Millions are already benefiting from the shale revolution

This is an extended version of a column written for the UK Times newspaper by Weir Group CEO Keith Cochrane and published on 28 September 2015. The Times article can be found here. 

Many column inches have been devoted to the issue of fracking in the UK and beyond, but few have concentrated on the substantial benefits this revolutionary technology is bringing to millions of people right here, right now. Just consider its impact on household transport costs, traditionally one of the larger expenses incurred by families.

In the UK, the Department for Energy and Climate Change estimate forecourt petrol prices, once the effects of tax are removed, have fallen 25% in the past year, while diesel prices have reduced by more than a third. The impact on the economy is substantial when you consider 17 billion litres of petrol and 27 billion litres of diesel were sold here in 2014. The reduction in motor fuel prices was cited by the Office for National Statistics as one of the main reasons why UK inflation fell to 0% last month.

Millions of motorists should thank fracking: the technology which has unlocked vast reserves of oil and gas in shale formations deep below the ground and in the process has transformed the global energy industry and fuelled the fortunes of families here in the UK and around the world. In the United States, where the vast majority of the world’s shale gas and tight oil are produced, low fuel prices have increased energy demand as the economy continues its recovery.

But the impact of fracking goes well beyond individual wallets. The enormous success of the technology has led to a surge in global oil supply and a subsequent collapse in prices. The result is a reduction in capital spending by oil companies with projects either being cancelled or delayed. In North America, falling onshore oil production, the mainstay of the fracking industry, is the main reason the US Energy Information Administration estimate oil production will fall by approximately 1m bpd by the autumn of next year.

So, how sustainable is fracking as a source of global energy?

At the Weir Group, the oil downturn has significantly affected demand for the pumps, valves and wellheads we produce for the fracking industry. It has led to some very difficult decisions including a reduction in our North American oil and gas workforce by a third. But even in these challenging circumstances, we have been very careful to ensure we maintain the skills and capability to respond when fracking markets recover, as I am very confident they will.

Let me explain why. At the same time companies have been reducing the number of wells they frack, there has also been a substantial reduction in investment in conventional exploration and production. Earlier this week it was reported the value of delayed or cancelled projects was now $220bn.

As we all know, oil is a finite substance and wells have a limited lifespan. The International Energy Agency estimate that without investment a mature oilfield will deplete by 9% per year. That means that just to stand still the industry needs to find additional supplies each year. But the low oil price is deterring investment which will eventually reduce supply to a point where it is outstripped by demand. We have already seen an increase in US motoring journeys as a result of lower fuel prices. When the market does rebalance, fracking will be one of the big winners because it is far quicker to react to demand than conventional sources.

The time between a decision to invest and production of a frack well is between three to six months. A well can be fracked and start production for approximately £6.5m ($10m). Compare that to the years of planning and the substantial expense incurred before an offshore oil rig begins producing oil.

The simple fact is that unconventional (fracked) oil is far more responsive than its conventional cousin and it has the added benefit of its reserves being accessible in stable territories like North America, where there is established infrastructure to take energy to the market.

And there is another reason for optimism. Fracking continues to mature quickly aided by technology development which has contributed to reductions in well costs of about 20% in the last year alone. At Weir for instance, our latest frack pump is able to operate far longer between overhauls, substantially improving productivity. It is just one example of how the industry is innovating to reduce costs and make it sustainable at oil prices well below their recent peak.

The industry is also turning its attention to new markets. Recently, engineers and academics gathered in Glasgow to look at finding UK-specific solutions to some of the issues which most concern communities in this country. The meeting, at the UK Hydraulic Fracturing Centre in the city, could be the start of a truly comprehensive British fracking industry.

The UK is home to some of the world’s best engineering talent and they are now working with geologists, social scientists and health professionals to examine ways to make fracking technology which is greener and tailored to the operating environment in the UK and Europe. It’s a sign of the momentum fracking now has on this side of the Atlantic after years of debate.

Indeed, UK engineering has already demonstrated its worth to the industry. The Weir Advanced Research Centre at the University of Strathclyde helped developed technology which is making operators more efficient in the US and generating tens of millions of dollars of revenue in the process.

More broadly, the case for accessing our own home grown resources is compelling, especially as more and more countries turn to gas to supply the energy to keep the lights on in the future. Thanks to fracking technology, the price of natural gas in the US is less than half the price in Europe and Asia. Such is its abundance; the US is likely to be a net exporter of gas in 2017, with the first shipments due later this year, helping to support, among others, the Grangemouth refinery in Central Scotland.

In global oil and gas markets, times may be tough right now and no-one is sure when prices will improve, but when they do, fracking technology is placed to emerge stronger than ever. It will never be the complete answer to our energy needs but it will be an important contribution to energy security, jobs and our shared prosperity.

At Weir, we are passionate about innovative engineering solutions. Such passion runs throughout the entire company and when an opportunity arises where we can discuss engineering and its impact on the wider world — I like to grasp it. I hope you have enjoyed reading my views and I would invite anyone who would like to continue the conversation on our company’s social media accounts Twitter and Linkedin.

Thanks for reading.
Keith