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Europe’s Shale Revolution May Start In Britain

Carol Matlack, Bloomberg

Could a European shale-gas revolution start in Britain? While efforts to drill gas from shale deposits have stalled on the Continent, the British government could soon give the go-ahead to drilling and provide tax breaks to encourage it.

Chancellor of the Exchequer George Osborne, scheduled to unveil a new government energy plan on Dec. 5, has said he wants to ensure that “Britain is not left behind” the U.S., where a shale-gas boom has dramatically lowered prices and ended the country’s dependence on imported gas.

Energy Secretary Ed Davey wants to lift a moratorium on hydraulic fracturing, the controversial drilling method known as fracking, that was imposed last year after drilling by Britain’s Cuadrilla Resources caused two minor earthquakes in northwestern England. Cuadrilla’s chief executive, Francis Egan, told London’s Telegraph newspaper on Dec. 1 that he was ready to “press on quickly” if the ban were ended.

The enthusiasm in Britain contrasts sharply with France, the only other Western European country with significant shale-gas reserves. French President François Hollande, elected in May, has promised to maintain a ban on fracking during his 5-year term. Poland also has shale-gas reserves, but early exploration has yielded disappointing results.

Drilling in Britain won’t start immediately. In his Dec. 5 presentation, Osborne is expected to call for consultations on what he has described previously as “a generous new tax regime” to encourage shale-gas development. He also will suggest creating an agency called the Office of Unconventional Gas to allow industry, consumer groups, and environmentalists to settle disputes and to regulate the sector, people familiar with the plan told Bloomberg News. Energy Secretary Davey has said that questions about regulatory oversight and the involvement of local communities should be addressed before drilling resumes.

Still, it’s clear the government has put shale gas on a fast track. Britain’s North Sea gas reserves are being depleted; they’re expected to decline from 40 percent of the current gas supply to only 20 percent by 2030, according to Bloomberg New Energy Finance. That will force the country to rely increasingly on imports from Africa and the Middle East. And British natural-gas customers are paying almost three times as much as their counterparts in the U.S., where a flood of shale-gas has sent prices plunging.

Cuadrilla estimates that the area it is exploring in Lancashire, in northwestern England, could contain 200 trillion cubic feet of gas—more gas than all of Iraq. “We can supply a quarter of the U.K.’s gas demand,” CEO Egan told the Telegraph. The company, whose chairman is former BP (BP) CEO John Browne, voluntarily suspended exploration in Lancashire after earthquakes there in April and May 2011 were linked to its drilling. The company and government officials have subsequently said they believe fracking can be carried out safely.

Opponents are already mobilizing. Hundreds of anti-fracking demonstrators protested in London and other cities on Dec. 1. Besides worrying about potential earthquakes and groundwater contamination, environmental activists say that shale-gas development will undermine efforts to develop nonpolluting renewable energy sources.

Advocates who expect to replicate the U.S. shale-gas boom are likely to be disappointed, though. More-stringent British environmental regulations and mineral-rights rules will add to development costs, says John Williams, an energy analyst at Pöyry Management Consulting in Oxford. In a recent study, Williams and two colleagues estimated that the planned development in Lancashire would lower British gas prices no more than 4 percent. “We’re not going to see anything like the price crash in the U.S.,” Williams says.

The Pöyry study, based on a review of data provided by Cuadrilla, estimated that Lancashire shale could supply 21 percent of Britain’s gas by 2030. That won’t harm the country’s efforts to reduce carbon emissions, Williams says, because it could reduce the need to burn coal. Gas “is the obvious backup fuel” when wind and solar power aren’t available because of weather conditions, he says. “If you are going to need gas, shale can be a source.”

Bloomberg, 4 December 2012