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News Extra: UK shale gas plans see fitful progress

29 May 2013

A report from the cross-party House of Commons Energy and Climate Change Committee said the lack of progress over the past two years in the development of UK shale gas is disappointing and measures need to be taken to ensure the foundations are in place for the sector to take off.

Fracking, or hydraulic fracturing, is an extraction technique that involves pumping water, sand and chemicals at high pressure into shale rock to release trapped pockets of oil and gas. It has transformed the US energy market, triggering a production boom that pushed gas prices to 10-year lows last year. The UK Government has said it is keen to follow the example of the US. 

The parliamentary committee criticised the government in late April for unnecessarily delaying development of shale gas, saying it should now encourage companies to come up with more accurate estimates of recoverable reserves. "We do not believe that it was necessary to take so long to establish the safety of fracking," the report said. 

In the summer of 2011, the UK temporarily banned all hydraulic fracturing activities after two small earthquakes were measured in an area near a shale gas exploration site in Blackpool, northwest England. It lifted the ban in December 2012 on condition tighter monitoring rules were implemented after expert reports exonerated the Blackpool operations and advised the country adopt a policy in favour of fracking. 

The MPs urged the government to speed up policy to encourage shale gas work, which they said could help improve the security of Britain's energy supply. 

In March, finance minister George Osborne promised generous tax breaks for shale gas developers and to help improve the industry's public image by involving local communities. 

The MPs also concluded there was still too little knowledge about the amount of shale gas that can be technically recovered in Britain and that the government should encourage developers to carry out further analysis to make more comprehensive estimates. An updated official projection of UK shale gas reserves is expected to be published before the summer, a spokesman for the Department for Energy and Climate Change said. 

The committee also said that if the United States started exporting its surplus as liquefied natural gas (LNG), Britain may find it economically attractive to buy those supplies. The substantial transportation costs mean, however, that the price for UK buyers will be significantly higher than prevailing U.S. prices. 

Most estimates include onshore resources only, and committee members said in their report the government should consider giving tax breaks to offshore projects, which could hold more reserves in the medium to long term. 

"This must be done before the UK's North Sea oil and gas platforms are decommissioned. Otherwise the opportunity to utilise the UK's offshore oil and gas assets may pass," they said. 

In early May, the government announced plans to offer reduced energy bills for communities near fracking operations.

Several options are being discussed as ministers prepare to announce that the UK's shale-gas reserves are much larger than previously estimated.

A Government's paper on ‘community benefits’ will propose policies that aim to persuade locals to drop their resistance to fracking in northwest and southeast England, where the largest shale-gas deposits are found.

The biggest incentive being discussed by the coalition is cheaper household energy bills for people in the area. Communities could also be offered funding for new sports clubs or community centres and other projects to improve local amenities.

It suggested that local authorities hosting shale ventures should be allowed to retain business rates. The system would be similar to the "planning gain" system whereby councils that give planning permission to property developments can get the developer to pay for certain infrastructure improvements. A separate paper will make a similar proposal for new wind farms.

The commitment from companies to UK shale shows a mixed picture.

On May 2, The Daily Telegraph quoted Simon Henry, Shell’s chief financial officer, as saying Shell had allocated more than $6bn to shale globally but would not get involved in early UK shale gas plays.

“We have a successful and growing business in North America, we have great opportunities in China, Ukraine and Russia,” he said. “The UK has to compete directly with them and right now nobody even knows whether the gas will flow.”

Smaller companies such as Cuadrilla and IGas have been the most heavily involved
in the UK to date, and the expectation was that the majors would also show early interest.

Another small UK shale player, Dart Energy, is looking for partners, and the Telegraph quotes its lead broker as saying there has been a lot of interest.

This comes at a time when a new report from the US Environmental Protection Agency has significantly lowered estimates of how much of a potent greenhouse gas is being leaked by the natural gas industry. The EPA now estimates that in 2011 the natural gas industry released 10% less methane into the atmosphere than it did in 1990.

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