New energy: future for unconventional hydrocarbons

1 July, 2011

Unconventional hydrocarbons are expected to play a growing role in global energy security over the next few decades as part of the new energy mix.  Discussed at our recent ‘New energy frontiers’ meeting, several key points emerged.

 

New energy frontiers: what role for hydro-carbons in global energy security?

Wednesday 15 – Friday 17 June 2011 (WP1111)

Our June meeting explored the role, development and challenges of unconventional sources of fossil fuels such as shale gas, oil from sands (in Canada) and shale, and potentially gas from coal (through underground coal gasification). Reducing carbon from the production and use of such unconventional sources will be critical.

Unconventional fossil fuels (including possible gas from coal through underground coal gasification) have challenged the concept of ‘peak oil’ and sources are spread geographically wide providing greater energy security for many countries. Technological developments, particularly drilling techniques, are enabling such hydrocarbons to be extracted at an economic price.

To ensure global energy security it is argued that all sources of energy including fossil fuels, renewable energy and nuclear, will be needed. A greater global vision of the best energy mix for 2050 is called for with a road map established to ensure appropriate policies to reach it. Whilst renewable energy will be a key part of the energy mix, securing 100% from renewables by 2050 is believed to be unachievable.

Overall the challenge for governments, industry and consumers is to balance energy efficiency and security of supply with sustainable economic development, and protecting the environment, underscored by the imperatives of climate change and the desire to move to a low carbon future.

It is acknowledged that a key element in the development of unconventional fossil fuels is the need to reduce carbon emissions, particularly through carbon capture and storage (CCS) at the stage of production (front end) and use (back end). Greater effort is needed to deliver CCS including infrastructure for CCS installations relating to both oil and gas. If coal is substituted by gas there will be positive gains on carbon emissions; however if gas is substituted for nuclear energy, not least in reaction to the Fukishima nuclear accident, increased carbon emissions will result.

 

Image: California oil pumps (C.G.P. Grey)

 

The growth of production of unconventional hydrocarbons will be determined in large part by how fast investment and industrial production can grow whilst maintaining the necessary infrastructure (with significant levels of investment needed) and environmental regulation. Risks are significant for investors and the oil and gas industry, and investors and industry will need to weigh difficult choices and separate strategic risks from operational risks.

Industry could be more active on carbon emissions and CCS, and need to ensure their own operations meet the best environmental standards. They also need to ensure greater engagement with governments, non-governmental organisations and the public, including explaining technologies and approaches. Ensuring discussion to create a “social licence” to produce such forms of fossil fuels will be critical. With climate change negotiations breaking down and the peak oil argument refuted, more NGOs are likely to look to challenge companies about their approaches and practices.

Oil sands in Canada are increasingly accessed by deep drilling rather than open cast mining. Should future licences for open cast mining be refused and such sources be held as a strategic reserve? Exports to Asia and the US could impact on global oil trade. Strong regulation and work on CCS in Canada is little known; increased efforts on environmental reclamations will counter some of the environmental challenges.

Shale gas is proving to be globally spread, and a potential game changer. Increased production (and consumption) in the US is likely to ensure greater availability of existing tradable Liquified Natural Gas for European and Japanese markets. Environmental challenges caused by shale gas production are best tackled at scale rather than by one company dealing with a single well, for example caribou management in Canada can be strengthened by large-scale approaches. Greater debate about shale gas is needed in the European Union; it should be more than just a research topic within the European Commission. Signals to industry over the coming few years will be critical.

Other unconventional hydrocarbons such as shale oil and underground coal gasification (UCG), as opposed to coal bed methane, could also have significant impacts on energy markets in the coming years. Pilots for UCG in Australia, the global mapping of potential sources of UCG, and increased technological developments mean that this could prove a valuable fuel source. Capturing the carbon remains a key challenge. International oil companies (IOCs) could see UCG as part of their gas portfolio. The biggest new development in securing oil from shale could be in “in situ” conversion.

Regulation of the development of unconventional hydrocarbons is critical. The challenge for governments is how to give clarity to the regulators, and for regulators to give clarity to industry. Regulators are encouraged to be enablers, encourage technological innovation, and to ensure careful sequencing of regulation; the positive examples of British Colombia and Colorado were cited. However, there is concern that the regulation frameworks will not catch up with technological developments or will be too late. The European Union and other jurisdictions could learn from the experience in North America in developing hydrocarbon regulatory regimes.

Other major challenges raised in the conference included:

  • how unconventionals can be a bridge towards a low carbon future.
  • how to balance move the transport sector away from more oil
  • how to ensure a coherent EU energy policy strategy and diversity of supplies.

 

Further information

Conference on New energy frontiers: what role for hydro-carbons in global energy security?

News on Shale gas and oil sands: the energy sources of the coming decades?

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