Industry

Interview: INEOS tells opponents “delay tactics won’t work – we’re not going anywhere”

Lynn Calder2.jpg

The shale gas company, INEOS, warned anti-fracking campaigners that attempts to delay its operations would not work.

Speaking in an extended interview with DrillOrDrop, Lynn Calder, commercial director of INEOS Shale, said:

“Our message is: ‘We’re not going anywhere’ … We’re here for the long-term.

“You can delay us and it will annoy us a bit but at the end of the day we’ll still be here doing the obligations that we’ve undertaken to the government, in the most responsible way that we possibly can.”

INEOS Shale, privately-owned by Jim Ratcliffe, holds 1.2m acres of oil and gas exploration licences, about double that of the next largest operator.

The company has applied for planning permission to drill, but not frack, a vertical shale gas well in Derbyshire. Another similar application is expected soon in Rotherham borough. Both schemes have prompted opposition, including a challenge to a government minister over whether the Derbyshire plans need an environmental impact assessment.

Ms Calder said:

“We understand it’s delay, delay, delay – that’s what we see with some of the other operators. I understand it as a tactic but I don’t really want to pay any quarter to it.

“A lot of the delaying tactics are around people having speculation around specific operators which they think don’t have the cash, or they want to sell out because they’re private equity owned, or they’ve got to give a return to their shareholders. We don’t have any of those things.”

Asked whether social licence still mattered to INEOS, Ms Calder said: “It always has and yes it always will”. But she added:

“We’re very clear that we’re not going anywhere. We have a job to do and we believe in it and we believe that we’re doing it for all the right reasons. But on the flip side of that we know that it causes anxiety so it’s very much our job to try and decrease that anxiety.

“But we’re not going anywhere. We intend to discharge our obligations. There will be lots of people who will never believe us. There’ll be lots of people who will never trust us. But we want to be trusted in a way because we’re decent normal human beings who are doing something that we believe in.”

derbyshire-exhibition-170131-11

Evening demonstration outside an INEOS exhibition in January. Photo: DrillOrDrop

Key points

In the interview, conducted on 8 May 2017, Ms Calder also revealed:

  • Finding shale gas exploration sites in INEOS’s UK basins is challenging
  • Meeting all the company’s work commitments by 2021 is “incredibly optimistic”
  • INEOS Shale is still looking for licence areas
  • The company is watching direct action protests at other UK sites “with interest”
  • It will take legal action to get access to land for seismic surveying or drilling
  • Seismic surveying, due to begin within days, will be carried out by INEOS staff and equipment
  • The government could help shale gas companies by educating people about energy needs

You can read the transcript of interview with Lynn Calder here

“Difficult to pinpoint well sites”

INEOS Shale operates 28 exploration and development licences across the East Midlands, Cheshire and Yorkshire.

INEOS licences 2

Map: INEOS Shale. Yellow blocks are licences where INEOS is the operator. Blue blocks are where INEOS has an interest but is not the operator

So far it has published details of two proposed well sites in the East Midlands: Bramleymoor Lane, near the village of Marsh Lane in north east Derbyshire, and Common Road, near Harthill in Rotherham borough.

But by 2021, the company must drill nearly 40 wells in the areas licensed to it last year in order to meet commitments agreed with the Oil and Gas Authority (OGA).

Asked how INEOS was finding other well sites, Ms Calder said:

“It’s really quite a challenge at the moment. And really the only reason that we’ve managed to get a couple of limited areas for potential well sites [in the East Midlands] is because it is a well-known oil and gas and coal region. So there has been some seismic work done, although typically not to the depth that we’re looking at. We still don’t have anything like enough information. But it can give us some general areas of interest and we can marry that with the above surface.”

In the other areas, a lack of seismic data made the choice of sites harder, she said:

“It becomes more difficult in some of our other basins in Cheshire and Yorkshire, where there is less seismic data available so we’re not going to choose sites where we don’t know what the sub-surface looks like.

“At the moment, it’s very difficult for us to pinpoint well sites, certainly in Cheshire, and we’ve got some potential [sites] in Yorkshire. But it’s very patchy.”

Lynn Calder said INEOS would not publicly name other potential drilling sites until the initial stages of the planning process. She would not confirm whether the company was pursuing sites at The Lings and Thieves Wood, identified by Friends of the Earth in the Sherwood Forest area in Nottinghamshire.

Work commitments “incredibly optimistic”

INEOS Shale has agreed with the OGA that it will drill 28 vertical wells and frack another 11 horizontal wells across its licences issued after the 14th round last year.

The work must be completed in just over four years by July 2021. Asked how realistic this was, Lynn Calder said:

“It doesn’t seem very realistic to be quite frank, particularly as it’s a year [since the licences were granted] and we’ve got one planning application in and we know that the planning process is going to be challenging. …

“When you see planning applications taking in excess of three years including judicial reviews, then absolutely it seems like a complete pipe dream to think that we can discharge these obligations in a four year period. Which is why we’re not taking much truck with time-wasting because we really want to say ‘there is a framework in place, there’s a planning system that people can use to air their concerns and we would just really like those to be adhered to’.

“In answer to your question it’s incredibly optimistic that we’ll be able to get through all of those obligations but we will certainly be running as fast as we can.”

Fracking locations: “absolutely no candidates”

INEOS Shale wants to take core samples of shale rock from the proposed sites at Marsh Lane and Harthill. It says this will help decide whether shale gas will be commercially viable and where fracking could be carried out.

Land at Common Road Harthill Against Fracking

Land off Common Road, Harthill. Photo: Harthill Against Fracking

The cost of drilling each borehole, known as a coring well, could be in the range £4m-£12m, Lynn Calder said.

DrillOrDrop asked whether, if permission were granted for Marsh Lane, INEOS would seriously invest that level of money and then walk away and not frack. She replied:

“Firstly, no-one’s saying we’re not going to go back and frack this site. We’re not going back to frack this site under this planning application, so we would have to go through a completely different review process. … But what we’re asking right now is purely for exploration purposes.”

Bramley Moor Marsh Lane

Under its licence commitments, INEOS must frack a horizontal well in the licence area which includes Marsh Lane. Asked where this well would be, Ms Calder replied:

“At this point in time we’ve absolutely no candidates for that well and we can say that quite unequivocally because we genuinely don’t. We don’t have any land booked, we don’t have plans to do that.

“Will we be back to that location [Marsh Lane] or any other? We genuinely don’t know and it’s a conversation that I have at length with a lot of the residents because people think that you’re there so you’re always going to be there. For sure, if we find something interesting we will be back.”

She said the location of a fracked well would be decided by seismic data and the core samples. Marsh Lane, she said, was on the edge of where INEOS believes the shale gas play to be. Its results would, she added, help to delineate the play. If Marsh Lane were approved, site clearance could begin in the autumn or winter, with drilling in 2018.

