 1.2% 19% 2S% 4S%
2uuu u.S% u.S% 1.1% 9% 16% 41%
Kuuskiaa 2uu4 u.8% 27%
NPC 2uuS (upuateu in 2uu7) u.2% u.9% 1.S% 7% Su% S6%
2:BL `]Vp P]`p P]^p c]bp Vb]Pp ^b]Vp

S1
Note: the mean figuies have been weighteu by the numbeis of iepoits pioviuing each peicentage.
Souices: EIA, 'AE0 2u1u', Boluitch, '0nconventional gas', Kuuskiaa, 'uas iesouices, unconventional'.

XvIII
[ [:;H>L: CB=: A:=FGKGHGE>:@
Piouuction uecline fiom oil wells was fiist mouelleu by Ainolu anu Anueison
1
anu
subsequently by Cutlei
2
anu Laikey,
S
among otheis. Contempoiaiy uecline cuive
analysis has its ioots in Aips,
4
who synthesiseu anu elaboiateu a gioup of techniques
now commonly iefeiieu to as Becline Cuive Analysis (BCA). BCA typically involves
fitting a cuive to a time seiies of monthly oi annual piouuction fiom a well oi fielu anu
extiapolating this cuive into the futuie to foiecast piouuction iates anu ultimate
iecoveiy. Aips iuentifieu two main functional foims foi these cuives: exponential anu
hypeibolic. Noie auvanceu foimulations of BCA equations exist,
S
with some being
explicitly uevelopeu foi the analysis of tight gas anu shale gas ieseivoiis.
6
Bowevei,
theie is an ongoing uebate about the appiopiiateness of uiffeient functional foims foi
simulating piouuction uecline fiom shale gas wells.
Exponential piouuction uecline takes the foim

'_<B=>GL [IP
Wheie q(t) is the iate of piouuction at time t, qi is the initial iate of piouuction at t=u anu
D is a constant ieflecting the uecline iate ( 0 ! D ). The coiiesponuing equation foi
hypeibolic uecline is:

'_<B=>GL [IS
Wheie K- is the initial uecline iate (8=u) anu I is a constant, commonly teimeu the Aips
uecline constant, which typically (but not always) lies between u anu 1.u.
7
The
appiopiiate value of this constant is often the focus of uisputes in uecline cuive analysis.
These two functional foims aie illustiateu in Figuie B-1. Foi two cuives with the same
initial piouuction iate anu the same initial uecline iate, the hypeibolic cuive flattens
eailiei, maintaining a gieatei piouuction iate foi any given time. The aiea unuei the

1
R. Ainolu anu R. Anueison, 'Pieliminaiy iepoit on Coalinga oil uistiict', in 6@ B'%:%;-F(: @#$7'9 X#::'8-)
(19u8).
2
W.C. Cutlei, 'Estimation of unueigiounu oil ieseives by oil-well piouuction cuives', (Washington, BC:
Bepaitment of the Inteiioi, 1924).
S
C.S. Laikey, 'Nathematical ueteimination of piouuction uecline cuives', G$(). J>H" 71 (192S).
4
Aips, eu., J)(:9.-. %D K'F:-)' +#$7'..
S
Ibiu, Fetkovich, 'Becline Cuive Analysis'.
6
Ilk et al., 'Integiating Nultiple Piouuction Analysis Techniques To Assess Tight uas Sanu Reseives:
Befining a New Paiauigm foi Inuustiy Best Piactices'; P.P. valko, 'Assigning value to Stimulation in the
Bainett Shale: A Simultaneous Analysis of 7uuu Plus Piouuction Bistoiies anu Well Completion Recoius'
(papei piesenteu at the SPE Byuiaulic Fiactuiing Technology Confeience, Wooulanus, TX, 2uu9).
7
B. Ilk et al., 'Exponential vs. Bypeibolic uecline in tight gas sanus: unueistanuing the oiigin anu
implications foi ieseive estimates using Aips' uecline cuives' (papei piesenteu at the SPE Annual
Technical Confeience anu Exhibition, Benvei, C0, 2uu8).

XIX
uecline cuive, fiom when piouuction begins to when it finally enus iepiesents the
ultimately iecoveiable iesouice fiom the well.
6>E<C: [IP. '9QGL:L=>BH BLK FDQ:CJGH>; K:;H>L: ;<C?:@ R>=F :_<BH >L>=>BH QCGK<;=>GL BLK K:;H>L:
CB=:
!
"
#
$
#
!"#$%&%'()*
+,#&-.$*(/

The exponential uecline cuive exhibits a constant iate of uecline, K (i.e. the peicentage
change in piouuction between time 8 anu time 8pN is constant) anu a plot of the natuial
log of piouuction against time takes the foim of a stiaight line (Figuie B-2). In contiast,
the hypeibolic uecline cuive exhibits a ieuucing uecline iate ovei time, so a plot of the
natuial log of piouuction against time takes the foim of a cuive (Figuie B-2). The
constant I iepiesents the iate with which that uecline iate ieuuces.
6>E<C: [IS. -:A>IHGE QHG= GO :9QGL:L=>BH BLK FDQ:CJGH>; K:;H>L: ;<C?:@
!
"

$
%
&
'
&
!"#$%&%'()*
+,#&-.$*(/

While oiiginally applieu to oil piouuction, uecline cuives aie now commonly applieu to
gas fielus, incluuing shale gas. Bowevei, given the ielatively iecent natuie of most shale
gas plays, the histoiical eviuence with which to estimate uecline cuives is ielatively
limiteu. The level of unceitainty may be expecteu to inciease with the time peiiou ovei

XX
which cuives aie extiapolateu, but to estimate the 0RRwell, extiapolation ovei long
time peiious is iequiieu. In auuition, the iapiu technical uevelopments ovei the past few
yeais aie likely to have affecteu the pattein anu iate of piouuction uecline - so newei
wells may not necessaiily behave in the same fashion as oluei wells, even when the
geology is similai. These factois have fuelleu the uebate iegaiuing the appiopiiate
choice anu use of uecline cuives in shale gas aieas.
8

Whilst the exponential uecline cuive is simplei, the hypeibolic cuive is often founu to
pioviue a moie accuiate mouel of conventional oil anu gas fielus, since the iate of
piouuction uecline typically slows iathei than iemaining constant. Piouuction fiom
conventional gas wells typically ueclines by 2S-4u% pei yeai in the eaily stages,
9
but
piouuction fiom shale gas wells ueclines even fastei - foi example, by as much as 6S-
8S% pei yeai.
1u
But iathei than focusing on the initial iate of uecline, which is appaient
aftei only a few months of piouuction, the contentious question is how quickly anu by
how much will these uecline iates ieuuce.
The uebate has sometimes been chaiacteiiseu as an aigument between hypeibolic anu
exponential uecline.
11
Bowevei, exponential uecline can be vieweu as a special case of
hypeibolic uecline wheie I=u. The uebate may theiefoie be iecast as 'what is the
appiopiiate value of I.' Figuie B-4 illustiates the change in hypeibolic uecline as I
vaiies between u.u1 anu u.99.
The theoietical basis foi a hypeibolic uecline cuive assumes 'bounuaiy-uominateu flow'
- wheie the influence of the ieseivoii bounuaiies affects the flow-iate behavioui. In
these ciicumstances, I is noimally founu to be between u anu 1. Bowevei, shale gas anu
othei unconventional gas iesouices exhibit moie 'tiansient' oi heteiogeneous flow
iates
12
anu it is possible to fit cuives with I constants gieatei than 1. To coiiect foi the
anomaly that hypeibolic uecline suggests infinite piouuction, a point of economic
tiuncation must be assumeu, wheie the value of piouuceu gas uiops below some
assumeu cost of opeiation. The well is then assumeu to be no longei piofitable anu is
'shut-in'. Such calculations iequiie assumptions about the capital anu opeiating cost of
the well, the expecteu piice of gas ovei the well lifetime anu the peiiou of time ovei
which these costs shoulu be amoitiseu. Some estimates, baseu on a gas piice of $S
thousanu cubic feet, suggest that wells in the Bainett Shale aie no longei piofitable
when piouucing below 1 million cubic feet pei month.
1S

While estimates of I constants gieatei than 1 aie possible, 0RR estimates appeai to be
moie sensitive to vaiiation in these highei values of I3 Figuie B-S piesents the outcome
of an analysis of 44 fielus in the Baynesville play.
14
In this figuie 0RR estimates aie
piesenteu on the y axis while I constant values aie piesenteu on the x axis. Both initial
piouuction anu initial uecline aie fixeu. Baseu on this analysis, the change in 0RR

8
Ibiu, }.P. Spivey et al., 'Applications of the Tiansient Bypeibolic Exponent' (papei piesenteu at the SPE
Rocky Nountain Petioleum Technology Confeience, Keystone, C0, 2uu1).
9
}.B. Bughes, 'Will Natuial uas Fuel Ameiica in the 21st Centuiy.', (Post Caibon Institute, 2u11).
1u
Chesapeake Eneigy, 'Investoi anu analyst meeting'.
11
Bizaiu, 'Bebate'.
12
Tiansient oi heteiogeneous flow is uefineu as a changing flow iate ovei time. In the context of shale gas
this means that the flow iate is moie volatile than bounuaiy-uominateu flow iates, with the potential iate
of change being moie uiamatic.
13
The methou of calculation of this figuie anu assumptions aie not given. Beiman, 'Shale uas-Abunuance
oi Niiage. Why The Naicellus Shale Will Bisappoint Expectations'.
14
Ibiu.

XXI
estimates ovei a change in I constant appeais to inciease as I incieases. This implies
that even small eiiois in the assumeu I constant will have laige impacts on the
estimateu 0RR. It is also suggesteu in this analysis that uiffeient I constants cieate
hypeibolic cuives that fit the uata equally well. This unueilines the possibility of making
a small eiioi in assumeu I constant potentially leauing to a significant eiioi in
estimateu 0RR if I is assumeu to be gieatei than 1.
6>E<C: [IV. )AQH>;B=>GL@ GO ?BCD>LE 7 OGC :@=>AB=:@ GO "00 OGC aa R:HH@ >L =F: 4BDL:@?>HH: -FBH:
P^

!
"
#
$
%
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#
'
(
)
*
*
+ -./"#&/#

Eviuence suggests that shale gas wells aie likely to be closeu uown aftei ielatively shoit
peiious of piouuction. In an analysis of well uata fiom the Bainett Shale between 2uu1
anu 2uu8, Sutton et al.
16
founu that 1u% of the hoiizontal wells useu to piouuce shale
gas weie shut-in within 4u months of initial piouuction. This compaies to veitical wells
in the same iegion which took ovei 7u months to lose the same peicentage of piouucing
wells. The uiffeience in expecteu longevity between hoiizontal anu veitical wells is a
function, amongst othei things, of the uecline iate anu the cost of well constiuction anu
opeiation. The implications, theiefoie, aie that using veitical well uecline iates to
estimate hoiizontal well behavioui will likely oveiestimate futuie well longevity.
Bowevei, some authois have suggesteu that shale gas wells have been maintaineu past
this economically iational point in oiuei to avoiu uowngiauing company ieseive
estimates.
17


1S
Souice: Aips, eu., J)(:9.-. %D K'F:-)' +#$7'..
16
R.P. Sutton, S.A. Cox anu R.B. Baiiee, 'Shale uas Plays: A Peifoimance Peispective', in G-;C8 B(.
+%,&:'8-%). +%)D'$')F', eu. Society of Petioleum Engineeis (San Antonio, TX: 2u1u).
17
Beiman, 'Shale uas-Abunuance oi Niiage. Why The Naicellus Shale Will Bisappoint Expectations';
Beiman, 'Abunuance oi Niiage.'.

