UK shale gas: Still a long road to travel
by Inline Policy on 04 Aug 2014
On 28 July, the British Government announced its first licensing round for six years for companies who wish to prospect for onshore oil and gas. The announcement was top of the news agenda, and there was no mistaking the excitement in UK ministerial (and Conservative) voices as they claimed that the speeding-up of exploration for shale could boost jobs, economic growth and national energy security.
But a deeper analysis suggests that it would be wise to temper this enthusiasm with some realistic appraisal of the obstacles that will have to be addressed before we reach the ‘promised land’.
Obstacle No 1: Public Opinion
The last three years have not been positive for UK public sentiment on fracking. Following the minor tremors in April 2011 at the fracking site near Blackpool in North-West England - and the conclusion that the exploration company Cuadrilla’s operations there were probably responsible for the tremors - there has been a steady downwards drift in terms of public support in the opinion polls. The last large-scale poll conducted in May indicated that support for fracking had fallen below 50% for the first time.
Moreover, DECC’s environmental report - based on a 12-week consultation conducted earlier this year - published the day fate after the licensing round announcement, reported that a “substantial majority” of respondents opposed the Governments’ licensing initiative owing to concerns which were predominantly centred on fracking. Worries about the impacts on landscape, biodiversity, water resources and traffic were all raised - plus wider concerns related to climate change.
DECC’s response was “environmental considerations have been adequately incorporated into the licensing plan.” Ministers are clearly calculating that replies to the consultation don’t reflect wider public opinion (especially in regions which might benefit economically) and that they represent a vocal minority who won’t carry those who will be more bothered about jobs and growth.
This coalition, especially the Conservative Party, also have to contend with opposition from constituencies in the densely-populated South of England where communities don’t want their landscapes interfered with - witness the concessions made last week on tracking in national parks. So it will be a gamble with public opinion and one that successive governments may regularly have to address, depending on how the sector develops over the next decade.
Obstacle No 2: Can the shale be commercially fracked?
Amid all the hype, the sector is barely even into its infancy. Cuadrilla has fracked only one well (the infamous operation near Blackpool). Other prospecting companies have obtained licences to drill, but only in test conditions in different parts of the country.
Poland offered a salutary lesson in 2012 when, after a massive amount of publicity about the country’s potential, a government report admitted that reserves might constitute only 10% of previous forecasts which had come from credible sources such as the US Energy Information Service. Exxon, Marathon, Total and Eni have all given up their exploration concessions and departed the scene. The Poles are putting a brave face on it and say that up to 80 test drillings may take place this year.
But it’s no longer the gold rush some thought it would be a few years ago; and the shale sector is unlikely to provide the escape route from dependence on Russian gas which the Polish political establishment thought it would do. No wonder the Polish Prime Minister has been hawking his European energy union idea around capitals during the last six months.
Obstacle No 3: Mitigating future regulatory risk
The UK Government has moved relatively quickly over the last four years to put in place what it calls a “robust” regulatory environment, with transparent licensing and planning permission processes. However, leaving aside the potential for politicians of any political hue to meddle with regulatory processes, if they judge there are political risks to the exiting policy, there remains the spectre of European regulation.
The coalition has so far successfully resisted any push from Brussels (which has in any case been restrained) to regulate at an EU-wide level. But the overall political backdrop on fracking across Europe remains - with France maintaining its ban, and the Germans legislating for tough environmental standards - less supportive than it could be.
This may change should further political developments continue to erode the EU’s relationship with Russia. Equally, some bad, highly-publicised fracking experiences might damage public support and cause the institutions in Brussels to think again. It’s a space that needs watching.
Obstacle No 4: Attracting Investment
Compared with the number of large independent oil and gas companies that set foot in Poland at the start of the decade, interest from investors in UK prospects has to date been more muted. Those who have test drilled so far have been small independents. Self-evidently, the Government hopes that the new licensing round will be a game-changer.
The one major company which has so far announced it will invest (holding two gas exploration licences in Lincolnshire) is Total. The coalition would welcome more such public announcements, to reinforce the impression that the UK is open for business on exploration in a big way.
Obstacle No 5: Fitting shale into the wider energy and climate narrative
New UK Energy Minister Matthew Hancock, while on the airwaves earlier this week, majored on the standard pro-shale messages of jobs, prosperity and energy security (most bluntly expressed as “keeping the lights on”).He also took care to highlight the case for shale gas as a cleaner fossil fuel. This suggests that Ministers are taking on board the point that they need to place the case for shale within part of a broader narrative which encompasses the transition to the low-carbon economy.
While it’s a fact that local communities will more likely express their concerns about fracking in terms of environmental and social impacts, Ministers will still get a better overall hearing if they can stick to a wider “beyond energy security” narrative.
This isn’t only about the low-carbon narrative. There has to date been little independent, detailed analysis of the economic benefits to the UK of a developed shale gas sector. This will inevitably be sketchy until the industry gets down to intensive operations, but more evidence to support the jobs case is nonetheless needed.
Coalition (and Labour politicians, so far guardedly positive about indigenous shale’s potential) would also welcome hard-edged analysis about what the sector could do to bring down energy prices - but that would be too much to ask for at this early stage.
By Richard Folland, Environment and Energy Consultant at Inline Policy