“Drilling rig is not going to be the most welcome sight”

The announcement in January of INEOS’s plans for Marsh Lane led to ongoing opposition and protests. The site is near a school and less than 400m from several homes – INEOS’s self-imposed buffer zone.

Marsh Lane village from Bramleymoor Lane 170426 DoD

Homes viewed from Bramleymoor Lane, Marsh Lane. Photo: DrillOrDrop

Lynn Calder said she sympathised with people concerns about disturbance and said the company had responded by, for example, moving the proposed site entrance.

“I can’t stress enough how much I understand that INEOS turning up with a drilling rig is not going to be the most welcome sight.”

But she said she generally had less sympathy for what she called nationally-organised, professional opposition:

“I’m not talking about everyone, [but] many of them, you can see them move from cause to cause to cause, whereas for the people whose communities we’re entering this is a real cause for them, because this is their lives.”

She described opposition to shale gas on climate change grounds as “naïve”.

“We can move to a decarbonised society, we just can’t do it tomorrow. And what do you do in the meantime? If you don’t have gas, you have to use coal, or you have to stop using.

“My view – so not INEOS’ view –  would I rather have coal? No, because it’s dirtier. And do I want to switch everything off tomorrow? Well, no. I absolutely should have the rigour to use less, and to be responsible, and to do things like all responsible people should do for their daily personal use. But I haven’t got the money to convert my house from domestic gas heating tomorrow and I don’t want to be cold.”

“We’re looking to protect our landowners, sites and people”

Ms Calder said INEOS was closely following direct action protests in other parts of the country:

“Obviously we keep a very strong eye on everything that’s going on in Lancashire, and in Yorkshire as well and we are very concerned about what that means for us.”

PNR lock-on 170502 Ros Wills4

Lock-on protest at Preston New Road, 2 May 2017. Photo: Ros Wills

She said she had “no problem” with peaceful protest. But when people pursued direct action, she said:

“There’s not really very much we can say to them because they’re not people who are going to listen, they’re not people who are going to rationalise and they’re not people we are going to have any form of constructive conversation with.”

She said INEOS expected to share information about protests with other operators. Asked what this information would comprise, she said:

“What works? What doesn’t? What are your biggest concerns? What’s had the biggest impact? Because it really helps us prepare for what we can do. I think we’re absolutely going to be looking at protecting several key things: landowners, our sites and our people. That’s what occupying our thoughts right now.”

Do local people know best?

In the past parliamentary session, Conservative ministers said local people would be consulted about onshore drilling plans. Lynn Calder also agreed that local mineral planning authorities should make decisions on where shale gas sites should be.

“These are local decisions, people have the right to opine, and they have the right to be consulted, they have the right to have their voice heard.”

But asked if local people know what was best for their areas, she replied:

“Yes and no. I understand that they absolutely do know what’s best for the local area in some respects.

“For local people what’s best for their local area is not to have INEOS turn up with a drilling rig, I understand that.”

Common Road Harthill Harthill Against Fracking

Common Road, Harthill. Photo: Harthill Against Fracking

But she said “there’s a general misconception around the use of the gas” and the physical connection to energy had been lost.

“If you want to use the gas for your everyday life, whether it’s to have your electricity, heating or to manufacturing all the products we’ve become accustomed to, you have to draw on those resources. It’s unfortunate for some people if they live in those local areas but the geology is where the geology is, and there isn’t really anything we can do to change that.”

“We are still looking for licence areas”

INEOS Shale’s owner, Jim Ratcliffe, has said he has invested £600m in developing shale gas in the UK and would invest “many millions more”.

Asked whether the company was looking for more licence areas. Lynn Calder said:

“Yes we are still looking but we have a very high bar. We’re not just going to snap up every licence in the UK.”

She said the company believes there should be other operators, with whom it could exchange ideas and expertise. But she added:

“What we are looking for is the areas which we do think are going to be prospective, areas that we would class as core for our business, and we do want to have the best blocks in those areas.

“We feel that we have got most of those already, but where we don’t or where we see different opportunities come and go, then we will absolutely evaluate them. I wouldn’t say that we are necessarily finished but we’re not on a buying spree, to buy up the whole of the UK.”

Asked where the most desirable licences would be, she said:

“I think it would be if it were very adjacent to something we already had and we thought that that was a really good block. I don’t have a specific example.

“I think the other point is just being a bit reactive, if other operators want to sell something, rather than us skirting around looking.

“There’s an element of any future purchases potentially being more reactive”.

Court action to secure land access

INEOS Shale is preparing to begin seismic surveys across Nottinghamshire, Derbyshire and Rotherham.

Ms Calder said 91% of landowners approached by INEOS had agreed to allow access for surveying.

clumber-park-bridge

Clumber Park. Photo: (c) Copyright Carl Hinde. Licensed for re-use: http//creativecommons.org/licenses/by/2.0

But the National Trust at Clumber Park publicly refused access to its 3,800 acres and INEOS has removed that area from the current survey programme. Lynn Calder said:

“It’s not something we need to do right now but we will be back.”

She said INEOS had the power to pursue landowners through the courts if they refused access for either surveying or drilling.

“Where there are landowners that are in areas where we need to access, for whatever reason, whether it be seismic or drilling, then I think it is important to note that we do have some powers and, at some point, if we feel that there are areas which we are just not accessing, then we will seek to use those powers. We won’t seek to use them lightly because we’re not about steam-rollering over the countryside.

“We’re trying to do this in the right way. We’re trying to have open conversations with landowners and because INEOS has pledged 6% in revenue sharing we see that there is a real kind of basis for discussion with people.

“But, at the end of the day, if we can’t talk to people or we can’t gain any traction somewhere we need to be as the result of a licence we have been afforded by Her Majesty then we really need to be able to discharge our obligations. So it’s not something we’ll do lightly at Clumber Park or anywhere.

“But we will send a clear message that if people are not willing to talk to us then we will potentially be looking to use the powers that are available to us.”

Seismic surveying: “They won’t hear bangs”

Seismic survey work across the East Midlands is expected to begin within days. DrillOrDrop asked when people could expect to hear bangs.

Ms Calder replied:

“They won’t hear bangs.

She added:

“Lots of the areas are accessible by the vibroseis machines. That’s just the vibrator plate going down on to the ground and giving it a bit of a wiggle.

“There will, undoubtedly, be areas that we will need to drill and let off some charges because the vibs [vibroseis machines] can’t get in. Our hope is that most of it will be accessible by them and it will be very, very unintrusive for people.”

INEOS staff were photographed yesterday (see above) laying geophone strings for seismic surveying around Harthill in Rotherham borough. Each string contains maybe a dozen geophones, light-weight seismometers for measuring ground vibrations.  The strings are connected to a seismic cable or wireless box.  Ms Calder said survey work would cover the East Midlands first and was unlikely to move to other basins until at least the end of the year.