XXII
6>E<C: [Ia. &BC>B=>GL GO FDQ:CJGH>; K:;H>L: R>=F =F: ?BH<: GO 7
!
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ueologists typically estimate uecline cuives foi wells oi gioups of wells with the help of
non-lineai iegiession techniques.
18
Bowevei, this foim of cuive fitting may have limiteu
accuiacy if only shoit peiious of histoiical uata aie available. A key uifficulty is that
cuives with uiffeient functional foims anuoi paiametei values can fit shoit peiious of
uata compaiably well but leau to substantially uiffeient estimates of the 0RR (see
Figuie B-S anu suiiounuing uiscussion). In these ciicumstances, an alteinative is to
base the choice of cuive anu paiameteis on uata fiom 'analogues' - that is, wells with a
longei piouuction histoiy that aie in aieas with similai geological chaiacteiistics. The
guiuelines on what may be consiueieu an appiopiiate analogue aie now well uefineu.
19

Neveitheless, some commentatois aigue that iesouice estimates aie fiequently baseu
upon inappiopiiate analogues.
2u
The consiueiable vaiiability in uecline iates between
uiffeient shale gas aieas highlights the potential eiioi associateu with using
inappiopiiate analogues.
21
This vaiiability also affects the minimum gas piice neeueu to
suppoit gas piouuction in uiffeient shale gas aieas. Foi example, between 2uu8 anu
2uu9, a shale gas piice of $4Ncf woulu suppoit piouuction in the Bainett anu
Fayetteville Shales, while a piice of $6Ncf feet woulu be iequiieu in the othei aieas.
22

Bue to the uifficulties associateu with hypeibolic uecline cuives, seveial authois have
suggesteu using a new uecline cuive foimulation known as the 'powei-law exponential'
iate ielation foi shale gas wells insteau.
2S
But while this new foimulation coulu
potentially succeeu the hypeibolic uecline cuive as best piactice, it seems unlikely to
have a significant impact on the estimation of 0RR in shale gas wells foi some time. The
continuing concein ovei the accuiacy of hypeibolic uecline cuives has also piompteu

18
}ikich anu Popa, 'Bypeibolic Becline Paiametei Iuentification'.
19
}.E. Bougin anu B.R. Baiiell, 'The Selection, Application, anu Nisapplication of Reseivoii Analogs foi the
Estimation of Petioleum Reseives' (papei piesenteu at the SPE Annual Technical Confeience anu
Exhibition, San Antonio, TX, 2uu6); R. Siule anu W.}. Lee, 'An 0puate on the 0se of Reseivoii Analogs foi
the Estimation of 0il anu uas Reseives', @E" "F%) ` H;,8 2 no 2 (2u1u).
2u
Bougin anu Baiiell, 'Reseivoii Analogs'.
21
Chesapeake Eneigy, 'Investoi anu analyst meeting'.
22
Baihly et al., 'Shale uas Piouuction Becline Tienu Compaiison'.
2S
Ilk et al., 'Integiating Nultiple Piouuction Analysis Techniques To Assess Tight uas Sanu Reseives:
Befining a New Paiauigm foi Inuustiy Best Piactices'; Ilk et al., 'Exponential vs. Bypeibolic uecline';
Stiicklanu, Puivis anu Blasingame, 'Reseives Beteiminations'.

XXIII
some authois to suggest that theii use may not qualify unuei the 0S Secuiities anu
Exchange Commission's (SEC) guiuance on the iepoiting of ieseives.
24

Finally, analytical mouels, oi theii combination in 'hybiiu' methouologies, pioviue an
alteinative ioute to ueiive the I constant.
2S
Becline cuives have tiauitionally been an
empiiical technique in which futuie estimates aie ueiiveu by extiapolating histoiical
uata. These cuives may bettei ieflect the latei stages of shale gas well piouuction, the so
calleu bounuaiy-uominateu flow.
26
Newei analytical mouels seek to ueiive flow
chaiacteiistics fiom hoiizontal, fiactuieu wells thiough computei simulations, which
mouel the shape, piessuie anu chaiacteiistics of these wells.
27
These analytical
techniques may iepiesent the initial tiansient flow moie accuiately.
28
By applying a
combination of these techniques, geologists have cieateu hybiiu methouologies that
help to balance the potential bias of each technique as the well tiansitions fiom
tiansient flow to bounuaiy-uominateu flow. These hybiiu methous aie new anu it is
uncleai whethei they will piove valuable given the effoit associateu.


24
Lee anu Siule, 'Reseives Estimation'.
2S
Ray }. Ambiose et al., 'Life-Cycle Becline Cuive Estimation foi TightShale Reseivoiis' (papei piesenteu
at the SPE Byuiaulic Fiactuiing Technology Confeience, Wooulanus: TX, 2u11); }.N. Thompson, v.0.
Nangha anu B.N. Anueison, 'Impioveu Shale uas Piouuction Foiecasting 0sing a Simplifieu Analytical
Nethou-A Naicellus Case Stuuy', in L%$8C J,'$-F() 6)F%)7')8-%)(: B(. +%)D'$')F' ()= "AC-I-8-%), eu.
Society of Petioleum Engineeis (The Wooulanus, TX: 2u11).
26
Ambiose et al., 'Life-Cycle Becline Cuive Estimation'.
27
L. Laisen anu T.N. Begie, 'Piessuie-Tiansient Behavioi of Boiizontal Wells With Finite-Conuuctivity
veitical Fiactuies, (papei piesenteu at the Inteinational Aictic Technology Confeience, Anchoiage, AK,
1991).
28
Ambiose et al., 'Life-Cycle Becline Cuive Estimation'; Thompson, Nangha anu Anueison, 'Impioveu
Shale uas Piouuction Foiecasting 0sing a Simplifieu Analytical Nethou-A Naicellus Case Stuuy'.

XXIv
' 5:@= :@=>AB=:@. ;FBCB;=:C>@>LE =F: <L;:C=B>L=D
Foui iegions weie given in Table 2-6 wheie high, best anu low estimates have been
iuentifieu. Theie is no eviuence foi the shape of the piobability uistiibutions that will be
founu between these points, howevei. Theie is also no eviuence of whethei the high anu
low points shoulu be inteipieteu as absolute maxima anu minima oi whethei they
shoulu be seen moie as extieme, but not maximum values such as the 9S
th
anu S
th

peicentiles. uiven this lack of eviuence, a possible appioach is to choose as many
uistiibutions that aie juugeu to be appiopiiate, assume that all of these have equal
weighting anu combine them using statistical pioceuuies. uiven that the high anu low
points aie, in geneial, not equally spieau about the cential value, the uistiibutions must
be capable of being asymmetiic.
vaiious uistiibutions have been useu foi such puiposes pieviously
1
anu woulu incluue
tiiangulai oi beta uistiibutions, with the high anu low values at both the maxima anu
minima anu the 9Sth anu Sth peicentiles. A selection of possible uistiibutions is shown
in Figuie E-1. An aggiegate uistiibution foi each iegion with moie than one possible
uistiibution coulu be ueiiveu, foi example, by ianuomly sampling fiom each.
6>E<C: 'IP. '9BAQH:@ GO QG@@>JH: QCGJBJ>H>=D K>@=C>J<=>GL@ J:=R::L :@=>AB=:@ >L B @:H:;=>GL GO
C:E>GL@
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2
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4
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=>
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="#$)# >";'). ?:'":


1
v. vouuouiis, 'The ACEuES Pioject: An ACE Nouel foi the Availability of ulobal Conventional 0il Supply',
in Nq8C >)8'$)(8-%)(: +%)D'$')F' %) +%,&#8-); -) "F%)%,-F. ()= 2-)()F', eu. Society foi Computational
Economics (2u1u).

XXv
! "#$%&'(& *+,&
-+*.& !/01 23(45&'6+6$3' +'% (.+,,$7$(+6$3' 37 68& &#$%&'(& *+,&
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
9.4D3 Aug-u1 No 11 countiies CBN TRR Liteiatuie ieview
9EF GH44,D:++I Nay-11 No 0SA Shale TRR Nethou not stateu It is likely that Kuuskiaa auopts a
bottom-up analysis of geological
featuies appioach as useu in ARI Apiil
2u11 iepoit, but this is not stateu
9EF GH44,D:++J
K6&#&', &6 +.LI
Api-11 Yes S2 inuiviuual
countiies
woiluwiue
Shale 0uIP anu TRR Bottom-up analysis of
geological paiameteis

9EF GH44,D:++I }an-11 No 0SA Shale TRR Nethou not stateu
CBN TRR Nethou not stateu
Tight TRR Nethou not stateu
9EF GH44,D:++I 0ct-1u No 0SA Shale TRR Nethou not stateu
9EF GH44,D:++I Nai-1u No 0SA, Canaua Shale TRR Nethou not stateu
9EF GH44,D:++I Bec-u9 No Rest of Woilu Shale TRR Not inuepenuently
assesseu: baseu on
Rognei (1997) anu IEA
WE0 2uu9
Recoveiy factoi of 4u% suggesteu
0SA, Canaua,
Polanu, Sweuen,
Austiia, South
Afiica
Shale 'Recoveiable
iesouices'
Nethou not stateu
ulobal Tight TRR Not inuepenuently
assesseu: baseu on
Rognei (1997) anu IEA
WE0 2uu9
Recoveiy factoi of Su% suggesteu
Inuiviuual
countiies
woiluwiue
CBN 0uIP anu TRR Nethou not stateu
9EF GH44,D:++I }ul-u7 No 0SA Shale 0RR Bottom-up analysis of
geological paiameteis


