Economic Feasibility Analysis of Shale Gas Extraction from UK’s Carboniferous Bowland-Hodder Shale Unit

• Published in: Resources (Basel) Vol. 8; no. 1; p. 5
• Main Authors: Ahmed, Muhammad, Rezaei-Gomari, Sina
• Format: Journal Article
• Language: English
• Published: Basel MDPI AG 29.12.2018
• Subjects: Bowland-Hodder; capital; Capital costs; Carboniferous; Carboniferous period; Cash flow forecasting; Competitiveness; Discount rates; Discounted cash flow; Drilling; econometric models; Economic analysis; Economic development; economic feasibility; economic sustainability; Economics; energy costs; Exploitation; Feasibility studies; fracturing and refracturing; Gas industry; Gasoline prices; GDP; Geology; Gross Domestic Product; Hydraulic fracturing; imports; Net present value; Oil and gas industry; Political activism; probability; Shale; Shale gas; Shales; stakeholders; sustainable energy; Tax rates; United Kingdom; United Kingdom > UK; United States > US; United Kingdom
• DOI: 10.3390/resources8010005
• ISSN: 2079-9276

For many years, shale gas exploitation has been generating contradictory views in the UK and remains subject of rising debates throughout these years. Favorably backed by the government, looking upon it as potential mechanism for gas import independency and competitiveness in global gas industry while strongly opposed by stakeholders (mainly public), idea of shale gas exploitation remains disputed with no substantial progress in past years. And this irresolution is worsened by obscurity of estimates for potential reserves and conflicting assessments on potential impact of shale gas. Yet, in case shale industry is signaled to search and extract resources, there remains another scrutiny stage that shale industry will be subjected to i.e., its extraction must be economically feasible as extracting unconventional resources is financially expensive and riskier than conventional. Hence, this study aims at analyzing the economics of UK’s most prolific Bowland shale play development by a financial model that discovers gas prices range required to earn capital cost on investment in Bowland shale play and is tested on three development plans where it determines that based on given set of hypothesis and past decade’s average gas price of $6.52/Mcf, none of the development plans hold enough probability of adding value, however, hybrid plan formulated by combination of consistent drilling and refracturing proves as economically sustainable with a RGP mean $7.21/Mcf, significantly lower than $9.76/Mcf mean for ‘drilling only’ plan. It is found that required gas price is most sensitive to initial production rate and drilling costs where ±10% variation offsets RGP by ≈ ±8% and ±7%.