“Constant activity”

INEOS will be carrying out the seismic survey work itself, Ms Calder said.

“We’re going to be doing a huge amount of seismic surveying and to discharge all of the obligations across three different basins, we are pretty much going to be in constant seismic activity and we wouldn’t rule out actually contracting a second crew, so that we can actually start to accelerate the work programme.

“It is INEOS people that you will see out on the ground undertaking the seismic surveys.”

Seismic testing advertBut the company has contracted Arturius to recruit labourers to work on the seismic survey work. The company said it preferred to appoint ex-servicemen, which led to comments on social media that the project would use former mercenaries.

Ms Calder responded:

“That’s not representative of the situation at all and we’re not going into the seismic survey at all thinking we need a bunch of ex-mercenaries.

“It’s ex-servicemen, it’s people who you want to have jobs and who are reliable and disciplined and well-trained.

“Had we known about this advert going out, we would have worded it slightly differently, but we have since spoken to Arturius, and it was just a sort of misunderstanding more than anything else.”

Recently, the Arturius website has been redesigned.

“No media grandstanding”

Asked what INEOS wanted from a new government, Lynn Calder said

“We want a government obviously that support us because if they’re going to give the licences out and ask for a significant commitment in terms of time and money, then they absolutely have to be supportive. Otherwise it doesn’t work.”

But what she described as “very vociferous support”, as seen during the Cameron government, can work against companies.

“I go to a lot of communities where David Cameron is not the most popular politician.

“I don’t think we need any media grandstanding on it, to be honest. I think the government needs to be a little bit more educational than that. I really think that this loss of physical connection to our energy and how we use it is a real problem to understanding why we are here in these regions.”

She said provided the planning system operated properly, decisions should not be taken by central government, as the Conservative manifesto proposes for large fracking developments. But she said INEOS opposed statutory setback distances, buffer zones and well density limits, such as those included in North Yorkshire’s mineral plan.

“We’re not seeking the most awkward spots”

Lynn Calder said the company would not drill in National Parks, Areas of Outstanding Natural or the Sherwood Forest National Nature Reserve.

Asked if it would frack underneath, from outside, she said:

“I’m not saying that we would never do that. Again, it would all be subject to the planning process, it would all be subject to an Environmental Impact Assessment.”

Asked if INEOS would drill exploratory wells in National Parks, AONBs or Sites of Special Scientific Interest, she replied:

“That’s not our plan, no.

“We’re not going to go after the well sites that are going to make our lives the most difficult. We’re not going to be going after well sites where we believe it’s just morally wrong to drill there.

“We’re going to look at all our potential well sites on a case-by-case basis and do all the appropriate studies. If it’s something we can do safely and without impacting the natural habitat, then we will, but we’re not seeking to find all the most awkward spots and drill them.”

You can read the transcript of interview with Lynn Calder here

DrillOrDrop has invited opponents of INEOS’s activities to respond to the points in this post.

52 replies »

  1. Looking fwd to reading the response to this lol. Although I can predict them all.
    Was there a time bar on the publication of this interview as can’t help notice it was conducted a month ago?

    • This was a major, in-depth interview running over the course of two hours. Transcribing the material and compiling the article has taken time to complete.;

    • I find it hard to believe anything that Philip P might say after doubting Jim Ratcliffe’s statement that there have been no health or environmental issues with fracking in the USA.

      • Rex are you saying that you believe there have been no health or environmental issues connected with fracking in the USA? Credibility … tatters. I shan’t be believing anything you say from now on if that’s the case. Someone with JR’s responsibility is obviously to study the industry and it’s impacts closely. [Edited by moderator]

        • It’s just empirical fact, Philip. Nothing more. There haven’t been any systemic negative health issues caused by fracking. If you can find any, please bring it to the attention of the EPA, the NSA, the RAE, the Royal Society, and the Energy Dept. They have all been looking at the data and studies for many years and they have been unable to find proof (and you can believe that many in these organizations were dying to find that proof!).

          What we do know for sure is that fracking has systemically caused enormous health benefits to accrue to the benefit of the people of the US. These would include improved air quality from the reduction in co2 emissions, fine particulates, and sox, amongst others. We also know that fracking has created health and welfare benefits by creating hundreds of thousands if not millions of good paying jobs and it has lifted many out of fuel poverty. Clearly the systemic health benefits associated with fracking have been substantial.

          • EPA conclusions for Dimmock court case below – but, as predicted, ruled inadmissible as evidence. Rex you are hiding behind the fact that the public bodies (you mention) in the States at least are obliged by laws (which once had something to do with justice) to not use any phrases which which could be legally decisive in findings against the State sanctioned exemptions from clean air and water bills. This we known, and, watch this space for similar bending of UK laws to exempt big O&G from the human rights on clean air and water (particularly the EU laws). The EPA’s own scientists disagree with the restrictions on the way they are allowed to publish findings. The old ‘systemic’ chestnut is one dealt with before, it is not scientifically accurate to say there is no systemic connection and the EPA reversed its word usage on that score after complaints from several scientists.
            The Royal Society needs to update its report from 2012 and bear in mind that its approval of fracking depends on good regulation – lol – as everyone knows regulations are being skipped and avoided as we speak. How many sites that you know of have had, or are getting the UK EA recommended 12 moths of groundwater monitoring or testing before fracking licenses are granted?

    • Phil

      Nope, that attachment report does not fit it, as there is, inter alia, no comparison with other operators at similar refineries. Either within the UK or globally.
      Or with wind farm/ Solar operations.

      Maybe they are bottom of the pile, but how would you know? Where is the comparison with Esso or other similar
      operators.

      In addition the injury data is meaningless without context. So there were a number of slips and falls in a highly regulated industry. How does that compare with other industries, such as wind (2 fatalaties recently and 160 reportable to the HSE in 2016).

      Maybe INEOs are not as good as bp in Running Grangemouth, maybe better, but the attached report is just a bit of tittle tattle dissing INEOS and does not inform the debate. Indeed the HSE seem to think it’s all run of the mill. No prohibition notices it would seem.

      And that leaked e mail. Sent to all employees no doubt, so Julian was not required to get it into the public domain.

  2. Interesting “co-incidence” in the media today. “Ineos torn on 4X4 site”

    “We’ve already had discussions with the UK government. While we would love this to be a British vehicle, our hearts cannot be allowed to rule our heads.”

    Perhaps Corporation Tax below 20% and government support of the other elements within the Ineos portfolio might just see it in the E. Midlands?? I posted this suggestion during the Sherwood Forest debate and it was suggested this project would not happen, it was a vanity project and Jim was a nasty man! Engineers and other senior staff being recruited, and a factory site being investigated. Seems to me that this will happen, and with Sterling competitive for the export market, tomorrow will be the key.

    And if John is still around, perhaps with his vast knowledge of the German power industry he could explain how many BILLIONS of Euros the German government is now going to have to pay out in compensation to the nuclear power generators?? “We could certainly learn a great deal from Germany!!” Yep, but not what he expected.