XXvI
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
CBN 0RR Bottom-up analysis of
geological paiameteis

Tight 0RR Bottom-up analysis of
geological paiameteis

M@E GHN5B&.I Nov-u9 No Inuiviuual
countiies
woiluwiue
CBN TRR Nethou not stateu
Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Boluitch anu Chianelli,
Kawata anu Fujita, anu
Rognei
No iecoveiy factoi suggesteu
Tight 0uIP Not inuepenuently
assesseu: baseu on
Boluitch anu Chianelli,
Kawata anu Fujita, anu
Rognei
No iecoveiy factoi suggesteu
=+$'&'? &6 +.L Bec-1u Yes China Shale 0uIP Bottom-up analysis of
geological paiameteis

=8+68+5 O34,&
GK6&#&',I
Sep-1u No Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Boluitch (2uu7)

2+<,3' Nay-1u No Canaua Shale ERR Nethou not stateu Inuications baseu on Petiel Robeitson
Consulting (2u1u) iepoit; howevei, this
iepoit uoes not incluue any ERR
figuies.
CBN ERR Nethou not stateu
Tight ERR Nethou not stateu
2"== GO+:#&A +'%
@:+AI
}an-1u No 0K Shale TRR Extiapolation of
piouuction expeiience


XXvII
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
"F9 G9"PI vaiious No 0SA Shale TRR Bottom-up analysis of
geological paiameteis
Theie have been a total of 1S Annual
Eneigy 0utlooks between 1997 anu
2u11. The AE0 in 2uuS useu the same
unconventional gas figuies as 2uu2,
while the 2u11 estimate was baseu
entiiely on INTEK (2u11) anu so is
iepoiteu sepaiately.
!"E= Nay-1u No 0SA Shale TRR Not inuepenuently
assesseu: baseu on
'Ameiican Clean Skies
Founuation'

@Q'A Bec-1u No Euiope CBN TRR Not inuepenuently
assesseu: baseu on
Woou Nackenzie
'0nconventional
Byuiocaibons' Nulti-
client Stuuy

Tight TRR Not inuepenuently
assesseu: baseu on
Woou Nackenzie
'0nconventional
Byuiocaibons' Nulti-
client Stuuy

Shale TRR Not inuepenuently
assesseu: baseu on 'IBS
CERA uas fiom Shale:
Potential 0utsiue Noith
Ameiica.'

@.3*+. R+:5$'?
;3.$(A !34'%+6$3'
GE$%.&AI
Api-11 No ulobal Shale 0uIP anu TRR Not inuepenuently
assesseu: baseu on ARI
iepoit

CBN 0uIP anu TRR Not inuepenuently
assesseu: baseu on ARI
iepoit


XXvIII
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
O&''$'?, Nai-1u No 0SA Shale 0uIP anu TRR Bottom-up analysis of
geological paiameteis

O3.%$6(8 +'%
=8$+'&..$
Api-u8 Yes Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
(although not stateu)
No iecoveiy factoi suggesteu
CBN 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
(although not stateu)
No iecoveiy factoi suggesteu
Tight 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
(although not stateu)
No iecoveiy factoi suggesteu
O3.%$6(8 }ul-u7 No Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
'Tight uas Sanus'
Boluitch (2uu6)

CBN 0uIP Not inuepenuently
assesseu: baseu on
'Tight uas Sanus'
Boluitch (2uu6)

Tight 0uIP Not inuepenuently
assesseu: baseu on
'Tight uas Sanus'
Boluitch (2uu6)

O3.%$6(8 }un-u6 Yes Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997) taken
fiom Kawata anu Fujita
(2uu1). No iecoveiy
factoi stateu
No iecoveiy factoi suggesteu

XXIX
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
CBN 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997) taken
fiom Kawata anu Fujita
(2uu1). No iecoveiy
factoi stateu
No iecoveiy factoi suggesteu
Tight 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997) taken
fiom Kawata anu Fujita
(2uu1). No iecoveiy
factoi stateu
No iecoveiy factoi suggesteu
F=! Nai-u9 No 0SA Shale TRR Bottom-up analysis of
geological paiameteis
Repoiteu by NIT supplementaiy papei
(Ejaz (2u1u) SP2.2)
The authois consiuei that all of ICF's
estimates aie bettei inteipieteu as TRR
CBN TRR Bottom-up analysis of
geological paiameteis
The authois consiuei that all of ICF's
estimates aie bettei inteipieteu as TRR
Tight TRR Bottom-up analysis of
geological paiameteis
The authois consiuei that all of ICF's
estimates aie bettei inteipieteu as
TRR.
F=! G;&6+DI }un-11 No 0SA. Canaua Shale ERR Bottom-up analysis of
geological paiameteis
This iepoit inuicates that theie is a
total of 61.S Tcm of economically
iecoveiable iesouice in the 0SA anu
Canaua. It pioviues a supply cost cuive
inuicating that this volume is only
iecoveiable at gas piices gieatei than
$14Ncf. Since this piice is foui times
highei than cuiient gas piices (aiounu
of $S.SNcf on 1S Becembei 2u11), the
authois consiuei that all of ICF's
estimates aie bettei inteipieteu as
TRR.

XXX
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
F=! GO&''$'?I Nai-11 No 0SA, Canaua Shale ERR Bottom-up analysis of
geological paiameteis
The authois consiuei that all of ICF's
estimates aie bettei inteipieteu as
TRR.
F=! GS$%+, +'%
O4?5+'I
Nov-u8 No 0SA, Canaua Shale 0uIP anu TRR Bottom-up analysis of
geological paiameteis

CBN TRR Nethou not stateu
Tight TRR Nethou not stateu
F"9 G;:$%%.&I }an-11 Yes Continental
iegions
Shale TRR Not inuepenuently
assesseu: baseu on ARI
iepoit (Kuuskiaa,
Stevens et al. 2u11)

CBN TRR Not inuepenuently
assesseu: baseu on
Rognei (1997)
Recoveiy factoi of aiounu 2S%
suggesteu
Tight TRR Not inuepenuently
assesseu: baseu on
Rognei (1997)
Recoveiy factoi of aiounu 4u%
suggesteu
FOK ="E9 G23<'&AI }an-1u No 0SA, Canaua Shale TRR Nethou not stateu
FOK ="E9 Feb-u9 No Euiope Shale TRR 0nknown Repoiteu by R. Weijeimais et al.,
'0nconventional gas ieseaich initiative
foi clean eneigy tiansition in Euiope'.
!"#$%&' ") *&+#$&' ,&- ./01%/1 &%2
3%40%11$0%4, 2u11. S(2): p. 4u2-412.
FC-"H G73: "F9I }ul-11 No 0SA Shale '0npioveu,
unuiscoveieu
TRR'
Extiapolation of
piouuction expeiience
TRR can be ueiiveu fiom this figuie by
auuing pioveu anu infeiieu ieseives;
unuiscoveieu iesouices aie iepoiteu
sepaiately
H+<+6+ +'% !4T$6+ Api-u1 No Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
No iecoveiy factoi suggesteu
CBN 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
No iecoveiy factoi suggesteu

XXXI
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
Tight 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
No iecoveiy factoi suggesteu
H48' +'% U5*+(8 Nay-11 Yes Continental
iegions
Shale 0uIP anu TRR Not inuepenuently
assesseu: baseu on
BuR
1


CBN TRR Not inuepenuently
assesseu: baseu on BuR

Tight TRR Not inuepenuently
assesseu: baseu on BuR

H44,D:++ }an-u4 No 0SA Shale 0RR anu TRR Nethou not stateu
H44,D:++ }an-98 No 12 countiies CBN 0uIP anu TRR Nethou not stateu Repoiteu in Kuuskiaa, v.A., Natuial gas
iesouices, unconventional, in
3%/5/'"6120& ") 3%1$45, C.}. Clevelanu,
(eu.). 2uu4, Elseviei Inc. p. 2S7-272.
H44,D:++ 0ct-92 No 12 countiies CBN 0uIP anu TRR Extiapolation fiom coal
iesouices

CBN 0RR anu TRR Nethou not stateu
Tight 0RR anu TRR Nethou not stateu
H44,D:++ +'%
V&A&:,
}an-8S No 0SA, Canaua, R0W Shale 0uIP anu TRR Liteiatuie ieview Coulu equally be an expeit opinion
Tight 0uIP anu TRR Liteiatuie ieview Coulu equally be an expeit opinion
Continental
iegions
CBN 0uIP anu TRR Bottom-up analysis of
geological factois

W+8&::&:& }un-u4 No ulobal Shale 0RR Expeit juugment
V&%.3(D +'%
O+:6.&A
0ct-1u No 0SA, Canaua Shale TRR Liteiatuie ieview

1
BuR, 'Reseives, iesouices anu availability'.

XXXII
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
V&%.3(D &6 +.L }ul-11 Yes 9 Noith Ameiican,
Euiopean anu
Pacific countiies
Shale TRR Liteiatuie ieview Neulock inuicates that iesouice shoulu
be commeicially viable so his
uefinition, although uesciibeu as
technically iecoveiable iesouices,
coulu be closei to ERR.
VF- GV3'$XI }un-1u Yes 0SA Shale TRR Liteiatuie ieview Figuies aie iepoiteu without pioveu
ieseives so 1.7 Tcm gas have been
auueu
CBN TRR Liteiatuie ieview Figuies aie iepoiteu without pioveu
ieseives so u.S4 Tcm gas have been
auueu
Tight TRR Liteiatuie ieview Figuies aie iepoiteu without pioveu
ieseives so 2.S Tcm gas have been
auueu
Continental
iegions
Shale 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
Repoiteu in Appenuix 2A. Recoveiy
factoi between 1u-SS% suggesteu
CBN 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
Repoiteu in Appenuix 2A. Recoveiy
factoi between 1u-SS% suggesteu
Tight 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
Repoiteu in Appenuix 2A. Recoveiy
factoi between 1u-SS% suggesteu
V38: +'% "#+', Sep-11 Yes Continental
iegions
Shale 0RR Liteiatuie ieview
CBN 0RR Liteiatuie ieview
Tight 0RR Liteiatuie ieview
V38: +'% "#+', }ul-1u Yes 0SA, Canaua Shale 0RR Liteiatuie ieview
CBN 0RR Liteiatuie ieview
Tight 0RR Liteiatuie ieview
V4::+A }an-96 Yes 12 countiies CBN 0uIP Auaptation of existing
ieview (Kuuskiaa et al
1992)


