Shale oil companies need a ‘social license’

Updated 26 December 2012
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Shale oil companies need a ‘social license’

LONDON: Rigorous traffic management and other planning controls will be essential if shale gas and oil drillers are to operate in areas of the Northeast US and Western Europe with no recent experience with mineral extraction.
Drilling and fracturing a single shale oil well can involve up to 2,000 truck movements in the first year, peaking at more than 50 per day during the fracking phase, according to North Dakota’s Department of Mineral Resources (DMR), which regulates oil and gas in the state that is at the center of the fracking revolution.
Unless truck movements and drilling operations are strictly controlled to minimise their negative impacts, resulting dust, noise and heavy traffic volumes will outrage local residents and spark a fierce political backlash that will see fracking firms lose their “social license to operate.”
Fracking’s full impact on the local transportation infrastructure and communities was set out by DMR Director Lynn Helms in presentations given to local residents and business groups in October and November.
Drilling and fracking a single well provides employment for 35 truck drivers, according to Helms in comments written up by a local newspaper, the “Minot Daily News“:
“You have the initial amount of trucking that first month as they’re building the road in the location. Then all of a sudden they start bringing the drilling rig in and the number of trucks per day jumps way up to about 25.
“During the drilling operations for about three weeks ... the number of trucks drops back off to about 10 trucks a day at this same location. It jumps back up to about 25 as they move the rig off and everything goes quiet for three to four months.
“Then in a span of about 10 days, more than 800 semis are at that site. These trucks bring in frack tanks, fill the frack tanks with water and sand is brought in. 80-some truckloads are brought in and 80-empties go out every day for 10 days as they prepare that well for fracking. Once the well is fracked, then everything is moved off the site.”
The impact is confirmed by a truckload timeline contained in a recent DMR presentation available on its website: https://www.dmr.nd.gov/oilgas/presentations/NDDOTTPDC112712.pdf (see slides 22-25).
Some 5,000 oil wells have already been drilled into North Dakota’s Bakken formation. But DMR estimates a total of 40-50,000 will eventually be needed, drilled and fracked at the rate of 2,000 per year for the next 18 years.
Truck loads include 71 to prepare the site, 75 to move the drilling rig in and rig up, 167 associated with drilling itself (lasting about 19 days on average), and 50 to take the rig down and move it out, according to DMR. Fracturing can involve a further 834 truck loads, with more to move the production equipment in and reclaim waste water pits.
It is possible to cut some of the truck movements associated with moving in and rigging up (MIRU) as well as fracturing itself by drilling multiple wells from the same site on the surface, and then fracking them all at the same time.
Multiple-well pads have become best-practice within the industry, and DMR is pushing drilling firms to employ them as much as possible to minimize disruption.
“We’ve been applying as much pressure as we can to oil companies (in Mountrail county) to get them to move to this,” Helms said in comments written up in the Minot Daily News (“Oil truck numbers big” Oct 26).
“Helms said the state now is writing orders, such as in McKenzie County, for some 18-well pads,” the newspaper reported.
But even with 6-well and 18-well pads, the surface footprint is enormous. Some of the idea of the impact is contained in images taken by the Vern Whitten aerial photography company and published on its website (vernwhittenphotography.net/photos/oilpicks/) and in other images in DMR’s own presentations.
It is this enormous impact that will make it hard for shale oil and gas developers to be “good neighbors” in local communities in Britain, Europe and parts of the Northeast US that have no recent history of mineral extraction or oil and gas production.
Fracking on the nearly empty plains is very different to drilling and producing in the densely built up and populated parts of Britain and Europe.
The 19 counties in the North Dakota Association of Oil and Gas Producing Counties have a total population of just 173,000, spread out across almost 30,000 square miles. Average population density is 6 persons per square mile. If urban centers in Stark and Williams are excluded, population density is just 4 persons per square mile.
In contrast, in the United Kingdom, population density is around 647 people per square mile, 100 times higher than in North Dakota’s oil patch, rising to 1,052 people per mile in England, 175 times higher than in North Dakota.
It is possible to drill underneath densely populated areas. The fracturing revolution began with gas drilling in the Barnett shale, much of which lies under the city of Fort Worth in Texas. But fracking operations in built up areas or close to substantial suburban and rural communities are far more challenging.
In Texas, some of the financial benefits of fracking flowed straight back to local residents and landowners, since oil and gas deposits are in private hands. Exploration and production companies paid bonuses and royalties to be allowed to drill and extract hydrocarbons. Payoffs quieted some local displeasure about the noise, dust and disruption.
However, in Britain and most of Europe, oil and gas resources are owned by the state, so benefits to the local community will be much lower. Communities may be stuck with the disturbance without seeing much direct financial advantage.
Politicians have spoken vaguely about the need for a “community benefit” but have been unwilling to state that this would come in the form of a financial payment.
North Dakota, Texas and other parts of the US have proved that enormous quantities of shale gas and oil can be produced in populated areas. In the United Kingdom, there is already an oil field under the town of Wareham.
But scaling up fracking in a densely populated country like Britain (or Germany or the Netherlands) to a significant size will pose enormous challenges for the environment, communities, infrastructure and most of all for politicians.
Even in environment-friendly Europe, politicians have increasingly come to realize that shale gas (and oil) are a potential game-changer. Earlier attempts to ban fracking completely have given way to fears the EU is slipping behind as cheap gas and oil give the United States a significant competitive advantage.
However, few politicians have really grasped what fracking might mean for the hundreds or thousands of local communities that would be required to host the drilling and production sites.
— John Kemp is a Reuters market analyst. The views expressed are his own