  3. Ms Calder thinks that to oppose shale gas exploitation on climate grounds is “naïve”. She then goes on to make the false antithesis of shale gas versus coal. I leave it to others to comment on who is being naïve here.

    She also thinks that INEOS can withstand the temporary delays caused by objectors, and that their “tactics” are to target companies with perceived cash flow problems. But she misses the fundamental objection to UK shale exploitation (apart from adding to CO2 emissions), which is that it has proven to be completely uneconomic, as shown by 15 years of USA experience.

    Let me summarise these purely commercial arguments, which I have discussed at greater length in my submission last week to the Scottish Government unconventional energy consultation (http://www.davidsmythe.org/fracking/Smythe%20SG%20consultation%20submission%20on%20UOG%20may2017%20v1.0%20reducedsize.pdf).

    The development of UOG in the USA has followed a boom and bust cycle. This industry is frequently touted as an example for the UK to follow, but in reality it has been a financial disaster, founded on private investment in small- and medium-size independent oil and gas companies. It is a Ponzi scheme, wherein new drilling (to keep up the high initial rate of production) is financed by pulling in new investment in the form of junk bonds. Investors are attracted by the annual dividend of around 6%, but they will never get their capital back.

    Some 74,000 horizontal UOG wells have been drilled since hydraulic fracturing for shale gas and oil started in about 2003. At a minimum of $6M each, the costs of drilling are therefore at least $440 billion (but probably well over $500 billion if historic drilling costs are used).

    The shale gas bubble peaked in 2011-2012, and by 2015 the Wall Street Journal reported that the total debt of the companies (excluding the majors Chevron and ExxonMobil) was in excess of $200 billion. The average productive life of wells is 5-8 years, with most of the production being achieved in the first two years. Therefore, since the majority of US wells are five years or more in age, they cannot be expected to produce much more. Five thousand of the Barnett (Texas) shale play’s 20,000 wells are now ‘shut in’ (closed down). Even the recent slight rise in the price of oil has not saved the UOG industry from collapse; the Bakken oil shale play of North Dakota, for which UOG in the Weald is a close analogy, is now in severe decline since peaking in December 2014.

    From 2007 to mid-2014 the total raw gas sale value amounts to $215 billion. But the historic raw drilling cost for the approximately 46,000 horizontal gas wells, at $7M to $8M per well, is more than $100 billion higher, of the order of $350 billion. This figure excludes royalty payments (typically one-eighth, or 12.5%), lease costs, interest payments, and so on. Most of these wells are now over five years old. Because of the high decline rate of fracked wells, little additional income can be expected from existing wells. Therefore it cannot be argued that the investment has been made, and that significant income has yet to be generated.

    These figures do not add up to a viable industry. In round terms, the costs of shale gas have been double the income generated. It has been a financial bubble, developed by unscrupulous companies in the US.

    Estimated costs of producing UK shale gas vary from $6 per MMBtu (the standard unit of gas) to $13. Mr Ratcliffe of INEOS has started importing it himself for around $5 from the USA. In addition there are many other sources for importing gas, without having to rely on Russia. So he is taking an enormous gamble (to the detriment of the people who will be affected by INEOS activities) that the world price of imported gas will more than double, and that indigenous shale gas MIGHT thereby turn a profit. If that does not happen, then the shale division of INEOS will go the same way as over one hundred shale companies in the US, filing for bankruptcy.

    This is not the sort of financially unstable, unhealthy industry that the UK should be encouraging. If the objectors continue to delay shale drilling, by all legal means possible, then they will in the medium term be doing the misguided shale investors a favour. If Mr Ratcliffe holds some secret key to future gas prices that the world’s economists are somehow unaware of, then perhaps he should explain. Or is he seeking merely to enrich himself along the same lines as the US gas company CEOs did?

  4. Ms Calder thinks that to oppose shale gas exploitation on climate grounds is “naïve”. She then goes on to make the false antithesis of shale gas versus coal. I leave it to others to comment on who is being naïve here.

    She also thinks that INEOS can withstand the temporary delays caused by objectors, and that their “tactics” are to target companies with perceived cash flow problems. But she misses the fundamental objection to UK shale exploitation (apart from adding to CO2 emissions), which is that it has proven to be completely uneconomic, as shown by 15 years of USA experience.

    Let me summarise these purely commercial arguments, which I have discussed at greater length in my submission last week to the Scottish Government unconventional energy consultation (http://www.davidsmythe.org/fracking/Smythe%20SG%20consultation%20submission%20on%20UOG%20may2017%20v1.0%20reducedsize.pdf).

    The development of UOG in the USA has followed a boom and bust cycle. This industry is frequently touted as an example for the UK to follow, but in reality it has been a financial disaster, founded on private investment in small- and medium-size independent oil and gas companies. It is a Ponzi scheme, wherein new drilling (to keep up the high initial rate of production) is financed by pulling in new investment in the form of junk bonds. Investors are attracted by the annual dividend of around 6%, but they will never get their capital back.

    Some 74,000 horizontal UOG wells have been drilled since hydraulic fracturing for shale gas and oil started in about 2003. At a minimum of $6M each, the costs of drilling are therefore at least $440 billion (but probably well over $500 billion if historic drilling costs are used).

    The shale gas bubble peaked in 2011-2012, and by 2015 the Wall Street Journal reported that the total debt of the companies (excluding the majors Chevron and ExxonMobil) was in excess of $200 billion. The average productive life of wells is 5-8 years, with most of the production being achieved in the first two years. Therefore, since the majority of US wells are five years or more in age, they cannot be expected to produce much more. Five thousand of the Barnett (Texas) shale play’s 20,000 wells are now ‘shut in’ (closed down). Even the recent slight rise in the price of oil has not saved the UOG industry from collapse; the Bakken oil shale play of North Dakota, for which UOG in the Weald is a close analogy, is now in severe decline since peaking in December 2014.

    From 2007 to mid-2014 the total raw gas sale value amounts to $215 billion. But the historic raw drilling cost for the approximately 46,000 horizontal gas wells, at $7M to $8M per well, is more than $100 billion higher, of the order of $350 billion. This figure excludes royalty payments (typically one-eighth, or 12.5%), lease costs, interest payments, and so on. Most of these wells are now over five years old. Because of the high decline rate of fracked wells, little additional income can be expected from existing wells. Therefore it cannot be argued that the investment has been made, and that significant income has yet to be generated.

    These figures do not add up to a viable industry. In round terms, the costs of shale gas have been double the income generated. It has been a financial bubble, developed by unscrupulous companies.