XXXIII
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
C+#$?+'6 =3',4.6$'?
GK5&+% Y
;$(D&:$'?I
}ul-u8 No 0SA Shale TRR Liteiatuie ieview
CBN TRR Liteiatuie ieview
Tight TRR Liteiatuie ieview
;+.5&: Nai-u8 No 12 iegions
countiies
CBN 0uIP Not inuepenuently
assesseu: baseu on
Kuuskiaa (1992)

;&6:&. E3*&:6,3'
=3',4.6$'?
Nai-1u No Canaua Shale 0uIP Liteiatuie ieview
CBN 0uIP Liteiatuie ieview
Tight 0uIP Liteiatuie ieview
;36&'6$+. @+,
=355$66&&
Api-11 No 0SA Shale TRR Bottom-up analysis of
geological paiameteis

0SA CBN TRR Bottom-up analysis of
geological paiameteis

;36&'6$+. @+,
=355$66&&
}un-u9 No 0SA Shale TRR Bottom-up analysis of
geological paiameteis

0SA CBN TRR Bottom-up analysis of
geological paiameteis

E3?'&: }an-97 Yes Continental
iegions
Shale 0uIP Extiapolation of
piouuction expeiience

CBN 0uIP Liteiatuie ieview
Tight 0uIP Liteiatuie ieview The global figuie was mouifieu to
iegional estimates baseu on the
uistiibution of conventional gas
EA+' Bec-u8 No 12 iegions
countiies
CBN 0uIP Not inuepenuently
assesseu: baseu on
Woou Nackenzie
'0nconventional
Byuiocaibons' Nulti-
client Stuuy


XXXIv
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
Tight 0uIP Not inuepenuently
assesseu: baseu on
Woou Nackenzie
'0nconventional
Byuiocaibons' Nulti-
client Stuuy

K+'%:&+ Bec-uS No 0SA Tight TRR Extiapolation of
piouuction expeiience

0SA, ulobal Shale 'Recoveiable
ieseives'
Expeit juugment
CBN 'Recoveiable
ieseives'
Expeit juugment
K(84.X }an-1u Yes Euiope Shale 0uIP Not inuepenuently
assesseu: baseu on
Rognei (1997)
No iecoveiy factoi suggesteu
KD$BB&: Nai-1u No 0SA, Canaua Shale TRR Nethou not stateu
-8&+. Nay-u9 No 0SA, Canaua Shale 0uIP anu TRR Bottom-up analysis of
geological paiameteis

-36+. }an-u6 No S iegions Tight TRR Nethou not stateu
ulobal Tight 0uIP anu TRR Nethou not stateu
UK@K Aug-11 No 0SA Shale 'Potential to be
auueu to
ieseives'
Extiapolation of
piouuction expeiience
0SuS iesouice estimate baseu on
Coleman et al. (2u11); Bubiel et al.
(2u11); Bigley et al (2u11);
Bouseknecht et al. (2u1u); Schenk et al.
(2uu8); Swezey et al. (2uu7); Swezey et
al. (2uuS); Pollastio et al. (2uu4);
Bigley et al.(2uuS); Nilici et al (2uuS;
anu 0SuS (2u1u).
CBN 'Potential to be
auueu to
ieseives'
Extiapolation of
piouuction expeiience

Tight 'Potential to be
auueu to
ieseives'
Extiapolation of
piouuction expeiience


XXXv
94683: 2+6& ;&&:
:&#$&<
=34'6:$&,>
:&?$3', (3#&:&%
@+,
+'+.A,&%
-AB& 37
:&,34:(&
&,6$5+6&
9BB:3+(8 4,&% C36&,
R33% V+(D&'X$& }an-u9 No Euiope Shale TRR Nethou not stateu Repoiteu by R. Weijeimais et al.,
'0nconventional gas ieseaich initiative
foi clean eneigy tiansition in Euiope'.
!"#$%&' ") *&+#$&' ,&- ./01%/1 &%2
3%40%11$0%4, 2u11. S(2): p. 4u2-412.
R33% V+(D&'X$& Nov-u6 No 12 iegions
countiies
CBN 0uIP 0nknown Repoiteu by Ryan (2uu8) anu uny
(2u1u). Figuies appeai to be similai to
Rognei's
Tight 0uIP 0nknown Repoiteu by Ryan (2uu8) anu uny
(2u1u). Figuies appeai to be similai to
Rognei's
R3:.% "'&:?A
=34'($.
Sep-1u No 9 iegions Shale 0uIP Liteiatuie ieview Recoveiy factoi of 4u% suggesteu to
conveit to ERR


XXXvI
! "#$%& &()*+#,-%./ 0%& ,1( 23 -.,(&.#+ )#/ 4#&5(,
The Seconu uas Biiective of 2uuS
1
committeu Nembei States to the establishment of a
single maiket thioughout Euiope by }uly 2uu7. Coveiing much the same giounu as its
1998 pieuecessoi - albeit moie foicibly - the Biiective iuleu that each Nembei State
hau to appoint system opeiatois foi the tiansmission, stoiage, LNu anu uistiibution
systems who woulu guaiantee non-uisciiminatoiy anu tianspaient access foi all useis.
Nembei States also hau to appoint inuepenuent iegulatois who woulu be iesponsible
foi monitoiing iespect of the non-uisciimination piinciple, the level of tianspaiency
anu competition, anu the taiiffs anu methous foi calculating them. The choice to have
iegulateu oi negotiateu thiiu-paity access was iemoveu. Anu finally the Biiective
couifieu common minimum consumei piotection stanuaius, incluuing the iights to
change suppliei, tianspaient contiact conuitions, geneial infoimation anu uispute
settlement mechanisms.
In spite of these moie iobust measuies, a seiies of Commission iepoits monitoiing the
Biiective's implementation uocumenteu uisappointing piogiess in the libeialisation
piocess.
2
These iepoits noteu that although 'the basic concepts of the inteinal eneigy
maiket have become embeuueu in teims of the legal fiamewoik, institutional
aiiangements anu the physical infiastiuctuie. meaningful competition uoes not exist
in many Nembei States'. Citing 'wiuespieau shoitcomings', it was ueemeu that gas
piices in many Nembei States weie moie likely 'the uiiect iesult of uecision of
companies with maiket powei' than meaningful competition.
S

Complaints about the baiiieis to maiket entiy anu the lack of meaningful consumei
choice leu the Commission to open an inquiiy into the opeiation of the gas anu
electiicity maikets. This founu: 1) a continuing high uegiee of maiket concentiation; 2)
inauequate unbunuling of netwoik anu supply, anu suspicions that infiastiuctuie
opeiatois weie favouiing theii own affiliates; S) a lack of maiket integiation, incluuing
lack of iegulatoiy oveisight foi cioss-boiuei issues; 4) a lack of maiket tianspaiency; S)
piice foimation ueficiencies stemming fiom oil inuexation anu iegulateu supply taiiffs;
6) limiteu competition at the ietail level; 7) balancing maikets that favoui incumbents
anu cieate obstacles foi newcomeis; anu 8) vaiious othei ueficiencies in the LNu
maiket.
4

In iesponse, the Commission launcheu uozens of infiingement pioceuuies against
Nembei States foi violation anu non tiansposition in the five yeais following the Seconu
Biiective's tiansposition ueauline on 1 }uly 2uu4.
S
Bespite these effoits, howevei, a

1
Euiopean 0nion, 'Biiective 2uuSSSEC of the Euiopean Pailiament anu of the Council of 26 }une 2uuS
conceining common iules foi the inteinal maiket in natuial gas anu iepealing Biiective 98SuEC',
(Luxembouig: 0ffice foi 0fficial Publications of the Euiopean Communities, 2uuS).
2
See, foi example, Euiopean Commission, 'Thiiu benchmaiking iepoit on the implementation of the
inteinal electiicity anu gas maiket', eu. Biiectoiate-ueneial foi Tianspoit anu Eneigy (Luxembouig:
0ffice foi 0fficial Publications of the Euiopean Communities, 2uu7).
S
Euiopean Commission, 'Communication fiom the Commission to the Council anu the Euiopean
Pailiament - Piospects foi the inteinal gas anu electiicity maiket', (Luxembouig: 0ffice foi 0fficial
Publications of the Euiopean Communities, 2uu7).
4
Euiopean Commission, 'Communication fiom the Commission Inquiiy puisuant to Aiticle 17 of
Regulation (EC) No 12uuS into the Euiopean gas anu electiicity sectois (Final Repoit)', (Luxembouig:
0ffice foi 0fficial Publications of the Euiopean Communities, 2uu7).
S
See, foi example, Euiopean Commission, 'Commission acts to ensuie effective anu competitive eneigy
maiket acioss Euiope', (Biussels: 2uu9); Euiopean Commission, 'Commission biings actions befoie Couit

XXXvII
2uu9 Commission iepoit noteu that the implementation of the seconu Electiicity anu
uas Biiective was still incomplete. With iespect to maiket concentiation, the
Commission founu that the thiee laigest wholesaleis hau a maiket shaie of 9u% oi
moie in 12 Nembei States. 0wneiship unbunuling was implementeu by only 12 of the
E0's gas tiansmission system opeiatois (TS0).
6

Consiueiing that the inteinal eneigy maiket coulu not be iealiseu unuei the pievailing
iules, the Commission initiateu woik on its Thiiu Inteinal Naiket Package in 2uu7 - a
collection of iegulations anu uiiectives that took uiiect effect on S Naich 2u11.
7
The
package set moie stiingent conuitions foi pipeline access anu gave stiongei poweis anu
inuepenuence to national eneigy iegulatois. It intiouuceu new measuies to haimonise
pan-Euiopean maiket anu netwoik opeiation to facilitate cioss-boiuei tiaue anu
ieuuce tiansaction costs. It also cieateu new institutions to piomote the completion anu
functioning of the inteinal maiket, incluuing an Agency foi the Coopeiation of Eneigy
Regulatois anu an association of gas tiansmission system opeiatois.
8
The inception of
the Thiiu Package coinciueu with a big legal push against abuse of uominance in the
natuial gas sectoi, with the Biiectoiate-ueneial foi Competition biinging cases against
Bistiigaz, E.0N, ENI, uBF anu RWE in the peiiou 2uu7-2u11.
9


