John Barwise looks at the controversial exploration technology and its effect on peak oil predictions.

The likelihood of global oil supplies peaking anytime soon has been undermined with the emergence of new fracking and horizontal drilling technologies that can exploit vast new oil and gas reserves, previously out of reach to traditional drilling methods. The UK knows what peak oil looks like, having gone from being a major oil exporter to net importer in just a few years. Fracking has the potential to open up new oil and gas reserves, but will this put an end to peak oil predictions or is it just a reprieve until something better comes along?

The “peak oil” theory

In July 2013, “The Oil Drum”, an international forum created by advocates of the “peak oil” theory, closed its website after eight years. The website enjoyed global recognition, but interest in peak oil has waned recently because of unreliable peak oil predictions, and unprecedented growth in oil and gas production in recent years, brought about by hydraulic fracturing, or fracking.

The peak oil theory is based on the Hubbert curve — a point in time when the maximum rate of extraction is reached, after which the rate of production starts to decline. In 1973, M. King Hubbert predicted that peak oil would happen in 1995. Others had predicted 2005, 2007 and 2010 as peak oil years — all have proved incorrect. In 2005, global oil production did reach a high point of 74 million barrels a day (m/b/d), followed by predicted downward trends for a few years, but production rebounded soon after to reach new production records in 2011 and 2102.

Fracking and horizontal drilling

Fracking has been around for more than 60 years and was first used in vertical wells to exploit natural gas in the USA. Horizontal drilling was developed much later, in the 1980s, and is used to exploit oil and gas deposits in shale and other horizontal formations. However, it is the combination of fracking and horizontal drilling that has turned previously inaccessible global reserves of oil and gas into exploitable resources.

Global energy demand

The USA has taken the lead on fracking and is producing 14% more of its own energy than it did in 2005; it is on course to become the world’s largest producer of oil and gas. US imports of natural gas and crude oil have fallen 32% and 15% respectively in just five years, helping to reduce US trade deficits and improve national energy security. Natural gas has replaced coal as the country’s biggest source of domestic energy production. At an international level, an estimated 60% of all new oil and gas wells worldwide are currently being hydraulically fracked to capture previously inaccessible reserves.

Yet, despite the recent growth in available oil and gas supplies, global energy demand is also rising. According to the US Energy Information Administration, world energy consumption is expected to grow by 56% between 2010 and 2040. To meet the increase in demand, coal, oil and gas consumption are also on an upward trend. Global gas consumption grew by more than 2.2% last year, and oil production is forecast to increase by more than 20% by 2030 against 2007 levels. The question is whether new resources, now accessible through fracking technologies, will be enough to prevent peak oil and gas happening anytime soon?

In 2009, the UK Energy Research Centre (UKERC) publishedThe Global Oil Depletion Report, which concluded that conventional oil production is likely to peak before 2030 and possibly before 2020. Senior researcher and chief author of the report, Steve Sorrell said: “It makes no sense to provide precise forecasts of when a peak in oil production will occur. The data is unreliable, there are multiple factors to consider and a ‘bumpy plateau’ seems more likely than a sharp peak, but we can say that the window is narrowing rapidly. The effects of global oil depletion will depend greatly on the response from governments and on the scale of investment in new energy technologies.”

As mentioned above, the UK already knows what peak oil looks like. In the 1980s and early 1990s, we were net exporters of oil and gas, but are now highly dependent on imports of gas and oil, and even coal. Total UK fuel imports required to generate electricity, provide heat and support transport rose by 7.1% a year between 2009 and 2012. The EU trading bloc is also dependent on energy imports from non-member countries, with more than 50% of energy demand currently being met by imports.

Shale gas reserves in the UK and Europe

Here in the UK, the British Geological Survey (BGS) has confirmed huge resources of shale gas across many parts of the country. The BGS estimates there may be 1300 trillion cubic feet of shale gas present in the north of England alone, with potentially more resources in other parts of the country and offshore.

Fracking in conventional oil and gas wells has been happening in the UK for more than 30 years. The discovery of shale gas reserves combined with the horizontal fracking technology could open up new, untapped resources, and the Government is determined to seize the opportunity. Speaking at the Royal Society, Secretary of State for Energy and Climate Change Edward Davey outlined the case for shale gas exploration in the UK: “We have to face it: North Sea gas production is falling and we are […] increasingly reliant on gas imports. So UK shale gas could increase our energy security by cutting those imports. Home-grown gas, just like home-grown renewables and new nuclear, also provides jobs for our people and tax revenues for our society.”

Yet opposition to fracking has been growing in the UK, particularly since the earthquake near Blackpool. Lancashire was linked to Cuadrilla’s shale gas drilling operations there in 2011. Environmental concerns about fracking are well documented — contamination of groundwater, risks to air quality, migration of gases and chemical leaks, have all been reported. Contamination of groundwater was one of the issues raised recently by protestors at the exploratory shale gas wells in Balcombe, Sussex. Back in Lancashire, Cuadrilla has decided to abandon its Anna Road site because of likely impacts on migrating birds.

Mainland Europe holds vast shale gas and oil resources, and a mandatory environmental impact assessment (EIA) is the only requirement imposed by the EU. A proposal to ban hydraulic fracking operations in the EU was rejected by the European Parliament, but opinion remains divided. France and Bulgaria, which have some of the biggest reserves, have both rejected fracking, whereas Ukraine will press ahead, and Spain is likely to follow suit.

Encouraging investment

Here in the UK, the Government is determined to support further exploration, arguing that the UK has tough environmental licensing regulations in place to ensure operations are safe and the environment is protected. To encourage further investment, Chancellor George Osborne has announced a 50% tax cut on shale gas industry profits, which is considerably less than the tax paid by conventional oil and gas producers. Planning guidelines are to become more streamlined to speed up the process for new installations and, as an added sweetener, George Osborne is also putting in measures for local communities affected by new drilling sites to receive £100,000 and 1% of the production revenues when sites start producing gas. The Prime Minister has already hinted that exploiting shale gas will even bring gas prices down, but others in the Government, notably the Department of Energy and Climate Change (DECC) are less optimistic about this.

Estimating future reserves

Although there are considerable shale gas, and possible shale oil, resources in the UK, the amount that can be extracted is more difficult to estimate. Typically, this could be as low as 3% extractable gas reserves in places such as the Bowland Shale in Lancashire. What is even harder to predict is how long future reserves might last — the more optimistic figure suggests around 70 years, although others argue that 15–25 years would be a more realistic estimate. Either way, oil and gas are both finite fossil fuels and are bound to run out at some point, but it might give the economy a much-needed boost in the meantime.

Conclusion

There is something of a déjà vu about all this. In the boom years of the 1980s, Margaret Thatcher described North Sea oil as “a gift from God” to the British economy. We squandered most of it, of course, unlike Norway which invested much of its oil and gas revenue in clean energy and is now reaping the benefits. However, maybe this time around the Chancellor will use some of the tax revenues from shale gas to invest in renewables and energy efficiency that could secure the UK’s energy needs for the long term.

If we all did that, then “peak oil, gas and even coal” would be less likely since we would be able to leave most of our fossil fuel resources in the ground, where, many would argue, it should stay, if we are serious about stopping global warming.

Last reviewed 28 October 2013