The world is changing fast and to keep up you need local knowledge with global context.
I recently posted a story on the surging global solar panel market – solar panel sales are climbing and China has taken over Germany as the globe’s largest solar market. Alternative energy is starting to take off. In the West however, the US has been engrossed in the shale gas boom for some time. And it has been profitable. Investors are now casting their eyes towards Britain – there is money to be made out of this contentious new means of extracting fossil fuels.
Britain now has the unique luxury of learning from mistakes made on the other side of the Atlantic, less available land and a higher concentration of people are two of the challenges faced, shorter distances to transport the valuable product is in their favour. As the murmurs of South Africa’s vast karoo gas reserve intensify it would be wise to cast our eyes to the West, and then to the North – we have more space than the UK but will we accept the environmental costs associated with the current methods of extracting shale gas in the US?
The real spotlight will soon be on South Africa, fracking is just too contentious to keep quiet for long. We have a few options: Follow the historically destructive ways, investigate new environmentally-friendly (or friendlier) methods of gas extraction – today’s innovations in technology certainly do not rule that out. Or we could follow in China’s footsteps and look at alternate energy, it certainly is becoming a profitable and environmentally-friendly option these days. An entrepreneurs’ dream. South Africa could be a shining beacon of progress rather than a nation following in the footsteps of outdated and destructive processes. What is socially acceptable for South Africans? It’s our Karoo that is at stake. JB
LONDON, March 20 (Reuters) – From trucks and cranes to chemists and trains, the supply chain winners from the U.S. shale boom have often been surprisingly simple. Now investors and executives are eyeing businesses that might benefit from a boom in Britain.
Many of the opportunities from across the pond should be replicable, investors say, but the UK’s far smaller size reduces some of the transport challenges while its population density means environmental concerns could be greater.
Although it is still very early days, signs are encouraging. The British Geological Survey has estimated rock formations in northern England’s Bowland Basin hold around 1,300 trillion cubic feet (tcf) of gas. Even with usual recovery rates as low as 10-15 percent, it could supply Britain’s annual consumption of 3tcf long into the future.
In January the nascent industry got another boost as Total became the first major oil company to commit to exploring for shale gas in the country.
One of the successes key to U.S. shale oil and gas has been the rapid growth of a supply chain to support the industry, keeping down the cost of things like drilling and hauling.
Some see this as an obstacle in Britain which, unlike the United States, does not have an onshore oil and gas heritage; others see an opportunity.
“Shale is a frontier market, one that has the potential to grow rapidly, and it’s right here on our doorstep so it’s definitely exciting,” said Glynn Williams, partner at private equity group Epi-V and a member of Britain’s all-party parliamentary group on unconventional oil and gas.
Williams has already invested in a few British companies he thinks should benefit and is keeping a close eye on others. He mentioned Clear Solutions, a manufacturer of environmentally friendly drill fluids; waste management company Remsol; and Ground Gas Solutions, which monitors gas and water for environmental damage, as firms well-positioned for shale growth.
“I think the best opportunities are around shale services and products that can be shown to be environmentally sound and sustainable,” he said. “You might use a drill rig for a few days or weeks but the environmental concerns are going to be there for the full life cycle of the well,” he added.
Fears over the environmental damage fracking could cause have led to protests across the UK. Cuadrilla, the only company to have actually hydraulically fractured a shale gas well in Britain, froze its drilling plans on a site in rural England after angry demonstrations.
Activists argue the government should invest in renewable energy rather than fracking, fearing the process may trigger small earthquakes and pollute water supplies. Industry experts say the scale of opposition fracking firms may face on a local level remains an unknown.
A lot of the business opportunities so far have been in basic logistics in the United States, where energy consultancy group IHS estimates unconventional oil and gas production supports more than 1.7 million jobs and predicts that number will rise to 3 million by the end of the decade.
In places like Williston, a once sleepy town in North Dakota now at the heart of the U.S. shale industry, “mom-and-pop” firms have flourished. The main drag is lined with local firms supplying, trucks, cranes, and drilling tools or building equipment for companies fracking nearby.
Francesco Giuliani, managing director at First Reserve – one of the world’s largest private equity group focused on energy – said his company was not yet putting bets on UK shale but that a number of lessons could be learned from the United States.
“If you look at the opportunities in the U.S., it’s everything that has to do with logistics. We bought a crane company at the end of last year,” Giuliani said, referring to TNT Crane & Rigging acquired by First Reserve in October.
“There will be opportunities that will be replicable one-to-one from the U.S. to UK., so having learnt what happened in the U.S. you can try and extrapolate what’s going to happen in the UK, but a lot of it will have to do with the specific type of drilling, resources, and transportation bottle-necks,” he said.
ABERDEEN TO LOSE OUT?
It is not just smaller businesses that have done well out of shale in the United States. Baker Hughes, one of the world’s biggest oil services companies, was quick to see the potential in unconventionals and saw profits nearly triple between 2009 and 2011 as drilling activity jumped.
Not surprisingly then, FTSE 100 engineering firm Amec , which has a strong oil services division active in the North Sea, is already eyeing up the kinds of businesses that might play a part in a shale revolution.
“We are looking at the shale proposition, we’re doing quite a lot of research work into the companies that are active in that area and whether we’ve got services we could provide,” said Alan Johnstone, Europe brownfield director at Amec.
One of the key questions for companies like Amec is whether the Scottish city of Aberdeen, so long the centre of innovation for the North Sea and one of the hubs for offshore oil globally, will be the home of UK shale as well.
In many ways Aberdeen is too geographically misplaced, expensive and over-qualified with its focus on high-end technology. Some industry insiders predict a lower-cost supply chain centre focused on shale will emerge around Yorkshire and Lancashire, home to Britain’s most attractive shale deposits.
Yet, with pretty much every oil service company active in the UK present in Aberdeen, it would be unwise to rule it out.
“I think some of the skills are pretty transferable to another location and the barrier to entry is probably quite low,” said Johnstone. “However, the technical expertise is so well clustered and engrained up here… I think there’s a really good opportunity for it to be germinated from Aberdeen.”
By Stephen Eisenhammer (Additional reporting by Ernest Scheyder in New York; Editing by Pravin Char)
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