of }ustice against seveial Nembei States foi incoiiect tiansposal of Electiicity anu uas Biiectives',
(Biussels: 2uu8); Euiopean Commission, 'The Commission takes action against Nembei States which
have still not piopeily openeu up theii eneigy maikets', (Biussels: 2uu6); Euiopean Commission, 'Eneigy
maikets: five Nembei States to be taken befoie the Couit of }ustice', (Biussels: 2uuS); Euiopean
Commission, '0pening up of eneigy maikets: ten Nembei States have still not tiansposeu the new E0
iules ', (Biussels: 2uuS).
6
Euiopean Commission, 'Communication fiom the Commission to the Council anu the Euiopean
Pailiament - Repoit on piogiess in cieating the inteinal gas anu electiicity maiket '.
7
Euiopean 0nion, 'Biiective 2uu97SEC of the Euiopean Pailiament anu of the Council of 1S }uly 2uu9
conceining common iules foi the inteinal maiket in natuial gas anu iepealing Biiective 2uuSSSEC
(Text with EEA ielevance)'; Euiopean 0nion, 'Regulation (EC) No 71S2uu9 of the Euiopean Pailiament
anu of the Council of 1S }uly 2uu9 establishing an Agency foi the Coopeiation of Eneigy Regulatois (Text
with EEA ielevance)'; Euiopean 0nion, 'Regulation (EC) No 71S2uu9 of the Euiopean Pailiament anu of
the Council of 1S }uly 2uu9 on conuitions foi access to the natuial gas tiansmission netwoiks anu
iepealing Regulation (EC) No 177S2uuS (Text with EEA ielevance)'.
8
In oiuei to piopeily facilitate investments, both the seconu uas Biiective anu a thiiu package contain
piovisions foi alteinative cooiuination mechanisms, such as ueiogations fiom the thiiu-paity access
piovisions anu long-teim supply contiacts.
9
Euiopean Commission, 'Antitiust ENI case: Commission opens up access to Italy's natuial gas maiket ',
(Biussels: 2u1u); Euiopean Commission, 'Antitiust: Commission accepts commitments by uBF Suez to
boost competition in Fiench gas maiket ', (Biussels: 2uu9); Euiopean Commission, 'Antitiust:
Commission fines E.0N anu uBF Suez tSSS million each foi maiket-shaiing in Fiench anu ueiman gas
maikets', (Biussels: 2uu9); Euiopean Commission, 'Antitiust: Commission opens Belgian gas maiket to
competition', (Biussels: 2uu7); Euiopean Commission, 'Antitiust: Commission opens ueiman gas maiket
to competition by accepting commitments fiom RWE to uivest tiansmission netwoik', (Biussels: 2uu9).

XXXvIII
6 27#+*#,-.) 8%,(.,-#+ /1#+( )#/ 9(++/ #.: ;*#.,-0<-.)
0-.:-.) #.: :(7(+%8-.) =%/,/
>#?+( 6@AB CD 2.(&)<E/ :&-++-.) 8&%)&#44( -. F%+#.: #.: .(, #//(, 7#+*( #.#+</-/
A



1
FX Eneigy, 'Polanu'.

XXXIX
C-)*&( 6@AB 2G#48+( %0 0-.:-.) #.: :(7(+%84(., =%/,/ 0%& &#.)( &(/%*&=(/
H




2
Range Resouices is an upstieam playei active in the Naicellus Shale play. Range Resouices, !"#$"#% '#$
$()(*+,-(#. /+0. /'*/1*'."+# (SEC Filings, 2u11, citeu 12 Febiuaiy 2u12); available fiom
http:phx.coipoiate-ii.netphoenix.zhtml.c=1u1196&p=iiol-sec&submit.x=u&submit.y=u

XL
I J ?&-(0 =%48#&-/%. %0 KLM #.: I2J 4%:(++-.) &(/*+,/ %.
*.=%.7(.,-%.#+ )#/

The following pages compaie the mouelling methouology anu iesults of this iepoit with
those of the iecently-ieleaseu 'uoluen Rules foi a uoluen Age of uas' iepoit by the IEA.
S


C&#4(9%&5
The }RC-IET builus a fiamewoik aiounu foui base scenaiios foi the peiiou to 2u4u.
They iesult fiom the combination of eithei optimistic oi conseivative assumptions
about shale gas piouuction cost anu ieseive size (0ptCon) anu high oi low
assumptions about global uBP giowth (BuLu). The foui scenaiios aie subsequently
submitteu to 6 auuitional sensitivities, to exploie the supply anu uemanu siue
factois that can constiain oi enable unconventional gas uevelopment, i.e.: a stiongei
oi weakei oilgas piice link, the social acceptance of nucleai eneigy, a caibon
constiaineu eneigy system, a less oi moie costly LNu tianspoit. Thus, the iesults aie
an exploiation of unceitainty.
The mouel useu by }RC is the ETSAP-TINES Integiateu Assessment (ETSAP-TIAN)
mouel, a multi-iegion paitial equilibiium mouel of the eneigy systems of the entiie
woilu uiviueu in 1S iegions, linkeu by tiaue vaiiables of the main eneigy foims
(coal, oil, gas). It is baseu on the NARKALTINES family of mouels.
The IEA iepoit sets out piojections fiom two scenaiios foi the peiiou to 2uSS, both
built on the IEA's New Policies Scenaiio (2u11 Woilu Eneigy 0utlook). The two
scenaiios compaie favouiable veisus unfavouiable conuitions foi unconventional
gas. In the uoluen Rules (uR) case, all potential obstacles to unconventional gas
uevelopment aie oveicome; suppoitive policies anu a lack of constiaints leaus to an
assumeu lowei unconventional piouuction cost, gieatei iecoveiable ieseives, moie
favouiable uemanu-siue policies, lowei gas piices, anu less gas-oil inuexation. The
Low 0nconventional (L0) case mouels the opposite case, wheie theie is an absence
of suppoitive policies anu a lack of public acceptance.
The IEA uses the Woilu Eneigy Nouel (the same useu foi the annual Woilu Eneigy
0utlook) to pioject the potential impact of two uiffeient tiajectoiies foi
unconventional gas uevelopment.

J//*48,-%./
The }RC-IET's vaiiables aie the size of the iecoveiable ieseives anu theii piouuction
cost, which aie useu to builu supply cuives (the iate of inciease in piouuction costs
of the iesouice base). These cuives iepiesent the iange of unceitainty facing
unconventional gas uevelopment without explicitly linking them to specific factois
(e.g. auheience to 'goluen iules'). The thiiu key vaiiable is the iate of uBP giowth, a
main uiivei foi gas uemanu. uas piices aie enuogenous in TIAN, i.e. they iesult fiom
the supplyuemanu equilibiium in any given scenaiio. All othei assumptions iemain

S
IEA, 'uoluen Rules foi a uoluen Age of uas'.

XLI
constant fiom TIAN iefeience scenaiio, which can be consiueieu similai to the
Cuiient Policies case of WE0-2u11 (it uoes not account foi futuie policies).
The IEA uoes not uiiectly mouel the impact of uiffeient uegiees of auheience to the
uoluen Rules. Rathei, the iepoit assumes that a lack of suppoitive policies (e.g.
failuie to abiue by the 'goluen iules') tianslates into less iecoveiable gas ieseives
than in the uR case. They also assume that the iate of inciease in piouuction costs is
highei in the Low 0nconventional case than in the uR case. Thus, the two main
vaiiables aie the size of the iecoveiable ieseives anu theii piouuction costs, which
aie vaiieu to ieflect hypothetical auoption of these iules. uBP assumptions weie
upuateu fiom the baseline WE0-2u11 case anu applieu to both the L0 anu uR case.
uas piice assumptions aie exogenous; the IEA assumes that the gas piice in the Low
0nconventional case is 1S-Su% highei than in the uoluen Rules case, with a moie
iapiu iate of inciease ovei time. All othei assumptions iemain constant fiom the
New Policies Scenaiio of WE0-2u11, which takes into account policies anu ueclaieu
futuie intentions as of miu-2u11 (e.g. national pleuges to ieuuce uBu emissions anu
phase out subsiuies
4
).
!"# %&&'()*+,-& ./0 12%
8ecoverable 8eserves (Lcm)
ConvenLlonal gas 403 421
Shale gas 149-417 30-208
roducLlon CosL ($/MbLu) low/besL/hlgh
uSA (Shale) 4 - 6.3 - 19 3-7
Lu8CL (Shale) 4.4 - 7 - 21 3-10
Avg. Annual Clobal Cu growLh, (2012-33) 2.7-3.7 3.3

L(/*+,/
Bue to the uiffeient assumptions useu in the two analyses, the iesults can be compaieu
only bioauly. Bowevei, the tables below show similaiities in teims of some key iesults.
!"# /"&'3*&
45,678+9: ;-<,-=> ?@&A
./0 4BCDEA 12% 4BCDEA
1oLal Cas uemand 4.9 / 3.6 Lcm 4.6 / 3.1 Lcm
unconv. Cas roducLlon 1 / 2.1 Lcm 0.6 / 1.6 Lcm
uC-uSA 300 / 940 bcm 274 / 380 bcm
uC-Chlna 170 / 330 bcm 112 / 391 bcm

!"# /"&'3*& ./0 4BCDEA 12% 4BCDEA
1oLal gas Lrade - Plgh vs Low uC -11 -23
Lurope lmporL dependency - Plgh vs Low uC 37 / 72 39 / n/a
Lu gas lmporL (Low-Plgh uC) 430 / 470 bcm
LlecLr. prod. from naL. gas (1Wh) 6 144 / 7,966 7 100 / 8,780


4
It is impoitant to note that the IEA iepoit uoes not explicitly oi systematically piesent the way in which
the assumptions aie useu in the mouel. Theiefoie, the methous useu to mouel the assumptions can only
be infeiieu.

XLII
Fuithei significant iesults aie the following:
A consistent significant iesult is the impact on gas piices of moie unconventional
gas. The }RC mouel iesults aie similai to the IEA's exogenous assumptions: the
optimistic shale gas case assumes a ieuuction of gas piice between 2u% (Euiope)
anu Su% (0SA) in the IEA iepoit, while the }RC iepoit analysis estimates a ieuuction
between 1S% (Euiope) anu 2S% (0SA).
Both stuuies agiee that the best case scenaiio foi shale gas uevelopment in Euiope is
one in which ueclining conventional piouuction can be ieplaceu by unconventional
gas, with impoit uepenuence maintaineu at a level aiounu 6u%.
A iesult consistent acioss the two stuuies is that gieatei unconventional gas has
only a slight impact on ienewable eneigy.
The specific }RC analysis on the potential impact of a caibon constiaineu woilu
shows that stiict C02 taigets uo not piecluue a significant giowth in natuial gas use.

