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Gas, Policy & Regulation

Shale gas in the UK: Why Chris Huhne is not screaming “Frack, baby, frack!”

UK energy secretary Chris Huhne (right) is wary of another dash for gas

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.”

About timprobert

Freelance Journalist & Owner, Millicent Media


6 Responses to “Shale gas in the UK: Why Chris Huhne is not screaming “Frack, baby, frack!””

  1. I feel that many in the media are caught up in gold rush fever when they debate the future of shale/unconventional gas in Europe.
    Unfortunately, the media hype about shale gas is not backed by the facts. Here are a number of reasons:
    1. The amount of shale/coal seam gas reserves in Europe is questionable despite the over optimistic forecasts provided by the US Geological Survey. The real problem is not how much CSG there is but how much of it can be extracted commercially, given the technological, geological and environmental challenges involved. Already, despite the hype from Polish Prime Minister Tusk, news of recent test results have been disappointing to say the least. In addition, it has not stopped Poland constructing its first LNG project, with a capacity of 7.5 billion cubic metres per annum, which is due for completion in June 2014.
    2. To suggest that European produced shale gas prices will be similar to that of the US is unlikely for a number of reasons:
    a. The geology of Europe is much more complex, which makes it more difficult to extract shale gas than in North America.
    b. There is a worldwide shortage of land based drill teams and equipment, especially in Europe. This is likely to get worse as demand increases for such experienced and skilled teams from other oil and gas provinces and from the geothermal power sector.
    c. Unlike the US the European legal, environmental and regulatory landscape is much more complex and needs to be updated to meet the needs of E&P.
    d. If European shale gas production is to make a significant impact on reducing gas imports, then European gas prices must be considerably increased.
    e. At present, the development of shale gas on the US market has turned it into a net gas importer, forcing Henry Hub prices down. Already several European industrial consumers such as power stations are using American gas.
    That is why I think it is unlikely that shale gas discoveries herald a revolution in Europe.
    For more info on this see page 14

    Posted by nicnewman | October 21, 2011, 2:22 PM
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    • Thank you for your comments, Nic.

      You say ” e. At present, the development of shale gas on the US market has turned it into a net gas importer, forcing Henry Hub prices down. Already several European industrial consumers such as power stations are using American gas.”


      You’re right, there’s too much hype about shale gas and a number of myths need exploding. Yes, it’s not quite the “cheap and abundant” source some proponents say and yes there are major supply chain issues, but perhaps you’re being too pessimistic?

      Perhaps offshore shale gas is the real revolution?

      Posted by timprobert | October 25, 2011, 8:56 PM
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      • Sorry, I meant at present, the development of shale gas on the US market has created a massive surplus in gas production in America, which is not helped by a downturn in demand from US power station operators, due to a decline in the demand in power from consumers. This has resulted in a down turn in Henry Hub prices.

        This has resulted in a decline in US gas output. It has also turned many American LNG trains into export terminals rather than import terminals. As a result, LNG gas that was destined for America is having to be diverted to Europe, where prices are higher. In addition, since last year the US has begun to export some of its gas production to Europe, much of this is shale gas in origin. Already some European power station operators are making use of US produced shale gas.

        So as you say the real revolution in shale gas has been the importing of american shale gas to Europe. As a result, a revolution in European shale gas production is increasingly unlikely.

        Posted by | October 25, 2011, 9:40 PM
  2. It depends on what you mean revolution. If revolution means Britain, which after all introduced the Climate Change Act, abandoning green energy policies then shale gas is pretty revolutionary.

    Shale gas in Britain looks like it might be a bugger to extract due to the complex tectonics. Cuadrilla’s Bowland basin is thicker than anything in the US – about a 1km thick – and so there’s probably loads of it down there, but from what I understand from geologists is that unlike the vast, plain-like formations in the US, the northern English shale is much more discontinuous.

    So finding the shale gas will be a much more hit and miss affair with a lot of drilling needed all over Lancashire to get anything like Cuadrilla’s guesstimate. And – as you rightly say – it will be more expensive than US shale gas drilling due to heightened regulation and lack of drilling rigs/expertise.

    They say it will be easier to extract shale gas in the Weald Basin, but I can’t imagine that going down well in Surrey.

    Posted by timprobert | October 26, 2011, 11:09 PM
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    • Research I have done for a private client suggests that Europe’s demand for additional shale gas supplies post 2014 is over optimistic. This is because:
      • Despite Italy and Germany pulling the plug on nuclear, many new power station projects have been delayed because of absence of real demand and low wholesale power prices that make it uneconomic to make new investment in new gas power plant.
      • Many operators are upgrading existing capacity or relying on alternative power sources such as coal for instance.
      • There is also a question about how realistic and independent such forecasts really are.

      Posted by nicnewman | October 27, 2011, 12:33 AM
      Reply to this comment
  3. So, then, a global oversupply of gas? Or will other regions with high growth – Latin America, Asia – take up the slack?

    What’s your take on the renewables debate? Do you see a slow down in build out? A softening of renewables and carbon targets?

    Posted by timprobert | October 27, 2011, 9:40 AM
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