UK pushes on with shale gas development as North Sea takes a battering

Britain is the most bullish in Europe in its ambition to derive energy from amid the country’s rock formations. But making that dream a reality will be extremely challenging.

An application for planning permission notice, submitted by Cuadrilla at the entrance to their currently inactive drilling site in Cowden, Kent. Gareth Fuller / PA Wire
Beta V.1.0 - Powered by automated translation

With the Paris climate change summit in the rear-view mirror, big questions remain over how much the United Kingdom will rely on renewable energy in the future and how much it will look to unconventional fossil fuels, or shale gas.

Britain awarded another 132 new onshore oil and gas exploration licences this month, giving developers access to more land for shale gas fracking for the first time in seven years.

Britain is estimated to have substantial amounts of gas trapped in underground shale rocks, and the prime minister David Cameron has pledged to go “all out” to extract these reserves, to help offset declining North Sea oil and gas output.

The latest awards conclude Britain’s first onshore oil and gas licensing round in seven years, according to Reuters.

Overall, the government awarded 159 licences and 75 per cent of the blocks covered were related to shale gas or oil, the government said.

Companies that obtained new licences include the established shale gas companies IGas, Egdon Resources, Cuadrilla Resources and Ineos, which won 21 new licences.

“We currently import about half of our gas needs, but by 2030 that could be as high as 75 per cent,” said the energy minister Andrea Leadsom.

“That’s why we’re encouraging investment in our shale gas exploration, so we can add new sources of home-grown supply to our real diversity of imports.”

Catherine Howard, a planning partner at the law firm Herbert Smith Freehills, said: “The real challenge companies face is obtaining planning permission from local planning authorities, as the refusal of Cuadrilla’s applications in June demonstrated.”

Cuadrilla was refused planning permission for two shale gas projects this year, but the government has since announced it would use new powers to make its own decision on the matter.

After a year of research, a task force on shale gas chaired by Chris Smith, who served in Tony Blair’s cabinet from 1997 to 2001, recently concluded that the UK can safely develop a shale gas industry and that exploratory drilling should proceed.

“It is only when we have a better understanding of how much gas could be recovered in the UK that the public can make an informed decision about supporting it,” Lord Smith said.

“We know roughly where there are shale rocks and where there is likely to be shale gas, but exactly how much is genuinely recoverable no one knows at the moment.

“I am convinced that fracking can be carried out in the UK safely and usefully,” he said.

“As a country we should get behind the creation of jobs if it is done responsibly. In fact, the money the government makes from shale could be spent on developing a renewables industry, helping our planet in the long term.”

Analysis published in 2013 by the Institute of Directors estimated shale gas production could generate 74,000 jobs and attract investment of £3.7 billion (Dh20.2bn) a year at its peak. The shale gas task force report says that companies should get on with drilling before extolling the benefits.

This is not surprising, as the task force is funded by five companies with commercial interests in fracking, including Cuadrilla and the British Gas owner Centrica. However, Lord Smith insists that the funding was accepted on the basis that his team’s research would be independent.

Despite the global fall in oil and gas prices, there is still considerable interest in the potential for Britain’s own sources of shale, says Corin Taylor, the director of Ukoog, the industry body that represents would-be shale explorers.

“There’s a good range of companies that are interested from both overseas and the UK, both large and small. Companies such as Ineos – the chemicals group – can also see the value of having a reliable source of gas close to their plants and have bought into both joint ventures and licences,” Mr Taylor says.

Ineos is probably the biggest cheerleader for shale gas, among the large energy users. In August, it won three exploration licences itself, all in the Midlands. It also has licences in Scotland.

The Ineos founder Jim Ratcliffe wants to kick-start fracking in the UK and intends to nullify local opposition by handing out 6 per cent of the revenue from oil and gas fracked by his firm.

He estimates his company could give away £2.5bn across Britain.

With North Sea gas reserves in decline, the UK has been a net gas importer since 2013. By 2030, 75 per cent of the country’s gas will be imported unless the shale gas industry gets off the ground.

Mr Taylor says that low oil prices may even help those in the nascent shale gas industry. “We are still in an exploration phase as an industry and not expecting to make profits in the next few years. Lower oil prices make it slightly cheaper to explore, because contractor rates are cheaper. If anything, it makes an exploration phase more attractive.”

The company furthest ahead in the UK at this stage is Cuadrilla, which wants to begin hydraulic fracking in Lancashire. It would begin by fracking – forcing water into rock layers to force out natural gas that is trapped there – to test the flow of gas so it can see how much of it can be brought to the surface.

The UK government recently confirmed that it would make the final decision on whether the Lancashire fracking could go ahead after local politicians objected to the company’s plans. That could mean that fracking begins there within months.

To achieve the Paris commitment, European governments including the UK are switching from coal-fired power stations to gas and renewable power generation. But the UK recently found itself short of baseload generation – on a particularly windless day in October – and had to make an emergency call on power producers to bring more power to the grid, underlining the shortcomings of renewables.

“If you compare world demand in 2040, with that of 2013, you will see demand for gas going up by 15 per cent and coal demand going down by 36.5 per cent,” says Mr Taylor.

“Gas is part of the solution.”

With North Sea gas production falling rapidly from its peak about 10 years ago, that demand will be replaced in the UK by imported gas, unless the country can find its own on-land sources.

Ms Rudd has already said that British coal-fired power stations will close in 2025 and the UK’s fleet of nuclear power stations are coming to the end of their lives, with new replacements not expected to come online until 2025 at the earliest.

That is why people see the development of a shale gas industry as necessary to strengthen the UK’s energy security. Shale, many analysts envision, will replace gas imports from Norway and less stable regions like Ukraine.

Shale gas is also expected to replace liquid natural gas, which since 2009, has mostly been imported to the UK from Qatar.

As Lord Smith points out, the carbon emissions from LNG are much higher than those from a home-grown shale industry.

There was been a 64 per cent increase of LNG imports into the UK between January and May this year compared to the same period last year. LNG accounted for 13 per cent of Britain’s gas supply during the period this year.

Meanwhile, a government decision in November to scrap a £1bn programme to fund exploration of carbon-capture storage further complicates the industry’s sustainability options. Without this, Lord Smith says, fracking for shale gas can only be a short- to medium-term energy solution.

“If a shale gas industry begins to develop at scale, carbon capture and storage will become essential,” he says, calling the government’s move “absurd”.