XLIII
K L(0(&(.=(/

S Legs Resouices, 'An Intiouuction to Shale uas', (Isle of Nan: 2u11).
Auvanceu Resouices Inteinational, 'Woilu Shale uas Resouices: An Initial Assessment
of 14 Regions 0utsiue the 0niteu States', (Washington, BC: Auvanceu Resouices
Inteinational Inc, 2u11).
Ram u. Agaiwal, Baviu C. uaiunei, Stanley W. Kleinsteibei anu Bel B. Fussell, 'Analyzing
Well Piouuction Bata 0sing Combineu-Type-Cuive anu Becline-Cuive Analysis
Concepts', in 234 5##1'* 6(/7#"/'* 8+#9(:(#/( '#$ 4;7"<"."+# (New 0ileans, LA:
1998).
Taiek Ahmeu, =(0(:)+": 4#%"#((:"#% >'#$<++?. Fouith euition eu. (Builington, NA: uulf
Piofessional Publishing, 2u1u).
Ahmeu Al-Zain, Abuulwafi Al-uambei anu Rifat Saiu, 'Smait Combination of Technology
Tools Resulteu in Successful Rigless Stimulation on a Tii-Lateial Well, Case
Stuuy', in 234@AB2 2'1$" 5:'<"' 2(/."+# 6(/7#"/'* 2C-,+0"1- '#$ 4;7"<"."+# (Al-
Khobai, Sauui Aiabia: Society of Petioleum Engineeis, 2u11).
Natthew B. Alexanuei, Lining Qian, Tim A. Ryan anu }ohn Beiion, 'Consiueiations foi
Responsible uas Bevelopment of the Fieueiick Biook Shale in New Biunswick',
(Saint }ohn, NB: Funuy Engineeiing anu Atlantica Centie foi Eneigy, 2u11).
A.F Alhajji, 'What Is Eneigy Secuiity. Befinitions anu Concepts'. D"$$*( 4'0. 4/+#+-"/
21:)(C L, no 4S (2uu7).
A. Al Ali, S. Baiton anu A. Nohanna, '0nique Axial 0scillation Tool Enhances
Peifoimance of Biiectional Tools in Extenueu Reach Applications', in E:'0"*
F9907+:( 8+#9(:(#/( '#$ 4;7"<"."+# (Naca, Biazil: Society of Petioleum
Engineeis, 2u11).
ALL Consulting, 'Nouein Shale uas Bevelopment in the 0niteu States - a Piimei', (Tulsa,
0K: ALL Consulting, 2uu9).
Ray }. Ambiose, C.R. Claikson, }eiiy Youngbloou, Rou Auams, Phuong Nguyen, N.
Nobakht anu Bient Biseua, 'Life-Cycle Becline Cuive Estimation foi TightShale
Reseivoiis'. Papei piesenteu at the SPE Byuiaulic Fiactuiing Technology
Confeience, Wooulanus: TX 2u11.
Ameiican Chemistiy Council, 'Shale uas anu New Petiochemicals Investment: Benefits
foi the Economy, }obs, anu 0S Nanufactuiing ', (Washington, BC: Ameiican
Chemistiy Council, 2u11).
Ameiican Petioleum Institute, 'Byuiaulic Fiactuiing: 0nlocking Ameiica's Natuial uas
Resouices', (Washington, BC: Ameiican Petioleum Institute, 2u1u).
Ameiican Petioleum Institute, 'Watei Nanagement Associateu with Byuiaulic
Fiactuiing', in 53G B1"$'#/( A+/1-(#. (Washington, BC: Ameiican Petioleum
Institute, 2u1u).
Ketil Anueisen, Pei Aiilu Sjwall, Eiic Naiula, Buuuy King, ueihaiu Thonhausei anu
Philipp Zollnei, 'Case Bistoiy: Automateu Biilling Peifoimance Neasuiement of
Ciews anu Biilling Equipment', in 234@G5A8 A:"**"#% 8+#9(:(#/( (Amsteiuam,
The Netheilanus: Society of Petioleum Engineeis, 2uu9).
Robeit N. Anueison, 'Enviionmental Assessment of Southwestein Piouuction Coip's
Pioposeu 8 Well Boiizontal Biilling Piogiamme in the Boinbuckle Fielu,
Wyoming', (Caspei, WY: Anueison Enviionmental Consulting, 2uu9).
Anthony Anuiews, Petei Folgei, Naic Bumphiies, Clauuia Copelanu, Naiy Tiemann,
Robeit Neltz anu Cynthia Bioughei, '0nconventional uas Shales: Bevelopment,

XLIv
Technology, anu Policy Issues', (Washington B.C.: Congiessional Reseaich
Seivice, 2uu9).
K.u. Aianoa anu B.F. Blaii, 'An Ex-Post Welfaie Analysis of Natuial uas Regulation in the
Inuustiial Sectoi, '. 4#(:%C 4/+#+-"/0 Su, no S (2uu8): 789-8u6.
Al Aimenuaiiz, 'Emissions fiom Natuial uas Piouuction in the Bainett Shale Aiea anu
0ppoitunities foi Cost-Effective Impiovements', (Ballas, TX: Southein Nethouist
0niveisity, 2uu9).
R. Ainolu anu R. Anueison, 'Pieliminaiy Repoit on Coalinga 0il Bistiict', in H2 B(+*+%"/'*
21:)(C E1**(."#19u8).
}.}. Aips, eu. 5#'*C0"0 +9 A(/*"#( 81:)(0I 3(.:+*(1- 6(/7#+*+%C (Bouston, Texas: Society of
Petioleum Engineeis, 194S).
}. Baniel Aithui anu Baviu }. Bockelmann, 'Analysis of Belawaie Rivei Basin Commission
Pioposeu (Aiticle 7) Natuial uas Bevelopment Regulations', (Tulsa, 0K: ALL
Consulting, 2u11).
}. Baniel Aithui, Biian Bohm, Bobbi }o Coughlin anu Naik Layne, 'Evaluating
Implications of Byuiaulic Fiactuiing in Shale uas Resevoiis', in 234 5-(:"/'0
4J3 4#)":+#-(#.'* '#$ 2'9(.C 8+#9(:(#/( (San Antonio, TX: 2uu9 ).
}. Baniel Aithui, Biian Bohm, Bobbi }o Coughlin anu Naik Layne, 'Byuiaulic Fiactuiing
Consiueiations foi Natuial uas Wells of the Fayetteville Shale', (Tulsa, 0K: ALL
Consulting, 2uu8).
}. Baniel Aithui anu Bave Coinue, 'Technologies Reuuce Pau Size, Waste'. 5-(:"/'# F"*
'#$ B'0 =(,+:.(: 2u1u, August euition (2u1u ).
}.B. Aithui anu B.}. Coughlin, 'Cumulative Impacts of Shale-uas Watei Nanagement:
Consiueiations anu Challenges', in 234 5-(:"/'0 4J3 >('*.7K 2'9(.CK 2(/1:".CK '#$
4#)":+#-(#.'* 8+#9(:(#/( (Bouston, TX: Society of Petioleum Engineeis, 2u11).
E.B. Attanasi anu P.A. Fieeman, 'Economic Analysis of the 2u1u 0.S. ueological Suivey
Assessment of 0nuiscoveieu 0il anu uas in the National Petioleum Reseive in
Alaska', (Reston, vA: 0niteu States ueological Suivey, 2u11).
C. Augustine, B. Bioxon anu S. Peteison, H#$(:0.'#$"#% L'.1:'* B'0 D':?(.0 (Boston,
NA: Lexecon, 2uu6).
Fianklin Baez anu Steve Baiton, 'Beliveiing Peifoimance in Shale uas Plays: Innovative
Technology Solutions', in 234@G5A8 A:"**"#% 8+#9(:(#/( '#$ 4;7"<"."+#
(Amsteiuam, The Netheilanus: Society of Petioleum Engineeis, 2u11).
Fianklin Baez, Steve Baiton anu Aief Alali, 'Biilling Peifoimance Impiovement in Shale
uas Plays 0sing a Novel a Novel Biilling Agitatoi Bevice', in L+:.7 5-(:"/'#
H#/+#)(#."+#'* B'0 8+#9(:(#/( '#$ 4;7"<"."+# (Wooulanus, TX: Society of
Petioleum Engineeis, 2u11).
}ason Baihly, Raphael Altman, Raj Nalpani anu Fang Luo, 'Shale uas Piouuction Becline
Tienu Compaiison ovei Time anu Basins'. Papei piesenteu at the SPE Annual
Technical Confeience anu Exhibition, Floience, Italy 2u1u.
}. Bain, E'::"(:0 .+ L(M 8+-,(."."+#N 67(": 87':'/.(: '#$ 8+#0(O1(#/(0 "# D'#19'/.1:"#%
G#$10.:"(0 (Cambiiuge, Nassachusetts: Baivaiu 0niveisity Piess, 19S6).
Bakei Bughes Inc., 2u12, 'Inteinational Rotaiy Rig Count', Bakei Bughes Inc.,
http:files.shaieholuei.comuownloausBBI17492u9798xuxSSuS8u982E17
SS-B2EB-4BC7-9629-
2462B7A6E8B8Inteinational_Rig_Count_Febiuaiy_2u12.xlsx (accesseu 27
Naich 2u12).
Bentek Eneigy LLC, '0S Eneigy Naikets in Tiansition: Nat uas, 0il & Ngls Rewiite the
Sciipt '. Papei piesenteu at the Euiopean Commission, Biussels 2u12.

