UK lifts ban on shale gas development, with conditions

The government of the United Kingdom said Dec. 13 that it will permit the resumption of shale gas exploration, including horizontal drilling and hydraulic fracturing, which are essential to the economics of shale development.

Ed Davey, the UK’s energy and climate change secretary, said the government will allow shale development to resume, but that any fracturing activity would be subject to new controls aimed at mitigating the risk of seismic activity (i.e., earthquakes) in the surrounding area.

Exploratory fracking has been suspended in the UK since May of 2011 after two small seismic tremors were detected near the country’s only fracing operation in the Bowland Basin, east of Blackpool in Lancashire, northern England. The British Geological Society recently reported that the area around Blackpool may hold as much as 300 trillion cubic feet of gas, at least 50% more than was previously thought.

In his Dec. 13 announcement, Davey said that shale gas represents a promising new potential energy resource for the UK and could contribute significantly to the nation’s energy security and reducing its reliance on imported gas.

“My decision is based on the evidence,” said Davey. “It comes after detailed study of the latest scientific research available and advice from leading experts in the field. We are still in the very early stages of shale gas exploration in the UK and it is likely to develop slowly. It is essential that its development should not come at the expense of local communities or the environment. [Fracing] must be safe and the public must be confident that it is safe.

UK Energy Landscape

Meanwhile, London-based GlobalData, a research and information company that focuses on energy, believes the lifting of the ban is largely irrelevant in the UK’s energy landscape.

“The UK government lifted its moratorium of shale gas exploration [Dec. 13], partly in the hope that it will have an impact on the UK’s energy market similar to that of the US market, but several major factors make this unlikely,” states Lane.

“Firstly, there is significant volume uncertainty and the UK’s shale gas reserves are currently unknown,” he said. “Secondly, the cost of production is also uncertain, and geological differences mean that we cannot estimate UK production costs based on those of the US. Thirdly, the BP Statistical Review of World Energy 2012 cites the share of natural gas in the UK’s primary energy mix (36%) as far higher than that of the US (28%). This means that for shale gas to have a significant impact on gas prices, it will take much more gas to be produced in the UK compared to its consumption of conventional natural gas. Lastly, the UK is part of a wider north European gas market, which will further mitigate the potential impact that shale gas would have on natural gas prices.”

Lane warns against “misconstruing” the UK government’s action. “The lifting of the moratorium simply means that private companies are able to recommence exploration activities, based on a set of significant safety monitoring programs,” he said. “Therefore, private companies will bear the volume and cost risks associated with shale gas development, which is in stark contrast to nuclear and wind generation where electricity consumers will bear the costs under the government’s new Energy Bill.”

While the Energy Bill will commit £9.8 billion (about US$15.8 billion) by 2020 (£7.6 billion in real terms, or about US$12.2 billion) to subsidizing low carbon generation, the shale gas industry will need to support its own activities, Lane said. Though this may be accompanied by some modest tax incentives from the government, he concludes, “This hardly amounts to the government ‘backing’ the sector.”

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