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UK Shale Gas Update

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It is estimated that the UK has recoverable shale gas reserves of 26 trillion cubic feet, and technically recoverable shale oil of around 0.7 billion barrels. Although these reserves are significantly less than those of other major oil and gas producing nations that also have significant unconventional hydrocarbon resources, such as Algeria, Argentina and Australia, it is hoped that the UK may enjoy a US-style shale gas revolution. Such a revolution would enable the country to reduce its ever increasing reliance on gas imports for energy generation.

Challenges

The UK energy supply is facing an increasing number of problems, including mature oil and gas fields that have decreasing production output year on year, increased levels of health and safety regulations, and a rise in the taxation on profits from oil and gas since 2011. Shale gas development has struggled with a lack of public support in the UK from the outset.

In a move to increase shale gas investments, the UK government created a raft of incentives for the public and investors, including:

  • A new shale gas tax regime reducing the tax rate from 62% to 30% for a portion of profits
  • Councils can keep 100% of the local taxes, known as business rates, which they collect from shale gas sites – double the current 50% figure. This is in addition to community benefits agreed upon with the industry of £100,000 per well fracked, and a further 1 % of revenues if shale gas is discovered

A US-style shale gas revolution is highly unlikely due to the cost of technology, the location of shale basins in densely populated areas, competition from imported oil and gas, and a heavily subsidised renewable energy industry. The number one factor is that exploration and production is still at a very early stage, with no wells commercially producing shale gas to date. It took the US over a decade to get to where it is today, meaning the UK would not see any shale gas benefits post 2020.

There are four regulatory hurdles to shale gas exploration. The Department of Energy and Climate Change (DECC) published a “regulatory roadmap” for gas exploration in December 2013. This roadmap addresses:

  • Environmental consents
  • DECC consents
  • Planning permission
  • Landowner consents

Two of the most important issues for shale gas development are access to sufficient water quantities to enable fracking operations, and the ability to flare gas in order to test the commerciality of a well.

Market Activity

To date, Cuadrilla and IGas are the only two companies to have commenced exploratory drilling in the UK. A number of other independent companies have either applied for, or been granted, licences to explore but have not progressed beyond desktop study:

  • Cuadrilla in Balcombe
  • Centrica, Celtique Energy and GDF Suez in Bowland
  • Celtique Energy, Dart Energy, Egdon Resources, IGas, Ecorp International and Total in Gainsborough
  • Celtique Energy and Eurenergy in the south

On the 13th of January 2014, Total became the first major oil and gas company to invest in the UK. It acquired a 40% interest in two exploration licences in Lincolnshire.

In February 2014, Cuadrilla announced at its Roseacre Wood and Preston New Road sites (both in Lacashire), its intention to apply for planning permission to drill, hydraulically fracture and test the flow of gas from four new exploration wells.

On the 2nd of April 2014, IGas announced that it has found shale gas at Barton Moss (Eccles). It will take up to 6 months to analyse the samples.

Nebula Resources, a company run by Dr Chris Cornelius (one of Cuadrilla’s founders), is planning to undertake shale in gas operations in the Irish Sea. It has been granted three licences by DECC.

The area covered by these licences reportedly stretches west from Blackpool into Morecambe Bay, over areas located less than 100 miles from Dundalk. This is the first offshore shale gas project in the world.

Although commercial extraction has not yet started in the UK, DECC has awarded a total of 334 landward licences for onshore petroleum and gas exploration.

Political Activity

Shale gas operations in the UK have been hindered by public protests over the environmental impact of fracking. However, there has been significant political support with Prime Minister David Cameron recently stating that the UK is “going all out for shale”. To back that support, the government has proposed reforms to the planning regime for onshore gas exploration, removing the current requirement to notify landowners of planning applications where only underground operations will take place under their land. Also, the reformation of trespassing laws to enable shale gas operators to drill legally without obtaining the consent of the landowner. Legislation to this effect is expected to be announced in the Queen’s Speech on the 3rd of June 2014.

Overall, the UK shale revolution is fraught with numerous challenges. Any large production is unlikely to be steady till at least 2020. The annexation of Crimea by Putin has encouraged the UK, as well as the EU member states, to search for ways to reduce dependence on imports from Russia, where shale gas is a logical option for energy security.


Alfa Energy Group

Alfa Energy Group is an international energy, water, and sustainability consultant partner with 200 employees over 4 international locations. For over 25 years, Alfa has been servicing its clients’ needs through energy and water management, sustainability, and compliance consulting, and an intuitive ecosystem of user-driven energy, water, and carbon management software platforms. With coveted awards, an international industry-wide recognition, and clever simple solutions, today Alfa is partnering with clients to establish and deliver pivotal net zero strategies. Through smart energy management, the expertise and diligence of its people, transparent processes, and data management, Alfa continues to lead through its recognised gold standard of service delivery.