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Natural Gas Under London A Huge Opportunity?

LNG - Nick Grealy ReportsNick Grealy
Administrator of NoHotAir/ReImagineGas Blog

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There’s natural gas under London and it represents a wonderful opportunity for not only Londoners to demonstrate sustainability but also potential investors.

This project is going to take up most of my time both, here and at a new site coming soon. Any questions? Get in touch: Guru@nohotair.co.uk

We have much to say and this will be the first of a series that will answer the following  questions, and many more, in detail over coming weeks and months.  This project is going to evolve over the next few months.  For now, all we can do is think, but ultimately we will act.  It will be a great journey.  This is just the first step. Please get in touch with any further questions and we’ll do our best to answer them.

London

Barking Road, London – Will the gas to heat these buildings come from beneath the city?

Why should we explore for natural gas under London?

Natural gas is the fuel seven and half million Londoners depend upon at home for heating, a use for which there is no currently available viable alternative.  For example, a new or replacement central heating system is installed, in London alone, every 40 seconds of a fifty hour working week. Even under the  Zero Carbon London 2050 plan, natural gas will continue to provide 49% of London’s energy.  We think this is too high a figure. We think we can leverage natural gas to exceed both London’s energy and clean air plans: Sooner, Bigger, Better.

Shouldn’t we just leave gas in the ground?

We should leave gas in the ground. But, not the gas under our feet, if it can be discovered. We can only discover through scientific enquiry and exploration.  If exploration leads to discovery, we intend to portray importing natural gas to London as indefensible as importing milk from Russia, bread from Texas or water from Qatar.

What is the climate change impact of using locally sourced natural gas from under our feet compared to the alternatives?

This is a key question for us. If we are to continue to use natural gas, then the best choice for our city and the planet is to use London natural gas, which would be the lowest carbon natural gas on earth. That’s a great hope for our home, the greatest city in the world. The key word is “could.” We may not. But, if we don’t look the answer will only be in the negative. We’re the liberal metropolitan elite too. We shop in Waitrose or Whole Food. Our carbon footprint isn’t empty words. It’s what we do. We cannot wait for solutions that may never come. We are the enemy of no other technology except coal. There’s room for everyone. But, the perfect cannot be made the enemy of the good.

How big a project would this be? Won’t it take up too much space in somewhere as crowded as London?

London is not only crowded, it’s  expensive. We wouldn’t even consider this project if we didn’t believe there would be no more than a minimal surface footprint.  Development would be inconspicuous to 99.9% of Londoners.  Our exploration proposal includes one drilling rig half as tall again as a double decker bus.  After preparation of the site in any number of brownfield locations, we would be finished in as little as ten days – or less.

Won’t this mean investment takes funds away from renewable sources?

No. Let’s not put the production cart before the exploration horse. Our exploration stage, precisely because it will take place in a developed area, will be far cheaper than exploration in sensitive habitats off-shore, in pristine forests or deserts. For example, if  the resource was discovered, the delivery system for gas in London already exists.  It won’t be as easy as taking gas out of one hole in the ground and simply putting it in another.  

But, it wouldn’t present any serious or expensive issues either.  This could well be the shortest route to market of any natural gas project on earth.  It won’t be up to us what to do with the tax revenue from natural gas, but others might  consider how it could at least partially  accelerate renewable investment. London uses 9 billion cubic metres of gas per year, almost none of which is  used to generate electricity.  The current value of £1,350,000,000 ($1.65 billion) could pay tax of 50% or more.  We think a potential annual income for the UK and London of £675 million wouldn’t ordinarily be dismissed in the best of times.

Natural gas under London? Isn’t that ridiculous?

We’ll share our geology with investors under a standard confidentiality agreement. We will shortly release enough detail to not only reassure the public, but also to excite them.  We don’t want Londoners to simply be acquiescent or accepting of the project.  We want Londoners to be excited about it.

Is this just some kind of publicity stunt?

This is a joint effort of myself and several others who we will be introducing  over the next few weeks. They have world-wide  experience in exploring for oil and gas.  Others are academic geologists of impeccable and proven reputation. They share our excitement over how we may have uncovered an entirely new oil and gas province literally underfoot. A location nowhere more exotic or environmentally sensitive – or expensive – than within London Underground Zone 3.

