The UK Department of Energy and Climate Change’s (DECC) response towards recent domestic shale gas developments has been notably reserved and avoids the partisan hyperbole of environmentalists and oil & gas industry players alike. Why? Isn’t shale gas the best thing since sliced bread?
In case you hadn’t heard, Cuadrilla Resources, a joint venture between Australian drilling firm AJ Lucas and private equity firm Riverstone, announced on 21 September that the Bowland sedimentary rock basin in Lancashire, for which it holds shale gas exploration licenses, holds a total potential resource of 200 trillion cubic feet of gas, or more than ten times existing UK natural gas reserves.
It must be stressed that Cuadrilla’s estimate is for ‘gas in place’ in the Bowland Basin and not reserves. It is very much a guesstimate calculated, in a nutshell, by multiplying the area of shale rock by an average figure of how much gas could be extractable from this particular type of shale.
Since Cuadrilla’s announcement last month, there has been a plethora of newspaper and radio reports in the British press, most focusing on how shale gas is a potential ‘game-changer’, a lifeline in hard economic times much like North Sea oil in the 1970s and 1980s. A prominent fomer energy minister, Nigel (now Lord) Lawson called shale gas “the most exciting technological development [in energy] I can ever recall”.
The current administration, however, does not seem to share the belief that shale gas is manna from heaven. Furthermore, due to land ownership rights – UK shale rock belongs to the Crown Estate and not whoever owns the land above – it expects shale gas development to be substantially limited compared to the United States, where it really has been a game-changer. Energy minister Charles Hendry MP says: “There has been only very limited interest in shale gas, and there is only one drilling application at the moment, with Cuadrilla.
“It has potential for the United Kingdom but the issues here are very different from those in the United States in terms of land ownership rights, which I think will impede its development here compared with the rate in the US. It has a potential role to play, but it will be done within very strict environmental constraints.”
Sensible stuff. There is huge controversy over fracking. Of most concern is evidence that hydraulic fracturing, or ‘fracking’ – essentially pumping lots of water, sand and chemicals at high pressure to fracture shale rock – causes earthquakes and contaminates the water table. The British Geological Survey has suggested that two fracks at depths of 2.0 and 2.7 kilometres did cause two small earthquakes earlier this year, leading DECC to place a moratorium on it. DECC met with Cuadrilla on 13 October to discuss how the developer intends to mitigate this risk of earthquakes.
A call by Millicent Media to DECC earlier this week confirmed the department has received a report from Cuadrilla and that it is currently under review with the BGS. Sadly, DECC couldn’t confirm a deadline for a decision on whether or not to lift the ban on fracking. My hunch is that the evidence on earthquakes and fracking will be inconclusive and DECC may allow Cuadrilla to resume exploration – but not to commence exploitation – with some caveats attached.
Impact on renewables?
There is also fear that shale gas will derail plans to decarbonize the UK power sector by choking investment in renewables and nuclear. The argument goes that shale gas, and therefore gas-fired power generation, is cheap, so there is no need to build expensive wind farms, solar panels or nuclear reactors.
It ain’t necessarily so. While shale gas potentially offers a major boost to the UK economy, not least in tax revenues, gas is traded internationally and linked to oil prices. Cheap gas does not automatically mean cheap electricity; Italy is heaviy reliant on gas for power (60 per cent of generation) and it has the highest electricity prices in the world.
Secretary of state for energy Chris Huhne MP is sceptical of suggestions of cheap gas and is wary of another Lawson-style dash for gas. Speaking at a press conference on 20 October to announce changes to renewables subsidies he said: “There are great uncertainties over the future of fossil fuel prices. If there is a [University of Oxford professor of energy policy] Dieter Helm-world with a massive fall in the cost of gas, then we will need a policy which supports substantially more gas with CCS in the generation mix.
“If we will live in a very high fossil fuel price world – and there are analysts who suggest that’s more likely – then the UK needs to have more renewables and more nuclear. UK energy policy has to be robust to these types of uncertainties.
“These polices are not mutually exclusive. Like with pensions funds, you don’t put all your eggs in one basket. You don’t bet the farm on one particular technology or scenario. To have energy security, low-carbon and affordability we need to spread our bets.”