Doubts over UK's shale gas revolution
THE UK government is keen to replicate the United State’s successful shale gas experience - but many analysts doubt this will ever happen.
The UK is second after Poland in pursuing its shale potential in Europe. Drilling for shale gas in the UK started in 2010. But only when drilling takes off will there be a better understanding of what resource is there and, more importantly, what is economically recoverable.
A limited onshore domestic service industry, geological complexities, no private ownership of mineral rights, high population densities, strict environmental regulations, and local opposition, among other obstacles, all add to the costs and time of exploiting shale gas.
The government is trying to compensate by offering financial incentives but it remains to be seen whether the oil majors, who continue to explore for opportunities in the North Sea, will be convinced by the shale gas venture.
Although gas production in the UK peaked in 2000 and has been in decline since, it still supplies the equivalent of 52 per cent of the UK domestic gas needs.
The UK also continues to export gas to continental Europe – mainly to Ireland (5.3 billion cubic metres - bcm), Belgium (4.6 bcm) and the Netherlands (2.1 bcm), as of 2012.
The decline in production at home, however, has led to increasing dependence on imports – both by pipeline, 76 per cent of which comes from Norway and as Liquified Natural Gas (LNG), mainly from Qatar (98 per cent).
The UK net gas imports (imports minus exports) are set to increase from 47 per cent of demand in 2012 to 76 per cent by 2030, according to the Department of Energy and Climate Change.
In the US, the shale revolution brought down gas prices which furthered the switch from coal to gas in power generation, contributed to a significant reduction in carbon emissions, and encouraged energy intensive industries.
In 2013, the British Geological Survey looked at central Britain and reported that shale gas resources are estimated to range between 23.3 and 64.6 tcm, with an average figure of 37.6 tcm - a substantial upgrade compared with earlier estimates. The figures will change as other areas of the UK are investigated.
UK energy company Cuadrilla Resources drilled the first shale gas test well near Blackpool, Lancashire, in 2010, but had to suspend its operations after two small earthquakes.
The government imposed an 18-month moratorium but later concluded that the environmental risks of shale exploration were small and manageable. Shale drilling was allowed to resume in December 2012, although with stricter monitoring controls which are expected to add significant cost and time to drilling. Cuadrilla has postponed its plans until 2014.
Local communities have opposed shale gas exploration. There are fears that hydraulic fracturing - or ‘fracking’ – the technique used to extract shale gas – will cause serious environmental damage, from earthquakes to ground and water contamination – the latter because the technique involves pumping fluids along with sand and chemicals. It would be difficult for companies to proceed with their plans without the blessing of local communities.
The US Energy Information Administration is doubtful over the ability of the UK to replicate the US shale gas experience for several reasons.
The UK has a small domestic service sector capability for the onshore development of shale gas. Geological conditions are more complex which makes the resource assessment more difficult, slows the pace of exploration and increases drilling costs. In addition to high population densities, landowners in the UK do not own mineral rights and therefore have little incentive to support development.
In the 2013 Budget, George Osborne, the Chancellor of the Exchequer, announced a package of measures to encourage exploration of the UK’s shale gas resources, offering ‘a generous new tax regime for shale’, including a ‘field’ allowance. Energy companies, however, will provide at least £100,000 of community benefit for each well drilled. The oil and gas industry is the most highly taxed business in the UK.
To date, only a small number of small companies have expressed interest in shale gas. The recent of acquisition by energy giant Centrica of a 25 per cent stake in Cuadrilla’s exploration licence in Lancashire is seen as an encouraging sign.
However, it remains to be seen whether the oil majors who continue to explore for opportunities in the North Sea will be convinced by the shale gas venture.
What has been done so far is just the start of a long process before the UK can claim, with certainty, that shale gas resources will dramatically alter its energy realities.