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INEOS moves to become biggest player in UK shale gas industry

20 November 2014

On November 20, Swiss-based chemical giant INEOS announced it was planning to invest $1 billion (£640 million) in UK shale gas exploration and appraisal over a period of four to five years. INEOS chairman Jim Ratcliffe said substantial further investment would follow if the company subsequently moved into development and production. 

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Shale gas is natural gas trapped within rock formations and it is extracted using hydraulic ‘fracking’, where fluids are forced at high pressure into well bores to fracture the rock. Recent reports by the British Geological Survey estimate there are trillions of cubic feet of gas and billions of barrels of oil within UK shale formations.

Exploitation of shale oil and gas in the USA has led to a substantial reduction in energy prices there and provided a boost to manufacturing.

Ratcliffe said, “I want INEOS to be the biggest player in the UK shale gas industry. I believe shale gas could revolutionise UK manufacturing and I know INEOS has the resources to make it happen, the skills to extract the gas safely and the vision to realise that everyone must share in the rewards.”

A large majority of the INEOS bids are in Scotland and the North of England, where the local populations have either a mining or an industrial heritage. If the company wins all the Petroleum Exploration and Development licences (PEDLs) it has bid for from the Department of Energy & Climate Change (DECC), it would become the biggest player in the UK’s shale gas industry.

Gary Haywood, the CEO of shale development subsidiary INEOS Upstream, said, “Whilst the awarding of the licences is a matter for DECC, we believe our knowledge and experience in running complex petrochemical facilities, coupled with the world-class sub-surface expertise we have recently added to our team, means that INEOS will be seen as a very safe pair of hands”.

To jump-start the process, INEOS has hired three shale gas experts from Mitchell Energy, one of the main US shale industry pioneers. The first wells are scheduled to be drilled in 2015 and under the company’s proposals, the majority of wells would be in rural areas, but it has not ruled out brownfield sites in urban areas.

INEOS already owns two substantial shale licences in Scotland comprising over 720 square miles, and has invested a further £400 million in a project to bring US shale gas to its Grangemouth refinery and petrochemical complex in Scotland.

The company plans to give local communities 6% of the revenues from any shale gas it produces, divided between home and land owners above the well (4%) and the wider local community(2%). This offer would typically be worth £375 million to a community hosting 20 wells.

Ratcliffe said local acceptance was key to the success of the company’s vision, and he believed employment opportunities, the company’s safety record and its willingness to share the rewards would help win communities over.

The UK government has been supportive of plans to develop onshore shale resources to replace the decline in oil and gas from the North Sea, but there has been strong opposition from environmentalists. In 2013, anti-fracking groups staged protests against an exploratory well drilled by Cuadrilla near the village of Balcombe in West Sussex.

The Scottish government has been more cautious, and recently reconfirmed its opposition to UK government plans to grant automatic drilling access rights under homes.

INEOS wants to use low cost shale gas to supply its chemicals plants with energy and feedstock. The company said ongoing losses at Grangemouth, which supplies 70% of Scotland's fuel, were partly the result of high energy costs in the UK.

Ratcliffe said high energy costs made the UK a bad place to do business for intensive energy users. “In the last six years in the UK we have seen 220 closures of chemical plants and no new builds," he said.
 
He compared this with the situation in the USA, where he said the shale revolution had led to chemicals industry investment of $150bn.

A report in June by the British Geological Survey estimated that the Midland Valley in Scotland, where INEOS’ existing licence areas are situated, was likely to contain 80 trillion cubic feet of gas and 6 billion barrels of oil in shale formations, with only a proportion of this recoverable. But it also suggested that Scotland’s shale gas and oil resources were modest compared with those in England, particularly in Lancashire and Sussex.

In June 2013, the US Energy Information Administration issued a world-wide estimate of shale gas, which included an incomplete estimate of recoverable shale gas resources in the UK. The Carboniferous shale basins of North of England and Scotland, which include the Bowland Basin, were estimated to have 25 trillion cubic feet of recoverable shale gas. The Jurassic shales of the Wessex Basin and Weald Basin of southern England were estimated to have 600 billion cubic feet of recoverable shale gas and 700 million barrels of associated oil



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