Background

In 2014, London Local Energy, a company I was involved with but which is now reforming,  applied to what was then Department of Energy and Climate Change, now the Oil and Gas Authority, to explore for oil and gas in three 100 SQ KM blocks under London.  Two were in North West London in the 14th Onshore Licensing Round.  The UK government is the owner of the resource, one of the few domestic assets that was never privatized.

Significantly, one block was in South Central London, centred on the London Borough of Merton.  Even though we considered it almost as an afterthought, it was also of interest to another company.  Perhaps gas under London isn’t such a romantic idea after all?  On this map, the green lines reflect seismic exploration lines of which there are almost none under London.  One tool we will use is reflection seismology or even less intrusive methods to see what lies beneath us.

London

The other company was given at least ten licenses elsewhere in England. We assume they had applied for other licenses in South London. But, neither we nor them were offered the London licenses, a situation without precedent in the UK.  We also have reason to believe they also applied for licenses under Oxford and Swindon, where they were similarly unsuccessful.  Yet, they weren’t given those licenses either, despite being considered fit and proper enough to be given them in rural areas. Shale demonstrators in Northern England may well have a point when they feel they are are asked to bear the brunt of  shale gas exploration. It’s a complex matter and the London decision doesn’t stink of hypocrisy to us. But, there is at least a whiff of it.

I only recently found out about the other company and the unprecedented situation where both companies were denied licenses. If I had known this detail in 2015 when the LLE licenses were denied, I would certainly have considered legal action against the OGA. The value of the resource would be at least $250 million dollars based on a very conservative five million barrels of recoverable conventional oil. But, this isn’t only about money. Investors were constantly told, even before Brexit that “Britain is open for Business.” Yet, what I told the Parliamentary Select Committee on Energy and Climate Change six years ago (!) still applies:

Christopher Pincher: That is the United States. Do you anticipate the need for a subsidy here to encourage UK drilling?

Nick Grealy: No. With respect, from what I see of the activities of your Committee, you are used to a large amount of people coming here and saying, “We need a subsidy for CCS, we need a subsidy for wind, we need a subsidy for nuclear” and so on. The shale gas industry wants to give you money. It wants to participate. ….. This is where shale is unique, in that nobody is here with their hand out.

One of the great things about London is how in the marketplace of ideas we constantly meet people and ideas bounce off and provide positive energy. That has made us even more confident today of what could be possible, for London, the UK and most importantly  the planet. That’s another reason why we’re going public now. Not everyone will agree with us, but we also know many will support us and enrich the project with new ideas.

Using other people’s natural gas in our central heating not only enriches other governments instead of our own, it places prosperous Londoners in direct competition for  gas with any number of countries who won’t be able to afford the transition from coal to gas if we outbid them. That’s simply not fair.

We can’t predict what impact producing gas on local prices will be. It is very unlikely that if we produce gas, it will make it more expensive.

The absence of proof that there is gas under London is not proof of its absence.  Given the technology and economics of a hundred years ago,  it would have been impossible to produce gas or oil. But that doesn’t mean it wasn’t there. And, if it was there then, it’s still there today. Yet, today, what was once called unconventional gas is now the new normal.  Yesterday’s breakthrough quickly becomes the mainstream of today. Those techniques already promise an entirely new paradigm of natural gas production for London if geology allows. The same methods improve every day.

Many oil fields were discovered because farmers were looking for water. In London, we haven’t had farms for over two hundred years. We have had a history of laundries:

London

Historical oil and gas fields all over the world are being reassessed with 21st century technology. Except in London.

We think  it is morally indefensible to refuse to even  explore for oil and gas resources under London.  We agree with  Nick Hurd MP, the Climate Change Minister.

“I look at shale gas through the lens of energy security.

“It is primarily an energy security issue for me. We import a lot of gas. If we have the capacity to generate our own gas in this country and we can do it while reassuring people about the impact on the environment, personally, I think it would be irresponsible to future generations not to answer the question can we do it.”

Nick Hurd is the MP for a portion of the area we’d like to explore under.  If we find anything, then we can all decide – or not – whether to leave it in the ground. The most important partners are those who use natural gas. Under UK law, they, and everyone else, also own the gas. That makes the decision to explore a national, as well as local issue.

One reason I haven’t gone public before on this was the chance that someone would, to use an old oil and gas business term, jump our claim.  But, all oil and gas projects need partners, so together we can make it work. We want to just do it.