Brighter Saudi economic outlook boosted by reforms

Updated 42 sec ago
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Brighter Saudi economic outlook boosted by reforms

LONDON: Saudi Arabia’s “ambitious” reform program is set to accelerate the Kingdom’s economic growth this year, according to the International Monetary Fund (IMF).
Following discussions with Saudi officials, an IMF team led by Tim Callen reported that growth was expected to pick up this year and over the medium-term “as reforms take hold.” 

It added: “The primary challenges for the government are to sustain the implementation of reforms, achieve the fiscal targets it has set, and resist the temptation to re-expand government spending in line with higher oil prices.”

The report said considerable progress was being made to improve the business climate. Recent efforts had focused on the legal system and business licensing and regulation. The public procurement law that
is being updated had a key role to play in strengthening anti-corruption policies, said the IMF.
Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan said that the statement “confirms the progress made by the Kingdom’s government in implementing economic and structural reforms.”
Jean Michel Saliba, Middle East economist at Bank of America Merrill Lynch, expressed some concern that higher oil prices could encourage the government to take its foot off the fiscal prudence accelerator.

 

He said: “The IMF report is in line with our views that, while oil prices allow the Saudi government to support a pick-up in economic activity while minimizing the impact on fiscal balances, the key risk that higher oil prices bring is that medium-term (spending targets) are not adhered to.”
However, the IMF identified several encouraging KSA initiatives. The introduction of value-added tax was said to be a “milestone achievement” in strengthening the tax culture and tax administration of the country. Energy price reforms and the introduction of citizens’ accounts to compensate the less well-off for higher energy/VAT costs were also welcomed.
The IMF said that the Kingdom’s privatization and public and private partnership program, recently approved, should be accelerated.
It said: “A balance is needed between pursuing financial development and inclusion and financial stability. Increased finance for smaller businesses, more developed debt markets and improved financial access especially for women as envisaged under the Financial Sector Development Program will support growth and equality.”
Targeting a balanced budget in 2023 was lauded as being “appropriate,” and the Saudi government was advised to focus on delivering on this objective. “Limiting the growth of government spending would be necessary to achieve fiscal targets,” said the IMF.
Reforms to strengthen the budget process and the fiscal framework, increase fiscal transparency, and develop macro-fiscal analysis were said to be making good progress.
But broadening the coverage of fiscal data beyond the central government would ensure a more complete assessment of the government’s impact on the economy.
“While the public sector can be a catalyst for the development of some new sectors, it is important that it does not crowd out private sector involvement, nor remain a long-term player in markets where private enterprises can thrive on their own,” the IMF said.
The IMF recommended that government policies should focus on sending clear signals about the limited prospects for public employment, easing restrictions on expatriate worker mobility, further strengthening education/training, and continuing to support increased female participation. While progress had been made in increasing data availability, “more needs to be done to ensure that an accurate and timely assessment of economic developments is possible.”
Earlier this month, the ministry of finance published first quarter fiscal indicators that showed the Kingdom — which is making concerted efforts to diversify its oil-reliant economy — has projected a deficit of SR195 billion ($52 billion), or 7.3 percent of gross domestic product (GDP), this year, down from SR230 billion last year. It plans to balance the budget by 2023.
First-quarter revenues reached SR166.3 billion, up 15 percent from the same period last year, the ministry said in a statement.
Non-oil revenues jumped 63 percent to SR52.3 billion, partly due to a 5 percent value-added tax (VAT) that the government introduced in January.
Oil revenues rose 2 percent but the low figure was a result of a change in the way dividends are distributed and a stronger number is expected in the second quarter.
The IMF expects Saudi economic growth to hit 1.7 percent in 2018 after falling into negative territory last year.
A number of big-ticket infrastructure projects such as Jeddah’s new $7.2 billion King Abdulaziz International Airport are expected to bolster economic expansion.
In global energy markets, with crude trading at close to $80 per barrel, leading investment banks have forecast prices could go higher.
Supplies are being squeezed by the collapse of production from OPEC member Venezuela as well as worries about Iranian supplies following President Donald Trump’s decision to reimpose sanctions on Iran.

FACTOID

The IMF expects Saudi economic growth to hit 1.7 percent in 2018 after falling into negative territory last year.