    Estimated costs of producing UK shale gas vary from $6 per MMBtu (the standard unit of gas) to $13. Mr Ratcliffe of INEOS has started importing it himself for around $5 from the USA. In addition there are many other sources for importing gas, without having to rely on Russia. So he is taking an enormous gamble (to the detriment of the people who will be affected by INEOS activities) that the world price of imported gas will rise enormously, and that indigenous shale gas will thereby turn a profit. If that does not happen, then the shale division of INEOS will go the same way as over one hundred shale companies in the US, filing for bankruptcy.

    This is not the sort of financially unstable, unhealthy industry that the UK should be encouraging. If the objectors continue to delay shale drilling, by all legal means possible, then they will in the medium term be doing the misguided shale investors a favour. If Mr Ratcliffe holds some secret key to future gas prices that the world’s economists are somehow unaware of, then perhaps he should explain. Or is he seeking merely to enrich himself along the same lines as the US gas company CEOs did?

    • “The fundamental objection is that it is uneconomic” Are you suggesting that the government should shut down half the high street shops, heavy industry, football clubs, etcetera, etcetera ?

    • Jeezo this is finances for dummies. It’s an accountants viewpoint where as the real world operates very different. That’s why accountants work for me and not vice versa. [Edited by moderator to remove reference to legal action – let’s keep threats of litigation out of the comments. Please get in touch via the contact page https://drillordrop.com/contact/ if you have legal concerns over any content posted on the site]

      • [Edited by moderator] The shale industry in the US has only just started going marginally back into profit following years of making a loss. The CSG industry in Australia is struggling to make a profit as there is a glut of gas in the Asian market with significant oversupply and falling demand. The economic case for unconventional gas/oil in the UK is far from proven. A question Ineos has failed to answer repeatedly during public meetings is how much of any gas they may extract will be for UK consumption or for their plants and feedstock or export. Because if they think anyone is going to swallow the national interest garbage to fatten Jim Ratcliffe’s wallet, they are very sadly mistaken.

          • Kat

            Re your point about gas production and whether it is for feedstock, export or for internal consumption.

            This point was raised at a recent parish council meeting ( with the public ) in Edwinstowe.

            I did not understand the question. As their gas will go into the grid in the midlands, why would we worry about where it ends up? As you note, the economics of shale gas are not proven, so how would they produce expensive gas and then sell it through the grid to someone abroad or for feedstock to Grangemouth?

            The reason Ineos may fail to answer the question is because it does not make sense.

            Now…. if they liquified it and tankered it to Grangemouth, or somehow managed to pop it into the grid but export expensive gas through the interconnector to Europe, maybe there is an answer. But at present, the question seems stupid ( to me that is ) and therefore hard to answer.

            Happy to be enlightened as to the logic behind the question Ineos cannot answer, but at the meeting I attended all answers were swatted aside by rhetoric.

            Sometimes questions cannot be answered because they do not make sense. Either for or against fracking.
            Cheers

            P

    • David Smythe, I can now see why you stirred up so much trouble with your previous work[edited by moderator] You clearly do not understand that which you critique.

      You call the US industry an “uneconomic” Ponzi scheme. You would have to understand that a Ponzi scheme will not last long in a cyclical industry. When the drill bit stops, or slows, the game would be up. Numbers would collapse, companies would collapse, investors would collapse, and new funding would collapse. You can’t run a Ponzi without new funding (this is of course a basic rule), yet the US industry has gone through a couple of cycles where commodity prices have tumbled and the drills stopped running (or far fewer of them ran) and funding dried up. Yet the industry survived and, in fact, thrived following these periods. A few companies went bankrupt, as will always happen in a pro-cyclical, commodity-oriented industry, but the house of cards never came down as your (or Art Berman) thesis suggested it would.

      You’re clearly a fish out of water in terms of understanding the economics of the industry and the implications for capital markets. Any commodity-oriented industry is going to go through peaks and troughs. At some points everyone is making money, at other points no one is. To suggest that the industry is somehow permanently impaired or systemically unable to extract economic rents doesn’t comport with reality or economic theory. The better operators with the more economic concessions are able to generate returns over an entire cycle, those that are burdened with higher costs go out of business or are consolidated. To say that the industry is impaired is to argue that shale gas cannot be produced cost effectively by anyone – that shale gas is more expensive than alternative forms of energy. Yet this is clearly not the case. America, which runs predominantly on shale gas, also pays the lowest prices for gas in the world. This is an impossibility in your make believe world.

      Many of your facts do not add up, David. The average productive life of shale wells is not the 5-8 years as you suggest. Some plays are limited to around 8 year well-life on average, while others, such as the Permian, show wells that continue to produce after more than 15 years. http://www.ogfj.com/articles/print/volume-13/issue-8/features/mixed-evidence-from-shale-well-decline-rates.html . In addition, I have seen some estimates that Marcellus wells will produce for 25 years. Regardless, it isn’t worth arguing about other than to point out that you have cherry picked data. Contrary to your thesis, producers and investors are better off with very short well-lives. The quicker an investor gets a return the better, as it limits duration risk.

      You note, “From 2007 to mid-2014 the total raw gas sale value amounts to $215 billion. But the historic raw drilling cost for the approximately 46,000 horizontal gas wells, at $7M to $8M per well, is more than $100 billion higher, of the order of $350 billion. This figure excludes royalty payments (typically one-eighth, or 12.5%), lease costs, interest payments, and so on. Most of these wells are now over five years old. Because of the high decline rate of fracked wells, little additional income can be expected from existing wells. Therefore it cannot be argued that the investment has been made, and that significant income has yet to be generated.”

      Yet this argument is flawed in a number of ways. First of all you attribute and front-load all costs of drilling for the period and then you only take revenue for that same period and not over the period in which revenue from investment would be recognized. This would work well if wells produced all of their revenue in just a few months, but this is not the case. Since a well drilled in year seven would be integrated into your cost estimate with little or no revenue (depending on the time of year when it was completed) and this does not seem very realistic. Also, you are looking at aggregate data. Some of those wells may have never made money, while others may have made gobs.

      You state that estimates are that costs of producing gas in the UK are $6-$13/mmbtu. When were those estimates made, David? Do you understand how fast this industry moves in terms of efficiency gains? I know operators who believe that they will ultimately be able to extract gas from the Bowland shale MORE economically than in the US because the Bowland is so much thicker than any other US shale. This means that an operator can streamline operations by drilling more wells per pad. US operators are making money with gas prices a little north of $3/mcf, so you get the picture, right?

      You lose enormous amounts of credibility by stating that the oil and gas shale industry is financially unstable or unhealthy. People look at that and immediately understand that you are not balanced. The industry has been massively successful and arguably is the most important driver of the United States’ recent growth. Mr. Ratcliffe doesn’t know the secret of future gas prices but neither do you, David. But he does know his business, and he understands the opportunity in shale better than you. He also knows fundamental economic relationships will hold regardless, and these undermine your thesis. The fact that there are investors ready and willing to take the risks of drilling in the UK is all you really need to know. Let’s let capitalism dictate what is and isn’t investable rather than David K Smythe.