A fundamental part of the challenge in the UK and EU is to gain public acceptance.  Going public now is a key part of our strategy, and telescoping the acceptance process makes sound commercial  sense.

One final question:

What’s stopping you?

The Oil and Gas Authority have no current plans to open the next license round (for the entire UK).  We’ve asked them on several occasions when we can expect the process to open -to no avail. Ordinarily onshore license rounds take place every two years.  There was a gap between 2008 and 2014. We’re past due for the next license round, one we aim to be successful in.  It may, or may not be helpful to ask the OGA the following question:

When will the 15th Onshore Oil and Gas Licensing Round take place?

We hope you have better luck.  After all, when it comes to exploring for the lowest carbon natural gas on earth, one thing is clear: we simply want what you want

Editor’s Note: We are totally intrigued by Nick’s venture and pray for his success and that of our ancestral UK in this enterprise. 

London Energy intends to apply for at least four blocks next time.  Each block is 100 square kilometers so they’re talking 98,842 acres – a major leasehold if this were a US project.  The big difference, though, is how little actual investment is needed to acquire those rights and reach the license stage. Believe it or not, it will probably take less than $10,000 although there are modest annual fees thereafter. The UK is looking for tax revenue, not the leases bonus payments involved here. This exploration risk, therefore, is much lower, making UK shale a very attractive investment from a venture capital perspective.

What are London Energy’s prospects for finding gas under London? Well, there were two wells drilled in London.  There was one 1911 that went down 2,000 feet and found over 200 feet of oil shows. Readers of this blog will quickly realize the significance of that little detail. Another well drilled in 1947 about 1,200 yards away and didn’t find oil.  They did find natural gas, though, but no one wanted it in those days. There are geology reports suggesting why there wasn’t oil found in the second case, but the energy market 70 years later now values that natural gas for both economic and environmental reasons so London Energy has an opportunity to do something very rewarding.

Their plan is to go in, drill an exploration well down to 7,000 feet or so and see what they find.  If it looks good, they’ll then do seismic testing to prove the resource and lay the grounds for developing it. I don’t want to offend Nick and my UK friends with comparisons to Texan wildcatters, but what they’re proposing has that feel (absent much of the risk) and the size of the potential prize that awaits in the event of a successful test well conjures up visions of a modern day Spindletop without the black oil gusher.

If London Energy does make it to the production stage, they tell us they plan to use a single well pad with up to 40 or so wells in each block, perhaps even less. They’ll do the drilling on brownfield industrial sites and there are plenty in neighborhoods who could use the economic activity. No one has to build a road to these sites. No one has to build a man camp (there hotels within walking distance of the sites London Energy is looking at, not to mention  bus stops). It’s little bit cheaper than going from Texas to our neck of the woods in Pennsylvania and chopping trees to create access to sites. Water also isn’t a problem as there is city water already available and no DRBC to stand in the way. Everything can be done much faster and easier, once a license is obtained.

More importantly, no one has to build any pipelines to transport the gas more than a few feet. Tying into them could cost as little as $1.5 million. This is the least stranded natural gas on earth, as Nick Grealy is fond of saying.

Then, there is the price.  The average gas price there is $4.29 and Nick tells me the 2017 price is looking to be $6.00 or so. That’s a bit better than Henry Hub or what our mention Pennsylvania producers are getting.

Importantly, London Energy will pay a tax of 20% to the government but thats’s in lieu of royalties paid that would be paid here in the US. There’s only one national tax authority (although there is is also a property tax based on about 2% of the resource the property produces). The UK corporate tax rate is, too, only 19% compared to 35% in the US.

So, a Pennsylvania producer would pay millions for the acreage up front, then pay 15/20% landowner royalty and almost double corporation tax besides plus Pennsylvania corporate tax and impact fees. The UK looks to be a bargain, which tells us a lot about just how badly the US and Pennsylvania taxes the industry.

Finally, now that drilling is actually going to happen in Lancashire and Yorkshire, the regulatory foundation is laid for UK shale gas – the way is cleared. Given the high likelihood of finding gas in London, combined with these many advantages, it may be time for American shale investors to start looking at the UK. Let shale be the latest joint venture in our special relationship. Contact Nick at Guru@nohotair.co.uk for the details.

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