The UK government believes that home-produced natural gas can decrease its reliance upon foreign sources of energy, and offers gas field allowances to promote early investment in the sector, plus tax breaks for fracking companies. A recent study by the British Geological Survey suggests there could be as much as 40 tcm of shale gas in the north of England alone, making it by far the biggest shale basin in the world.1 This compares to conventional gas resources of just 1500 bcm.2 It is uncertain how much UK shale gas will be commercially viable to extract, and much of this could well be exported. Shale gas would also have to compete with cheap imports of US coal.
The government imposed an 18-month moratorium after initial fracking triggered tremors, but has since allowed drilling to resume. The UK is very densely populated, so drilling is quite close to urban areas, raising public fears over water contamination and earthquakes, making it difficult to secure planning permission, with stricter monitoring controls. In July, industry trade body the United Kingdom Onshore Operators Group (UKOOG) committed to provide compensation for communities affected by shale gas operations; as well as sharing 1 percent of revenues.3 A further barrier is the lack of gas pipelines and infrastructure, with the majority of the UK’s current gas reserves offshore in the North Sea.
Cuadrilla Resources, a small start-up led by former BP CEO Lord John Browne, is the main company actively exploring UK shale, but the market is still in its very early stages, with commercial returns as much as a decade away. In May 2013, British utility Centrica acquired a 25 percent stake in Cuadrilla Resources’ Bowland exploration license for 60 million US dollars (US$), although further drilling is necessary to establish if the discovery is commercial. Many investors are playing a game of “wait and see” while also hoping for some government funding to kick-start the sector.
With extensive estimated reserves, shale could contribute hugely to the UK’s energy mix, providing greater security and lower gas prices. The true volume of extractable gas should become clearer, once a significant number of wells have been drilled and gas flow rates tested. With the right government support and investment, and local community compensation, shale could play a key role in the UK’s energy mix in the long term, so long as the sector can overcome regulatory and market barriers and manage negative public views on exploration.
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1The Carboniferous Bowland Shale gas study: geology and resource estimation, British Geological Survey for Department of Energy and Climate Change, Dec 2013.
2Department of Energy and Climate Change oil and gas reserves, 2011. (www.gov.uk/oil-and-gas-uk-oil-portal).
3Investing in Britain’s future, Her Majesty’s Treasury report, June, 2013.