      To survive over the long term the industry must earn an internal rate of return in excess of its weighted cost of capital. This has always been and will always be. For over one hundred years the industry has thrived doing just that, and it has created a tremendous amount of wealth. Fracking and horizontal drilling have created new avenues and technologies for lowering costs, driving efficiencies, and producing substantial returns. You and Art Berman are stuck somewhere around the technolgies which existed in 2011, trying to understand why the entire industry hasn’t gone bust. Good luck with that!

      • And I have met very experienced petroleum geologists that consider the UK shale, no matter how thick, may not perform as well as US shale because of its characteristics. There are huge unknowns and whilst you state there are investors lined up willing to invest in the UK unconventional industry, I doubt many of these are anything but speculators. The large players don’t seem to be in that line do they?

        • KatT, Lots of qualifiers in your statements and they all point to the fact that “we don’t know.” This is correct. David Smythe implies that he does know, and that shale gas is uneconomic. [edited by moderator]

          Investors are lined up to drill in the UK. This is a fact which is indisputable. You can characterize these investors in any way you wish – call them poor investors, call them speculators, it doesn’t matter. What matters is that they think they can earn a return on investment commensurate with the risks they shoulder and this enables capital to flow. That is how the markets work dear Kat.

          If you consider Centrica, Total, and Ineos to be “small” players, that is your business. I would tell you that some formerly small players were the ones to lead the US shale revolution. Of course, they were much smaller than some of the companies involved in the early stages of the UK.

          • The largest percentage of our imported gas comes from Norway. Very cheap and plentiful.

            Statoil have been supplying us for decades. They know everything about the UK gas market.

            During an hour-long hearing before the House of Lords economic affairs select committee,

            Another witness to the committee, Tor Martin Anfinnsen, Senior Vice President, Marketing & Trading, Statoil, said his company had interests in shale but only in the US. He explained why:

            “We had a look at the UK sometime back as part of a global survey with Chesapeake, of the US, but we decided against going into the UK.

            “We believed we were operating in a more prolific basin in US than what the UK could offer. But I think it was primarily it was what we call the above ground risk, not so much government policy but it’s a fairly densely populated country this and there have been obstacles, if you will, to our activities in the Marcellus field in the US as well and we thought they may be even tougher to overcome here.”

            and asked whether they might change their minds,

            “You can never say never but I don’t expect that. For us, it’s much more cost efficient, at least based on our own calculations, to develop offshore fields, our offshore Norway assets, and bring that gas into the UK by pipeline.”

            Statoil has turned its back on UK shale because it cannot make money.

            When the people who are our major gas suppliers tell us UK shale is not profitable we really should be listening to what they have to say.

      • Mr Rex and (Mr GottaBKidding)

        [Edited by moderator] let us concentrate for now on the economic facts of shale, shall we?

        The economics of US shale are pretty straightforward. It has cost, historically, more to produce, by a factor of around two, than the revenue generated from sales. That is a fact, derived from the simple arithmetic of mutiplying total monthly gas production in the US by the Henry Hub price for that month, then adding it all up. You may bluff and bluster all you like about cycles, wells drilled in year seven, etc., but unless you can re-do the arithmetic in a more sophisticated way, that stands as fact. The peak of shale gas production was in 2011-2012, i.e. five or more years ago, so all the wells from that era or earlier are now drying up; indeed, some are now shut in or plugged.

        Part of my proposition is that the decline rate of unconventional wells is extreme. Avoiding from cherry-picking a few sweet spots, can you supply us with any decline curves that suggest, as the ludicrous UKOOG does, that shale wells will last for 40 years? The fact is, as I said, they are essentially dead after between 5 and 8 years.

        The thickness of the Bowland Shale (and the Kimmeridge Clay) will help the developer in drilling more wells per pad (perhaps up to 40), but each well still costs many millions to drill and complete. Each well still has to spud at the surface, run vertical, and then turn horizontal. The long horizontal section is crucial because the fracks need to be in vertical planes normal to the wellbore, and also aligned parallel to the principal horizontal component of maximum stress; you cannot commercially frack a vertical shale well (NB testing it is a different matter). No-one, to my knowledge, has yet drilled and completed a number of laterals off a single vertical. If you have some concrete examples of that then I would be pleased to be proved wrong.

        If you read my submission you will note that my UK cost estimates come from: Oxford Institute for Energy Studies; Bloomberg; Ernst & Young; and Centrica. I presume these sources are fairly reliable; in any event they all produce a similar range of estimates. Why didn’t you read these studies yourself? I would be interested in the data from which you claim that US operators are now “making money” at $3/MMBtu. Your supposed “new avenues and technologies for lowering costs, driving efficiencies” are marginal.

        You give the game away by quoting as support for your comments “The fact that there are investors ready and willing to take the risks of drilling in the UK is all you really need to know. Let’s let capitalism dictate what is and isn’t investable rather than David K Smythe.” Leaving aside the ad hominem stuff once again, the fact that there may be investors around does not make for a sound industry (or even sound capitalism) in the long term. They will lose their shirts just as they have done in the US. Your faith in investor intelligence (which is ‘all I really need to know’) is naïve.

        • What an absurd argument you make David Smythe. You fail to comprehend basic economics.

          Revenues in the industry are variable because commodity prices vary. If commodity prices decline, revenue may not cover expenses for a time. Then production is cut, the industry is consolidated, and the strong emerge stronger. They then enjoy higher prices for a time until the cycle repeats. The o&g industry is no different from any other commodity industry, and shale players are no different from conventional drillers historically. There are periods in which all industries lose money.

          It’s absurd and naive to call an industry “uneconomic” or “Ponzi” based on a simplistic schedule of investment vs. revenue for a given period. You MUST understand that in this “analysis” investment is front-loaded and returns ARE NOT. You may capture most of the value of investments made in years 1-3 in this analysis but you ignore much of the return from investments made in years 4-7. [Edited by moderator]

          Many natural gas producers are now profitable with nat gas prices hovering above $3/mcf. How can this be if their costs are double their revenues? Are you arguing that the equilibrium price for natural gas is $1.50/mcf? If so, how do you arrive at that conclusion, and what support do you have?

          No, David, shale gas doesn’t operate under different economic rules than the rest of industry. You are making a fundamentally nonsensical argument. An entire industry is not “uneconomic.” If it were, it wouldn’t have survived for the last 30 years. Not only has it survived, it has thrived. Shale gas now comprises 2/3 of US gas consumption and the US has THE MOST economic gas industry in the entire world as expressed in our very low price of natural gas. Shale oil is also becoming very, very competitive in case you hadn’t noticed: http://oilprice.com/Energy/Crude-Oil/Are-Super-Rigs-The-Driver-Behind-The-New-Shale-Boom.html

          As far as well-life, look again. Five to eight years is not typical. The document I referenced above draws not only from the Permian but also from the Bakken and the Barnett. In this presentation, you can see data from the Marcellus, Haynesville, Fayetteville, and others. http://naturalgasnow.org/shale-gas-decline-curves-demystified/ You’ll note that EURs at year ten are in the 85-90% range. And at year 20 they are approaching 100% realization. Also note that the shales that were first exploited typically had shorter lifetimes than those that are exploited with modern technology. Regardless, this is a counterproductive argument for me to make other than the fact that it shows how little you know. I would prefer that wells had a lifespan of 15 days, not 15 years.

