UK opportunity assessment
- Shale gas production in the UK will require the development of a new onshore supply chain for equipment, services and skills, as well as the reuse of some existing offshore experience.
- Typically operators maintain in-house activities related to acquiring new licenses, geosciences, and engineering. The oil and gas industry purchases the majority of its services from suppliers, so there is a large supply chain opportunity for shale gas.
- The UK should build modular conversion courses specific to shale, and offer international secondment opportunities to accelerate skills transfer.
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.
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 is usually provided by a third party.
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.
Supply chain category availability by size of spend opportunity
Percentage split between key hydraulic fracturing components
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
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.
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
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
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.
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.
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.