Would a shale gas discovery in Ireland bring down prices?
Any new source of gas in Ireland has at least the potential to bring down prices. It would have to be a big find as even a gas field such as Corrib which provides over half of our national needs has little effect on prices. The commodity or wholesale price would continue to be set by the marginal or top-up costs of gas supplies from Britain or, should it come to pass, from the Shannon LNG import facility. However, it would result in greater revenue to the exchequer that could indirectly benefit consumers through a reduction in taxes for example.
The cost of producing any shale gas discovered in Ireland would depend on many factors including how much shale gas there is, the flowrate per well compared to well costs, and the costs of mitigating the risks of environmental impacts associated with its production.
The current situation in Ireland is that we don’t know how much economically recoverable gas there is in the identified shale deposits 1. Without that knowledge we can’t really answer the question of price impacts. The best shale gas prospect in Ireland, the Bundoran Shale, has yet to be assessed to establish the nature and quantity of the reserves.
Until exploration wells are drilled and test flowrates assessed, we don’t have a reliable estimate of the amount of gas and the cost of recovering it. The EPA, at the request of the Government, has initiated a research project to identify and assess the potential environmental effects of shale gas extraction.
In summary, Ireland is in the process of establishing the conditions under which shale gas could be developed. It remains to be seen if those conditions exist in practice.
The way in which shale gas is trapped in rock formations is very different to conventional natural gas and the costs of producing shale gas tend to be much higher 2. Some of these cost factors can be offset if the shale contains recoverable liquids and if the deposit is close to existing pipeline infrastructure.
- Shale gas can cost more to extract; more wells are required than with natural gas and these wells are not passive. The gas flow has to be stimulated, usually by hydraulic fracturing of the surrounding shale formation. The risks posed by the injection and recovery of the large quantities of water required has raised environmental concerns and led to strict regulation in some countries and prohibition in others.
- The scale and productive lifetime of the well or well pad can be smaller and shorter, so many more wells have to be drilled for the same gas output.
- If shale gas is accompanied by oil, the oil can provide the strongest incentive for production. This is the case with many remote US wells where shale gas is the by–product and the oil sales cover the costs of exploration and production.
- If we were to become an exporter from a shale gas find, then we could see prices drop 3 if production levels exceeded gas export capacity.
Fracking bids in Ireland will not be considered until the EPA results are published, at the end of 2016 4.