          Yes, a number of operators have completed multi-lateral wells from a single vertical. I will find evidence for you at some point but I don’t have time now. Obviously, drilling 40 wells from a single pad is more cost effective than drilling 4 different pads with 10 wells each. I hope that you can understand this without much explanation. But if you need more help, I may be able to take some time later to explain it to you in more detail.

          What do you mean your sources are “fairly reliable”? No one knows what the final costs will be, and all of your estimates are dated. Costs have come down significantly since they made their estimates. Again, the people with the money matter, and they are saying that this shale can be economic. For every analyst you quote who says it isn’t so, I can find one who says the opposite, so I don’t really know what you hope to accomplish.

          If you want to see the evidence that operators are making money with gas just above $3, then I suggest you look at current 10Q filings for gas producers in the US. This is pretty cut and dry.

          Yes, I admit to having faith in capital markets. You clearly do not. So, David, tell us, in your system who is the investor who makes these decisions if not the capital markets? Should the government make the decisions? Should it be David Smythe? And what evidence do you have that governments or David Smythe are better allocators of capital than the capital markets?

          Thanks!

          • Mr Rex; you write:

            “In this presentation, you can see data from the Marcellus, Haynesville, Fayetteville, and others. http://naturalgasnow.org/shale-gas-decline-curves-demystified/ You’ll note that EURs at year ten are in the 85-90% range. And at year 20 they are approaching 100% realization. Also note that the shales that were first exploited typically had shorter lifetimes than those that are exploited with modern technology. Regardless, this is a counterproductive argument for me to make other than the fact that it shows how little you know. I would prefer that wells had a lifespan of 15 days, not 15 years.”

            The reference you quote here is secondary; it refers back in turn to an EIA report Annual Energy Outlook 2012 With Projections to 2035, dated June 2012, in which the original Figure 54 is to be found on page 59. This report states “the EUR for each subplay is determined by fitting a hyperbolic decline curve to the latest production history, so that changes in average well performance can be captured”. The production curves shown are totals for each of five shale gas plays. You evidently misunderstand the difference between the EUR of a whole shale play with that for an individual well, because you are confusing the two. And why are you quoting (indirectly) data which are from end-2011 and earlier, from a report dated mid 2012. There have been five EIA annual energy outlooks since that one. Are you trying to hide something by quoting the 2012 version, or are you just out of date?

            In contrast, all my references are from 2015 or later. One peer-reviewed paper from last year quotes a mean EUR, assuming a 20-year well lifespan, for 1084 Eagle Ford gas wells, as in the range 1.41-2.03 bcf. I leave you to find this study for yourself, and to work out whether UK shale wells drilled by INEOS, producing gas at $5, will ever be economic with an EUR like that.

            As well as the EIA, you should also consult papers and articles by the USGS (of course), and also, for example David Hughes, Art Berman, and Euan Mearns – all of them real earth scientists turned commentators who just happen to take a sober view of the shale bubble. But instead of that you give us hyped-up nonsense like your link to new super-spec rigs as the saviour of the industry. Marginal improvement – yes, and welcome, but not a panacea.

        • You want to ban tight gas wells because they are uneconomic and (presumably) to protect investors. In 2015-16 the Premier League had combined losses of £110 million. Will you be calling for the Premier League to be shut down?

      • Roll up , roll up ladies and gentlemen, the great US Ponzi scheme is now open.

        Quote,

        ” Gavin Wendt, founding director & senior resource analyst at MineLife, told CNBC on the 26 May 2016. ”

        One analyst told CNBC that he doubted the very foundation of the U.S. shale oil industry which he said had been founded and expanded on cheap money and had effectively been a “Ponzi scheme” – an investment operation that generates returns for older investors by acquiring new investors.

        “I think in ten years’ time someone is going to write a great book and make a great movie about the shale industry in the U.S. because I think it is, quite frankly, one of biggest Ponzi schemes known to mankind.”

        • LOL. Jack the lad, you can find a nutty analyst to express any view you want to express. They just talk their books . So this guy is short the e&p sector, of course he will call it a Ponzi and every other bad name he can come up with. That’s just the way the game works, son.

          • Jack
            Your favourite link🏭 and I like it too.
            Indeed, such skulduggery is around in un fracked oil and gas, mining, renewables, housing and so on. No surprises there, as the comments below the article note.
            Low interest rates and printed money float a lot of boats, so we will no doubt see how it all pans out when rates go up and if the fed can keep their fingers off the keyboard.
            But, as noted in many posts on DoD, the US fracking finances seem a sideline compared to concerns around the physical impacts. And I think they are.

            • Yes hewes62,

              As now a more seasoned member of this forum, you will no doubt be aware of the pro/anti fracking merry-go-round.

              With the some of the same arguments/debates endlessly repeating themselves, the same answers/points will allways automatically follow suit.

              Welcome aboard.

          • Good evening Rex,

            If you have inside knowledge that this guys opinions are biased, because he is short selling e&p stock, then you need to go public and expose him.

            If you are privy to the inside world of the stock market, then you will jump to the top of my Xmas card list …. ( Inside tips would be most welcome and appreciated, nudge, nudge. )

            Or are you just making a wild and unfounded guess at this man’s financial investment activities ?

            Regards , Jack

  5. INEOS may think they have a thick skin, but we have the numbers. The evidence. And the determination. Yorkshire determination. And we are learning too. This industry told the same lies in Australia and the US. We will not be taken in by them.

    • The numbers? All I ever see is a handful of the same people. You’re a minority group. The majority simply either support or don’t care about fracking. Only NIMBYs and pink haired, camouflaged wearing lost causes put up any resistance.
      Just you keep on comparing UK to the US and serve as a poster boy for the misinformed.

  6. Regarding the caption on your photo – the crew are definitely not “laying out charges”. They’re either placing marks to show the positions for source or recording equipment, or actually laying out the recording equipment.

    • They are planting geophone strings. Each string comprises maybe a dozen geophones (lightweight vertical-component seismometers) connected in parallel, planted in the ground a few meters apart, each string in turn connected to the seismic cable or to a wireless box, typically at a 25 m interval.

