UK opportunity assessment

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Capability assessment of existing UK supply chain for shale gas

The UK has a long history of offshore and onshore oil and gas development, including proven hydraulic fracturing experience.

In this section we review the UK’s ability to source the materials, equipment, infrastructure and labour needed for each of the main spend categories.

Assessing UK supply chain opportunities

The development of the UK shale gas industry will bring opportunities to establish a presence in new markets, such as the manufacturing of high-tonnage drill rigs.

There will also be an opportunity for suppliers and service providers to supply existing materials, equipment and services to a new UK industry.

£20.5bn

Estimated total spend

Here we assess the spend opportunity for individual supply chain components, and identify current gaps and opportunities for capturing that spend within the UK.

 

Hydraulic fracturing

Hydraulic fracturing is usually provided by a third party.

Supply chain category availability by size of spend opportunity

EY - Supply chain category availability by size of spend opportunity

Once a well is drilled it is fractured to release the gas. This means pumping fluids into the well at high pressure in order to fracture the shale rock. A propping agent, like silica sand, is then used keep fractures open.

The spend in this category is dependent on the number of stages within a ‘frac job’. Based on our high case defined with Oilfield Service companies and operators, there could be a total spend of £20.5bn through demand for specialised equipment and services, key materials and skills.

 

Percentage split between key hydraulic fracturing components

EY - Percentage split between key hydraulic fracturing components

Recommended next steps

Hydraulic fracturing represents 62% of total spend from 2016 to 2032 – a significant opportunity for UK-based oilfield services companies and UK manufacturing:

  • The UK Onshore Operators Group (UKOOG), with the support of Government and supply chain companies, should build an investment case for developing UK-based capabilities in specialised equipment and personnel for hydraulic fracturing. This should include recommendations for bridging finance options to allow the supply chain to invest early enough to deliver on time.

£7.7bn

Estimated total spend

Drilling and completions

Drilling and completion refers to the drilling of vertical wells and subsequent horizontal lateral wells, and securing multiple layers of steel well casing using cement. Whilst the drilling and casing account for a large percentage of demand, there are a number of additional materials, equipment and services needed for the drilling and completion of shale gas wells.

Percentage split between key drilling and completion components

EY - Percentage split between key drilling and completion components

Recommended next steps

Steel, rigs and ancillary equipment and services represent a significant opportunity for UK investment, especially as some of the capability already exists. UKOOG, with the support of BIS, research councils, higher education institutions, and Oilfield Services companies should:

  • Work with supply chain providers to understand pad and hydraulic fracturing standards and R&D requirements
  • Expand the Fabricators Directory to include detailed specifications of required components; and promote UK-based suppliers (including small and medium enterprises) which can deliver these.

Waste management and storage and transportation

Waste management: £2.8bn

The processes used to drill and hydraulically fracture a well create waste that must be treated and disposed of.

£4.1bn

Estimated total spend

In addition, UKOOG and supply chain companies should build an investment case, including finance options, for developing UK-based steel and rigs.

 

Percentage split between key waste disposal components

EY - Percentage split between key waste disposal components

‘On-site water treatment technologies: we excel at this and it's transferable to other sectors such as Nuclear, Construction, Offshore.’

UK Petroleum Engineer

Storage and transportation — £1.3bn

In order to prevent operation bottlenecks, storage and transportation of materials play a key role in the shale gas supply chain.

Water and waste are likely to need more than £1bn of spend between 2016 and 2032 in transportation and storage costs.

Percentage split between key storage transportation components

EY - Percentage split between key storage transportation components

Recommended next steps

Waste disposal, storage and transportation are categories of spend with significant interdependencies. Storage and transportation costs can be reduced if a proportion of water and drilling waste is treated on-site, or if facilities are located close by. Mobile waste water and drilling waste treatment technologies already exist in the UK:

  • UKOOG, with the support of Government and supply chain companies, should build an investment case, including finance options, for developing UK-based capabilities in shared infrastructure needed to support UK shale development.
  • UKOOG should engage with the Environment Agency on treatments that would be authorised for re-injection, and used to recycle waste water.