XLv
A.E. Beiman, 'Shale uas-Abunuance oi Niiage. Why the Naicellus Shale Will Bisappoint
Expectations', 2u1u ).
A.E. Beiman, 'Shale uas-Abunuance oi Niiage. Why the Naicellus Shale Will Bisappoint
Expectations'. Papei piesenteu at the ASP0 0SA 2u1u Woilu 0il Confeience,
Washington, BC, 17 Novembei 2u1u A.E. Beiman, 'Shale uas - the Eye of the
Stoim'. Papei piesenteu at the Niuulefielu Investment Confeience, Calgaiy,
Canaua, 14 }uly 2u11, 2u11.
C. Besson, 'Resouices to Reseives: 0il & uas Technologies foi the Eneigy Naikets of the
Futuie', (Paiis: Inteinational Eneigy Agency, 2uuS).
BuR, 'Reseives, Resouices anu Availability of Eneigy Resouices: 2u1u', (Bannovei,
ueimany: Bunuesanstalt fi ueowissenschaften unu Rohstoffe (BuR) Feueial
Institute foi ueosciences anu Natuial Resouices, 2u1u).
N.E. Blauch, 'Beveloping Effective anu Enviionmentally Suitable Fiactuiing Fluius 0sing
Byuiaulic Fiactuiing Flowback Wateis', in 234 H#/+#)(#."+#'* B'0 8+#9(:(#/(
(Pittsbuigh, PA: Society of Petioleum Engineeis, 2u1u).
Nohsen Bonakuaipoui, Bob Flanagan, Chiis Bolling anu }ohn W. Laison, 'The Economic
anu Employment Contiibutions of Shale uas in the 0niteu States', in G>2 B*+<'*
G#0"%7. (Washington BC: IBS Ceia, 2u11).
BP, 'Statistical Review of Woilu Eneigy', eu. BP2u11).
Buieau of Lanu Nanagement, 'Aikansas: Reasonably Foieseeable Bevelopment Scenaiio
foi Fluiu Nineials', (}ackson, NS: Bept of Inteiioi, 2uu8).
Buieau of Lanu Nanagement, 'Reasonably Foieseeable Bevelopment Scenaiio foi 0il
anu uas foi the ueoige Washingtion National Foiest viiginia anu West viiginia',
(}ackson, NS: Bept of Inteiioi, 2u11).
Buieau of Lanu Nanagement, 'Suiface Bistuibance Associateu with 0il anu uas
Activities', in A:'9. =(0+1:/( D'#'%(-(#. 3*'# 9+: 3"#($'*(K PC+-"#% (}ackson,
NS: Bept of Inteiioi, 2uu7).
Califoinia Eneigy Commission, 'Cuiient Tienus: Natuial uas Infiastiuctuie', in 2.'99
P+:?07+,N QRSS G#.(%:'.($ 4#(:%C 3+*"/C =(,+:. 2u11).
Caniig Biilling Technology Ltu, 2u12, 'Rockit"', Caniig Biilling Technology Ltu,
http:www.caniig.comuefault.asp.v_ITEN_IB=2uS (accesseu 27 Naich 2u12).
Rick Caii anu Chuck Chakiavaithy, 'Natuial uas: Revoluiton oi Evolution', (New Yoik,
NY: Beloitte Bevelopment LLC 2u11).
Alvaio Caiteaa anu Thomas Williams, '0K uas Naikets: The Naiket Piice of Risk anu
Applications to Nultiple Inteiiuptible Supply Contiacts'. 4#(:%C 4/+#+-"/0 Su, no
S (2uu8): 829-46.
Centiica Eneigy, '0nconventional uas in Euiope: Response to Becc Consultation',
(Winusoi: 2u1u).
Seigio Centuiion, 'Eagle Foiu Shale: A Nultistage Byuiaulic Fiactuiing, Completion
Tienus anu Piouuction 0utcome Stuuy 0sing Piactical Bata Nining Techniques',
in 234 4'0.(:# =(%"+#'* D((."#% (Columbus, 0B: Society of Petioleum Engineeis,
2u11).
R.R. Chaipentiei anu T.A. Cook, 'Applying Piobabilistic Well-Peifoimance Paiameteis to
Assessments of Shale uas Resouices'. Papei piesenteu at the Ameiican
Association of Petioleum ueologists annual convention anu exhibition, New
0ileans, LA 2u1u.
R.R. Chaipentiei anu T.A. Cook, 'Impioveu 0SuS Nethouology foi Assessing Continuous
Petioleum Resouices', (Reston, vA: 0niteu States ueological Seivice, 2u1u).

XLvI
uuy Chazan, 'Statoil to Switch Focus to "Liquiu-Rich Shales"'. !"#'#/"'* 6"-(0, u8
Febiuaiy 2u12, 2u12.
Chesapeake Eneigy, 'Institutional Investoi anu Analyst Neeting', 2u1u).
Chief 0il anu uas, 2u12, 'Why Nultiple Boiizontal Wells fiom Centializeu Well Paus
Shoulu Be 0seu foi the Naicellus Shale', West viiginia Suiface 0wnei's Rights
0iganization, http:www.wvsoio.oigiesouicesmaicellushoiiz_uiilling.html
(accesseu u4 Nay 2u12).
Cleantech, 'Shale uas Investment uuiue', (Waisaw: Cleantech Polanu Sp., 2u11).
Clingenuael Inteinational Eneigy Piogiamme foi Euiopean Commission Biiectoiate-
ueneial foi Tianspoit anu Eneigy, 'Stuuy on Eneigy Supply Secuiity anu
ueopolitics', (Ben Baag: Clingenuael, 2uu4).
}.L. Coleman, Robeit C. Nilici, Tioy A. Cook, Ronalu R. Chaipentiei, Naik Kiischbaum,
Timothy R. Klett, Richaiu N. Pollastio anu Chiistophei }. Schenk, 'Assessment of
0nuiscoveieu 0il anu uas Resouices of the Bevonian Naicellus Shale of the
Appalachian Basin Piovince', (Reston, vA: 0niteu States ueological Suivey,
2u11).
Timothy }. Consiuine, Robeit Watson anu Seth Blumsack, 'The Economic Impacts of the
Pennsylvania Naicellus Shale Natuial uas Play: An 0puate', (Altoona, PA:
Pennsylvania State 0niveisity, 2u1u).
Timothy }. Consiuine, Robeit Watson, Rebecca Entlei anu }effiey Spaiks, 'An Emeiging
uiant: Piospects anu Economic Impacts of Beveloping the Naicellus Shale
Natuial uas Play', (Altoona, PA: Pennsylvania State 0niveisity, 2uu9).
Sylvie Coinot-uanuolphe, 'LNu Cost Reuuctions anu Flexibility in LNu Tiaue Auu to
Secuiity of uas Supply', in 4#(:%C 3:"/(0 '#$ 6';(0K S0. T1':.(: QRRU, eu. IEA
(Paiis: 0iganisation foi Economic Co-opeiation anu Bevelopment, 2uuS).
Sylvie Coinot-uanuolphe, 0liviei Appeit, Ralf Bickel, Naiie-Fiancoise Chabielie anu
Alexanuie Rojey, 'The Challenges of Fuithei Cost Reuuctions foi New Supply
0ptions (Pipeline, LNu, utl)', in QQ#$ P+:*$ B'0 8+#9(:(#/( (Tokyo, }apan:
Ceuigaz, 2uuS).
Aau Coiielje anu }ohn uioenewegen, 'The uas Naiket, Tiansaction Costs anu Efficient
Regulation ', in 8+#9(:(#/( +# 5,,*"($ G#9:'0.:1/.1:( =(0(':/7 (Beilin: Woikgioup
foi Infiastiuctuie Policy at Beilin 0niveisity of Technology, 2uu6).
Eu Ciooks, '0S Inuustiy Bits at LNu Expoit Plan'. !"#'#/"'* 6"-(0, 1u }anuaiy 2u12,
2u12.
Cuauiilla Resouices, 'Economic Impact of Shale uas Exploiation & Piouuction in
Lancashiie & the 0K', (Altiincham, Cheshiie: Regeneiis Consulting, 2u11).
Cuauiilla Resouices, 'Planning Application foi Pieese Ball Exploiation Site: Tempoiaiy
Planning Peimission foi a Byuiocaibon Exploiation Boiehole', (Lichfielu, West
Sussex: 2u11).
}.B. Cuitis, 'The Contiibution of Shale uas to Futuie 0.S. Piouuction: A view of the
Resouice Base'. Papei piesenteu at the AAPu Annual Convention, Benvei, C0,
2uu9.
W.C. Cutlei, 'Estimation of 0nueigiounu 0il Reseives by 0il-Well Piouuction Cuives',
(Washington, BC: Bepaitment of the Inteiioi, 1924).
F.N. Bawson, 'Cioss Canaua Check up 0nconventional uas Emeiging 0ppoitunities anu
Status of Activity'. Papei piesenteu at the CS0u Technical Luncheon, Calgaiy, AB
2u1u.
BECC, 'Ems: Atmospheiic Emissions Calculations', (Lonuon: Bepaitment foi Eneigy anu
Climate Change, 2uu8).

XLvII
}ohn Bizaiu, 'Bebate ovei Shale uas Becline Fiies 0p'. !"#'#/"'* 6"-(0, 2u1u.
R. Boughei, 'Natuial uas anu Ameiica's Eneigy Futuie'. Papei piesenteu at the
Naicellus Shale lectuie seiies, New Yoik, NY, 2u11.
K. Bowney, 'Fueling Noith Ameiica's Eneigy Futuie: The 0nconventional Natuial uas
Revolution anu the Caibon Agenua - Executive Summaiy', (Cambiiuge, NA: IBS
CERA, 2u1u).
R.F. Bubiel, P.B. Waiwick, Shaion Swanson, Lauii Buike, L.R.B. Biewick, R.R.
Chaipentiei, }.L. Coleman, T.A. Cook, Kiis Bennen, Colin Boolan, Catheiine
Enomoto, P.C. Backley, A.W. Kailsen, T.R. Klett, S.A. Kinney, N.B. Lewan, Natt
Neiiill, Kiystal Peaison, 0.N. Peaison, }.K. Pitman, R.N. Pollastio, E.L. Rowan, C.}.
Schenk anu Biett valentine, 'Assessment of 0nuiscoveieu 0il anu uas Resouices
in }uiassic anu Cietaceous Stiata of the uulf Coast', (Reston, vA: 0noteu States
ueological Suivey, 2u11).
Economist Intelligence 0nit, 'Bieaking New uiounu: A Special Repoit on ulobal Shale
uas Bevelopments', (Lonuon: Economist Intelligence 0nit, 2u11).
Kiisanne L. Euwaius, Sean Weisseit, }osh }ackson anu Bonna Naicotte, 'Naicellus Shale
Byuiaulic Fiactuiing anu 0ptimal Well Spacing to Naximize Recoveiy anu
Contiol Costs', in 234 >C$:'1*"/ !:'/.1:"#% 6(/7#+*+%C 8+#9(:(#/( (Wooulanus,
TX: Society of Petioleum Engineeis, 2u11).
EIA, 2u11, 'About 0.S. Natuial uas Pipelines - Tianspoiting Natuial uas',
http:2uS.2S4.1SS.7puboil_gasnatuial_gasanalysis_publicationsngpipelin
einuex.html (accesseu 12 Becembei 2u11).
EIA, 'Annual Eneigy 0utlook', (Washington, BC: 0S Eneigy Infoimation Auministiation,
vaiious).
EIA, 'Annual Eneigy 0utlook 2uu8 with Piojections to 2uSu', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2uu8).
EIA, 'Annual Eneigy 0utlook 2u1u with Piojections to 2uSS', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2u1u).
EIA, 'Annual Eneigy 0utlook 2u11 with Piojections to 2uSS', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2u11).
EIA, 'Annual Eneigy 0utlook 2u12: Eaily Release 0veiview', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2u12).
EIA, 'Annual Eneigy Review 2u1u', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u11).
EIA, 'Bainett Shale, Ft Woith Basin, Texas. Wells by Yeai of Fiist Piouuction anu
0iientation', (Washington BC: Bepaitment of Eneigy, 2u11).
EIA, 2u12, 'Ciuue 0il anu Natuial uas Exploiatoiy anu Bevelopment Wells',
http:www.eia.govunavngng_eni_wellenu_s1_a.htm (accesseu 27 Apiil
2u12).
EIA, 'Batabase: The Financial Repoiting System Public Bata', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2u12).
EIA, 'Effect of Incieaseu Natuial uas Expoits on Bomestic Eneigy Naikets as Requesteu
by the 0ffice of Fossil Eneigy', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u12).
EIA, 'Eia Piojects 0.S. Non-Byuio Renewable Powei ueneiation Incieases, Leu by Winu
anu Biomass', (Washington, BC: 0S Eneigy Infoimation Auministiation, 2u12).
EIA, 'Electiic Powei Nonthly: }anuaiy 2u12', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u12).