  7. [Edited by moderator], how does she think using “powers” to drill on land against an owners wishes will go down? A power that has never been used in the UK before I might add. She states it will be demanding for Ineos to meet the O&GA requirements by 2021, impossible many would say if there is a change of government either tomorrow (less likely) but within four/five years (more likely) given all the opposition parties will ban fracking.
    What is very telling is the objection to set back distances, buffer zones etc and cites the North Yorkshire Minerals Plan as an example. Does she not appreciate that these safeguards are the very least people will expect if they and the environment is to be preserved. This not only shows Ineos up for the profits before people company they are but it also shows how much they underestimate the resolve and power of the public. Perhaps Ms Calder needs to appreciate that the public will not be going away any time soon either.
    It equally shows what little influence MP Kevin Hollinrake has had on proceedings because quite clearly he has been completely ignored by Ineos, his government and has let his constituents down very badly.
    I consider Ineos have done themselves no favours whatsoever with this interview, indeed they will in fact have generated more opposition.

  8. Oh david! Do you not realise that Mr. Ratcliffe is ALREADY buying that oh so uneconomic US shale gas and shipping it across the Atlantic to Grangemouth?? I suppose that is because they are so unaware of the economics? Someone supplying it as a loss leader? Try standing on the Forth road bridge and shout “I see no ships” but I think that would also be pretty unconvincing. You speculate on the cost of producing shale gas in UK, and it is exactly that-SPECULATION. No shale gas has been produced in UK so there is no evidence to base your costing upon. Just like speculating a horse will win the Derby before it has been born and trained. A lot have done that but it is a mugs game.
    Why is your US data not up to date?? I would say I wonder why it isn’t, but we both know why that is the case.

    You will really have to up your game with Ineos. They contribute enough in taxation to the UK that you will find this is another ball game altogether.

    And, Ian, you do NOT have the numbers. 70% of the UK population either support fracking or have no opinion-and that is before any economic benefits are established. Knock a few quid off energy bills, or provide local communities with a windfall and your 30% will evaporate, like the tolerance of “peaceful protest”. What will you do if Ineos float this division and give an opportunity for locals to take a stake in potential profits? You will see a good example of Yorkshire determination then!

    • I question your statistics Martin. From memory the government’s own survey – people that are sat on the fence i.e neither support nor oppose is circa 49%, people that oppose is circa 33% and support circa 19%. You cannot attribute a neither support nor oppose as support, so where do you get your 70% from. Clearly more people oppose than support fracking.

    • I am well aware that Mr Ratcliffe is already buying US LNG.He presumably paid the market price for it in Galveston or wherever his tanker was loaded. There is no such thing as a ‘loss leader’price – just the Henry Hub price (and the UK NBP over here). If that is currently lower than it cost to produce the gas then that’s life, isn’t it? The US producers can’t store it forever in the hope of a return to the $15 of a few years ago.

      I did not “speculate” on future UK shale costs. I simply drew on others’ research. Regarding my US data being allegedly out of date, please supply some more details – or, better, do the sums yourself and publish them. The real ‘speculation’ going on is in greedy and/or uninformed investors prepared to put their money into a supposed future UK shale bonanza. I am simply pointing out that this is unlikely to come true.

      If Mr Ratcliffe can produce some credible figures – as opposed to company hype – to back up his investment decisions, showing how he expects a UK shale industry to be profitable, I shall be happy to be corrected.

      • I see Davidsmythe backing down from his earlier stance that shale gas in the UK is an uneconomic ponzi. Now he says that he simply feels that a bonanza is “unlikely”. It’s fine to have and express an opinion on the subject, David. Just don’t try to tell us that you know it is uneconomic and then throw out dated, biased, and faulty data to back your contention.

        And do tell us why you think Mr Ratcliffe would supply you or anyone else with the data to back up his investments. He owes you or any of us nothing. If I find a way to make money, the last thing I want to do is show my cards. I think Mr. Ratcliffe is just as happy if David Smythe takes him for a fool making investments in an “uneconomic Ponzi”!

        We’ll see who has better information in the end, won’t we David?

        • I said that UK shale gas profitability was “unlikely”, but of course not impossible. But it would require a wholesale gas price of $12-$15 – unlikely (even highly unlikely) but not impossible. Look at ERC Equipoise’s forecast for UK NBP gas prices up to the end of 2023:

          http://www.ercequipoise.com/graph/uk-natural-gas-futures-curve/

          You see here a gently diminishing price, once the seasonal cyclic variation is smoothed out, from the current 45 pence/therm down to 42-43p. This latter price is roughly £4.20 per MMBtu, or about $5.50. Now ERC Equipoise are not nutcases, are they? They are a UK-based oil and gas reservoir evaluation firm. Unlike the US gas companies (or Cuadrilla in the UK, for that matter) it is not in their interest to talk up the market price. Or look at:
          https://knoema.com/ncszerf/natural-gas-prices-forecast-long-term-2017-to-2030-data-and-charts

          where you see the NBP price rising gently to $8 while the US price is at $5 in 2030 (World Bank forecasts) .

          You appear to have a touching faith in the markets, the investors, and Mr Ratcliffe of INEOS in particular, that the $12-15 gas price will return. Where is the evidence? INEOS is a large and successful petrochemical company. But they have no experience whatsoever in hydrocarbon exploration. My impression is that INEOS is obtaining huge acreage for shale exploration in the UK because it is extremely cheap to acquire the PEDLs; there is merely have an obligation to shoot some seismic and drill – eventually. INEOS is behaving somewhat like Chesapeake Energy in 2006-2009, a US company which bought up an enormous number of land leases on the cheap, and made money by ‘flipping’ them – i.e. selling them on at a higher price. Look what happened to Chesapeake; their founder and ex-CEO committed suicide leaving behind up to $1 billion in debt, and the share price of Chesapeake itself is now at $4.74, a mere 7% of its peak price in July 2008. Not a story to be emulated in the UK.

          But the US lease system can’t operate directly in the UK. However INEOS could farm out its interests in the PEDLs, so that the farminee pays for the drilling in return for a participating interest in the discovery, if any. In brief, INEOS’s venture into UK shale is pure speculation. Mr Ratcliffe is gambling – as a novice – in the hydrocarbon exploration industry. He seems to be defying the experienced commodity forecasters, none of whom, to the best of my knowledge, see a gas price of higher than $8 over the next 13 years.

          If Mr Ratcliffe were just gambling at the tables of Monte Carlo, fine; but he is risking all sorts of environmental and health ill-effects to be visited on the UK population by trying to set up a shale gas industry, by betting on a future high gas price based on non-existent data. I don’t see why the public should stand for it. Let him keep importing LNG (current Henry Hub price $3.12) for his petrochemical needs, and stick to what he knows best – petrochemicals.

    • Martin
      INEOS say they import it because of the ethane content. N sea gas is low on ethane.
      Now.. not to say a Jim is not enjoying the import bit to a part of the UK that has banned fracking, but he is cute enough to use N.Sea gas should it be ok for feedstock. Especially as he now owns the forties pipeline.

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