Other infrastructure: gathering and gas processing

The processes used to drill and hydraulically fracture a well create waste which must be treated and disposed of.

There is an opportunity to learn from industries like telecommunications, which share mobile tower infrastructure.

Opportunities for shared infrastructure for UK shale include:

  • Gathering facilities: a shared gathering facility could be built regionally to connect pads from different operators before being processed
  • Gas processing plants: smaller plants could be shared on a regional level

With the estimated ramp-up profile, these will not be needed for several years, providing an opportunity to plan and build the concept of shared infrastructure into future business cases and development plans.

The connections process is well established, and coal-bed methane sites have provided a good template for this.

Connecting to the National Transmission System and UK gas distribution networks should be relatively straightforward, especially if a shale site is situated close to an existing entry point and/or entry points are minimised through the use of shared, centralised processing plants.

Recommended next steps

  • UKOOG, with the support of Government and supply chain companies, should build an investment case, including finance options, for developing UK-based capabilities in shared gathering and gas processing infrastructure.

Skills

Category overview

Many required skills are shared with offshore oil and gas and the chemicals industry. However, these are already experiencing skills shortages.

Given the significant lead times for training, unless early action is taken, there is a risk that the opportunity to maximise job opportunities for local people is missed and new demand makes existing skill shortages worse.

Forward planning poses challenges, and uncertainty still exists about the speed at which the industry will develop, but this should be possible to manage provided a partnership approach is adopted and the skills developed are easily transferable to related industries.

Partnerships between industry, education institutions and Government have been shown to reap rewards.

The UK Government has recently set out its ambition to develop a new generation of elite vocational institutions1. These are industry-led, with the training directly tied to the needs of employers in strategic, high-value industries. They are financed by government and employers, and aim to develop a world-renowned training regime.

This could be considered for the shale industry, particularly if looked at with offshore oil and gas and chemicals.

UK Research Councils

Research Councils in the UK would also have an important role to play, particularly in supporting skills development and innovative technologies for onshore shale.

In its 2013 Impact report2, Research Councils UK (RCUK) highlights that ‘combined grants from RCUK and the Technology Strategy Board in excess of £6m have contributed to the success of Marine Current Turbines.’ Funding was used to develop, prove and build new turbine technology.

The Natural Environmental Research Council now has an increased focus on oil and gas, including a new Centre for Doctoral Training.

‘We have an opportunity to build a brand for the UK and deliver a platform for academic excellence.’

UK education institution

Roles and skills assessment

Supply constraints for management, commercial, legal and other professional services, and semi-skilled blue collar and administrative roles are not anticipated. In addition, the UK has a very well established construction industry with a strong supply of construction workers.

Recommended next steps

The UK already has capability for petroleum engineering and geosciences, drilling and completions, and planning approvals and permitting issuance, health, safety and environmental monitoring – but it is constrained and will need investment to meet the industry’s needs during ramp-up.

There is currently limited to no capability in the UK for hydraulic fracturing engineers. Lead time to develop an engineer with the right level of experience could be as long as five years and developing a new training programme could take up to four.

There are also already shortages in related offshore and chemical industries, and therefore a risk that these are further exacerbated by the take-off of shale.

To accelerate skills development, UKOOG, with the support of Government, higher education and further education institutions, and Oilfield Services companies, should:

  • Define a set of standard skills, qualifications and/or accreditations needed by operators for staff to work on shale projects.
  • Define a plan and the investment case to develop required skills at pace.

1 https://www.gov.uk/government/speeches/the-skills-summit-importance-of-technical-and-vocational-training

2 http://www.rcuk.ac.uk/RCUK-prod/assets/documents/publications/2013Impactreport.pdf