Supply chain and skills requirements
- £33bn could be required to bring up to 4,000 horizontal wells into production by 2032.
- Shale development requires a mix of existing onshore drilling expertise, as well as specialist equipment, services and skills.
- Critical roles for establishing the shale sector over the next 10 years include petroleum engineers, geoscientists, drillers, hydraulic fracturing personnel, planners, and health, safety and environmental experts.
The demand opportunity for the UK shale supply chain
In its best case scenario, IoD estimates that 4,000 lateral wells will be drilled from 2016 to 2032.
Total spend could reach £33bn. The graphs below show the five main categories of supply chain spend:
- hydraulic fracturing
- drilling and completions
- waste disposal
- storage and transportation
- other, including items related to pad preparation, construction equipment, security services, and environmental impact assessments.
Category breakdown of total spend based on IoD high-case scenario (%)
Category breakdown of total spend over 2016–32 (£bn)
Total spend for 2016–32 is c £33bn
Understanding supply chain spend over time
We estimate that it will take six years to complete the exploration and development stages to bring a single pad with 40 lateral wells into production.
This means that annual spend would reach its peak levels around 2024.
Demand will change over time. The pad’s geological characteristics will be better understood with each new well development. Drilling time will gradually reduce with an increase in the number of wells drilled, due to anticipated enhancements in efficiency.
Defining the supply chain for shale gas
Our approach to mapping out the shale supply chain builds on EY’s global Oil and Gas Process Framework (see ‘The onshore shale gas value chain and supply chain’ graphic), which details the processes within a standard oil and gas value chain (upstream, midstream and downstream).
The onshore shale gas value chain and supply chain
Given that the industry is in the very early stages of development, this study’s primary focus is on the upstream elements of the value chain, where the majority of near term activity will take place.
These elements consist mainly of drilling and completions, hydraulic fracturing, waste management and storage and transportation activities.
Longer term, once production is in full flow, midstream and downstream activities (e.g., processing, transmission and distribution) are likely to be supported, for the most part, by existing infrastructure.
The supply chain and skills model that underpins this study builds on the IoD high case scenario and uses a single shale gas pad with 40 lateral wells as a starting point. It looks at annual spend per pad and takes into account the fact that it will take up to 6 years to get a pad from exploration to production; and that at peak, different wells will be at different stages of development within one pad.
Breaking a pad into its key supply chain components
In order to better understand the key components of each spend category, we have developed a view of the spend needed to bring a single pad on-stream.
The graph outlines the breakdown of spend categories for a single pad with 10 vertical and 40 lateral wells, and illustrates the range of key materials, equipment and services needed to bring these into production.
Breakdown of spend £m categories for a single pad (10 vertical wells; 40 lateral wells)
Supporting infrastructure needed for UK shale
The infrastructure needed to support the industry’s development breaks down into four main areas:
1. Waste water management
2. Drilling waste management
3. Storage and transportation of materials and equipment to and from sites
4. Gathering and gas processing.
Waste water management
Once the hydraulic fracturing process has been completed, a proportion of that fluid will flow back up the well and most likely need some treatment.
Portion of the £14.5m waste water disposal spend that covers costs for transporting 100% of waste water to an off-site treatment facility
Drilling waste management
During the drilling process, drilling fluids ‘muds’ are extracted from the wellbore and enter the mud tank system for processing. The muds circulate through the system so that drill cuttings and fine solids can be captured and removed from recovered drilling fluids.
In the US, these solids are stored in a reserve pit next to the drilling rig. UK regulations would not allow this, so the waste will need to be treated at an separate facility.
‘If recycling technologies can be used on-site to treat drilling waste, you could see a 70% reduction in the number of trucks needed to transport solid waste offsite.’
Waste management specialist
Storage and transportation of material and equipment to and from sites
Finding the right balance between storage and transportation of materials and equipment will be key to addressing operational efficiency and public concern over traffic volume. Road weight, height and width restrictions in the UK will result in longer lead times for accessing sites, with associated costs.
In addition, storage and transportation needs are linked to the use of mobile on-site water and drilling waste treatment facilities. The more waste is treated on-site, the less needs to be transported off-site for treatment.
Average cost of storing water on-site over the drilling period of a single 40-lateral well pad
Gathering and gas processing
To monetise shale gas resources, operators will need access to the infrastructure that will deliver natural gas to consumers.
In US shale-producing regions, production field wellheads deliver gas via gathering pipelines, either straight to interconnectors/market hubs, or indirectly through a processing plant.
The UK is expected to follow a similar process, which has been tried and tested in the biomethane sector, and would require shale gas to meet calorific value and gas quality standards.
Connecting processed gas to the National Transmission System (NTS) would be completed through a Network Entry Agreement (NEA) with National Grid.
Indicative charge for construction works for a new minimum offtake connection (MOC) at a National Grid greenfield site1
At peak, 64,500 jobs will be created. These jobs represent direct, indirect and induced roles involved in developing a shale pad from exploration to production — i.e., upstream activities. They do not include jobs related to midstream activities (e.g., processing, connection to Grid) or downstream (e.g., product sales and marketing, decommissioning). Similar to the offshore oil and gas industry, the bulk of development activities is delivered by the wider supply chain, which support a smaller number of direct critical roles.
Direct, indirect, and induced jobs generated at peak
Note: These numbers do not include jobs related to midstream activities (e.g., processing, connection to G rid) or downstream (e.g., product sales and marketing, decommissioning)
This study focuses on direct roles, services and tier one suppliers considered critical to the development of a shale pad. These include:
- drilling and completions
- hydraulic fracturing
- petroleum engineering and geosciences
- planning approvals and permitting issuance
- health, safety and environmental monitoring.
Enabling service roles will also be needed within operations management, construction, and office support.
Estimates of direct jobs have been prepared based on a high case scenario where 100 pads will be developed from 2016 to 2032. Each will contain 40 wells (10 vertical and 4 lateral) and take 6 years from exploration to production.
At the single pad level, throughout the 6 years an average of 102 direct jobs will be needed per year on each pad, with an initial ramp-up in drilling activity causing a spike in year 2, at 145.
Using this pad profile, and IoD case scenario activity schedule, the total number of site development (direct) jobs reached in 2024, and sustained until 2026, will be 6,100 a year. Drilling and completions is the largest job category, making up almost two thirds.
Site development (direct) jobs annual ramp up profile to peak years (2024–26)
1 The Statement for Gas Transmission Connection Charging, http://www.nationalgrid.com/NR/rdonlyres/D2FD2718-68B8-47CE-ABC5-9BDC1881DF33/54531/Gas_Charging_Statement_June_2012V20.pdf