XLvIII
EIA, 'Emissions of uieenhouse uases in the 0niteu States 2uu8', (Washington, BC:
2uu9).
EIA, 'Estimation of Reseives anu Resouices - Appenuix u', in H2 8:1$( F"*K L'.1:'* B'0K
'#$ L'.1:'* B'0 V"O1"$0 =(0(:)(0 =(,+:. (Washington, BC: 2uu9).
EIA, 'The ulobal Liquefieu Natuial uas Naiket: Status & 0utlook', (Washington, BC: 0S
Eneigy Infoimation Auministiation, 2uuS).
EIA, 'Inteinational Eneigy 0utlook 2u1u', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u1u).
EIA, 2uu9, 'Key Feic 0iueis, 1984-2uu8'. (accesseu uS Nay 2u12).
EIA, 'Natuial uas Piocessing Plants in the 0niteu States: 2u1u 0puate', (Washington, BC:
2u11).
EIA, 'Natuial uas Yeai-in-Review 2uu9', (Washington, BC: 0S Eneigy Infoimation
Auministiation, 2u1u).
EIA, 'Peifoimance Piofiles of Najoi Eneigy Piouuceis', (Washington, BC: 2uu9).
EIA, 2u11, 'Shale uas: Pioveu Reseives',
http:www.eia.govunavngng_eni_shalegas_a_EPuu_RSSu1_Bcf_a.htm
(accesseu 22 Novembei 2u11).
EIA, 'Summaiy: 0.S. Ciuue 0il, Natuial uas, anu Natuial uas Liquius Pioveu Reseives
2uu9', (Washington, BC: 0S Eneigy Infoimation Auministiation, 2u1u).
EIA, '0.S. Natuial uas Impoits & Expoits: 2u1u', (Washington, BC: 0S Eneigy
Infoimation Auministiation, 2u11).
EIA, 'Woilu Shale uas Resouices: An Initial Assessment of 14 Regions 0utsiue the
0niteu States', (Washington, BC: 0S Eneigy Infoimation Auministiation, 2u11).
Q. Ejaz, 'The Futuie of Natuial uas Supplementaiy Papei Sp2.2: Backgiounu Nateiial on
Natuial uas Resouice Assessments, with Najoi Resouice Countiy Reviews',
(Cambiiuge, NT: Nassachusets Institute of Technology, 2u1u).
Eneigy Biggei, 2u12, 'Euiopean Rig Count Bata (Febiuaiy 2u12)', Eneigy Biggei,
http:www.eneigyuiggei.comiig-countseuiopean-iig-counts.aspx (accesseu
27 Naich 2u12).
Enviionmental Piotection Agency, 'An Assessment of the Enviionmental Implications of
0il anu uas Piouuction: A Regional Case Stuuy ', (Washington BC: Enviionmental
Piotection Agency, 2uu8).
Enviionmental Piotection Agency, 'Biaft Plan to Stuuy the Potential Impacts of
Byuiaulic Fiactuiing on Biinking Watei Resouices ', (Washington, BC:
Enviionmental Piotection Agency, 2u11).
Estonian Ninistiy of Foieign Affaiis, 2u11, 'Eneigy Secuiity',
http:www.vm.ee.q=ennoue4116 (accesseu u4 }anuaiy 2u11).
Euiopean Commission, '2uu9-2u1u Repoit on piogiess in cieating the inteinal gas anu
electiicity maiket', eu. Biiectoiate-ueneial foi Eneigy (Luxembouig: 0ffice foi
0fficial Publications of the Euiopean Communities, 2u11).
Euiopean Commission, 'Antitiust Eni Case: Commission opens up access to Italy's
natuial gas maiket ', (Biussels: 2u1u).
Euiopean Commission, 'Antitiust: Commission accepts commitments by uBF Suez to
boost competition in Fiench gas maiket ', (Biussels: 2uu9).
Euiopean Commission, 'Antitiust: Commission fines E.0N anu uBF Suez tSSS million
each foi maiket-shaiing in Fiench anu ueiman gas maikets', (Biussels: 2uu9).
Euiopean Commission, 'Antitiust: Commission opens Belgian gas maiket to
competition', (Biussels: 2uu7).

XLIX
Euiopean Commission, 'Antitiust: Commission opens ueiman gas maiket to
competition by accepting commitments fiom RWE to uivest tiansmission
netwoik', (Biussels: 2uu9).
Euiopean Commission, 'Commission acts to ensuie effective anu competitive eneigy
maiket acioss Euiope', (Biussels: 2uu9).
Euiopean Commission, 'Commission biings actions befoie Couit of }ustice against
seveial Nembei States foi incoiiect tiansposal of Electiicity anu uas Biiectives',
(Biussels: 2uu8).
Euiopean Commission, 'Commission Staff Woiking Bocument: 2uu9-2u1u Repoit on
piogiess in cieating the inteinal gas anu electiicity maiket', eu. Biiectoiate-
ueneial foi Eneigy, 2u11).
Euiopean Commission, 'The Commission takes action against Nembei States which
have still not piopeily openeu up theii eneigy maikets', (Biussels: 2uu6).
Euiopean Commission, 'Communication fiom the Commission Inquiiy puisuant to
Aiticle 17 of Regulation (EC) No 12uuS into the Euiopean uas anu Electiicity
Sectois (Final Repoit)', (Luxembouig: 0ffice foi 0fficial Publications of the
Euiopean Communities, 2uu7).
Euiopean Commission, 'Communication fiom the Commission to the Council anu the
Euiopean Pailiament - Eneigy Roaumap 2uSu', eu. Biiectoiate-ueneial foi
Eneigy, 2u11).
Euiopean Commission, 'Communication fiom the Commission to the Council anu the
Euiopean Pailiament - Piospects foi the Inteinal uas anu Electiicity Naiket ',
(Luxembouig: 0ffice foi 0fficial Publications of the Euiopean Communities,
2uu7).
Euiopean Commission, 'Communication fiom the Commission to the Council anu the
Euiopean Pailiament - Repoit on piogiess in cieating the Inteinal uas anu
Electiicity Naiket ', (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2uu9).
Euiopean Commission, 'Eneigy infiastiuctuie piioiities foi 2u2u anu beyonu - A
Bluepiint foi an integiateu Euiopean eneigy netwoik', eu. Biiectoiate-ueneial
foi Eneigy (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2u1u).
Euiopean Commission, 'Eneigy maikets: Five Nembei States to be taken befoie the
Couit of }ustice', (Biussels: 2uuS).
Euiopean Commission, 'The E0 Eneigy Policy: Engaging with paitneis beyonu oui
boiueis', eu. Biiectoiate-ueneial foi Eneigy (Luxembouig: 0ffice foi 0fficial
Publications of the Euiopean Communities, 2u11).
Euiopean Commission, 'uuiuance Bocument: Non-eneigy mineial extiaction anu Natuia
2uuu', eu. Biiectoiate-ueneial foi Enviionment (Luxembouig: 0ffice foi 0fficial
Publications of the Euiopean Communities, 2u1u).
Euiopean Commission, 'Non Papei: The Inteinal Eneigy Naiket - Time to switch into
highei geai', eu. Biiectoiate-ueneial foi Eneigy, 2u11).
Euiopean Commission, '0pening up of eneigy maikets: ten Nembei States have still not
tiansposeu the new E0 iules ', (Biussels: 2uuS).
Euiopean Commission, 'Quaiteily iepoit on Euiopean gas maikets, 0ctobei 2u1u -
Becembei 2u1u', in D':?(. F<0(:)'.+:C 9+: 4#(:%C (Biussels: 2u11).
Euiopean Commission, 'Thiiu benchmaiking iepoit on the implementation of the
inteinal electiicity anu gas maiket', eu. Biiectoiate-ueneial foi Tianspoit anu

L
Eneigy (Luxembouig: 0ffice foi 0fficial Publications of the Euiopean
Communities, 2uu7).
Euiopean Commission, 'Towaius a Euiopean stiategy foi the secuiity of eneigy supply',
eu. Biiectoiate-ueneial foi Eneigy anu Tianspoit (Luxembouig: 0ffice foi
0fficial Publications of the Euiopean Communities, 2uuu).
Euiopean Council, 'Conclusions on Eneigy - 4 Febiuaiy', (Biussels: 2u11).
Euiopean Eneigy Exchange Au, Stiom Teiminmaikt, Euiopean Eneigy Exchange Au,
http:www.eex.comue (accesseu 27 Naich 2u12).|,*('0( /7(/? .7( $'.(j
Euiopean 0nion, 'Biiective 98SuEC of the Euiopean Pailiament anu of the Council of
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European Commission
EUR 25305 EN Joint Research Centre Institute for Energy and Transport

Title: Unconventional Gas: Potential Market Impacts in the European Union

Authors: Ivan Pearson, Peter Zeniewski, Francesco Gracceva & Pavel Zastera (JRC)
Christophe McGlade, Steve Sorrell, & Jamie Speirs (UK Energy Research Centre)
Gerhard Thonhauser (Mining University of Leoben)

Luxembourg: Publications Office of the European Union

2012 324 pp. 21.0 x 29.7 cm

EUR Scientific and Technical Research series ISSN 1831-9424

ISBN 978-92-79-19908-0

doi: 10.2790/52499


z
As the Commissions in-house science service, the Joint Research Centres mission is to provide EU
policies with independent, evidence-based scientific and technical support throughout the whole policy
cycle.

Working in close cooperation with policy Directorates-General, the JRC addresses key societal
challenges while stimulating innovation through developing new standards, methods and tools, and
sharing and transferring its know-how to the Member States and international community.

Key policy areas include: environment and climate change; energy and transport; agriculture and food
security; health and consumer protection; information society and digital agenda; safety and security
including nuclear; all supported through a cross-cutting and multi-disciplinary approach.
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