UK’s New Year Shale Gas Resolution

UK’s New Year Shale Gas Resolution

By Peter C Glover

Early in the New Year the British Geological Survey (BGS) will publish its estimate of the Bowland Basin shale gas reserve in the north-west of England. While the BGS has refused to be drawn on the final estimate, the suggestion is that it will be a “biggie”.

In December The Times claimed it had learnt that the deposit around Blackpool’s north-western area alone is 50 percent larger than the estimate of 200 trillion cubic feet made by the UK’s only licensed drilling company, Cuadrilla.  To put this in context, the estimate that the 1,000 square kilometer Bowland Basin to the east of Blackpool may contain 300 trillion cubic feet of gas is the equivalent of 17 times as much gas as is left in the North Sea.

While the hugely significant reserves in the Bowland Shale will be known early in 2013, the English north-west is not the only region sitting on a potential shale gas bonanza. Later in the year the BGS will publish a more comprehensive estimate of UK’s total shale gas reserves.

Only too aware of the impact of its burgeoning reliance on imported gas – previously self-sufficient, up to 40 percent now comes from Qatar, Russian and Norway – the UK Government has effectively broken ranks with its European neighbors on shale gas development. While the UK’s recently published energy bill is almost exclusively driven by green policy considerations, the sheer size of the country’s domestic natural gas bonanza is now proving impossible to ignore. Finally lifting the 18-month long ban on frack drilling after two minor tremors were felt near Blackpool in 2011, the government has not only given the go-ahead for renewed drilling, but also plans to offer a range of tax breaks to the shale gas industry. And the setting up of a government Office for Unconventional Gas is designed to provide the industry with a simplified approach to coping with regulatory requirements.

Meanwhile, Greens and the dissident anti-fossil fuel media have done their level best to rubbish Britain’s shale gas potential. But as London Mayor Boris Johnson, seen as a potential future Prime Minister, sums it up, the green lobby is ideologically driven given commercially viable shale gas extraction “destroys their narrative about ever rising cost of hydrocarbons”. And the hard economic facts are difficult to argue with.

As Cuadrilla’s CEO Francis Egan said when they estimated 200 trillion cubic feet back in 2011, “This is a huge amount of gas”. Even if only 10 percent was extractable that would fuel the UK’s current consumption for seven years. It’s a remark that Greens inside and outside the left-leaning media has focused on. The Guardian has been relentless in its deriding of the impact of UK shale gas. The FT even said that 10 percent won’t change anything. But shale gas expert Nick Grealy is quick to provide a more economically realistic assessment. “Even 10 percent”, says Grealy, “is equal to 1 trillion cubic feet of production for 20 years, which is equal to 28.3 billion cubic meters, enough to totally replace and more last year’s imports of 25.4 billion cubic meters.” At the current price of 60 pence per therm for gas, that is 21.4 pence per cubic meter, that’s the equivalent of shaving £6 billion off the UK’s balance of payments. At the same time the government can expect a massive 62 percent share of the windfall from tax revenue. And that’s based on a far more conservative estimate of UK shale gas reserves than is now anticipated from the BGS. As Grealy says about the benefit to the UK, better this than “keeping the Qataris in Ferraris”. In short, even 10 percent of 200 trillion cubic feet – and it is going to be a lot more than that – will be a game-changer for UK energy and for domestic energy prices.

No wonder David Cameron exhorts “Britain must be at the heart of the shale gas revolution”.  The simple fact is that the UK is sitting on one of the world’s richest known deposits of shale gas estimated to be worth around £1.5 trillion. The BGS report may well suggest it could be more significant for the UK than North Sea oil. Cuadrilla estimates enough gas can be extracted to make the UK entirely self-sufficient in natural gas for 15 years at current consumption rates – with a caveat this that figure may well need to be increased by a factor of four. And the UK Institute of Directors estimates that the shale gas industry would create 35,000 new jobs.

The sight of Texan-style drill pads in the English landscape and the threat of earth tremors in built up areas are constantly used as key fear factors by Greens and by critics. But the fact is that the high concentration of gas in the UK shale layers – even richer than US deposits – means that fewer wells would need to be drilled.

However, the one major threat to development could come, as The Register’s Andrew Orlowski has pointed out, from the UK regulatory regime, especially as it applies to minor tremors. Lib Dem energy minister Ed Davey has insisted on a “traffic light” regulatory system whereby any tremor measuring 0.5 or more on the Richter scale could trigger an automatic halt to operations. Given that anything up to 3.0 on the Richter scale amounts to the same sort of tremor a big truck or subway train generates,  that sets the ‘shut down’ bar extremely low.  But this hasn’t stopped serious interest being shown by Exxon Mobil which is reportedly in talks with IGas, the London-listed company that owns the Bowland Shale gas project. Shell, Statoil and Total are also reportedly showing key interest now the fracking moratorium has been lifted. Valued at around $200 million in mid-December, it is likely that IGas will be bought out by an incoming multi-national partner that would, as the first major player, be well placed to take advantage of any future UK shale gas projects.

Sitting on top of one of the biggest shale gas fields in the world with enough gas to fuel the UK for 50 years, the UK’s New Year shale gas resolution may well translate into Europe’s first full-scale energy revolution by 2015.

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