Friday Jul 15

The United Kingdom’s shale gas industry could be great assisted from the fall in the pound, and new Prime Minister Theresa May as it gears up for its first production in 2016, having faced economic and political challenges that slowed its start.

 

Since the dip in the strength of the pound post Brexit, it has been more expensive to import gas, assisting the cause for shale gas which had been hurt previously by weak oil prices and by opposition to planning approval from local campaigners.

After setbacks including a temporary fracking ban in 2011 on technology used to extract gas from shale rock, those in the industry hope for support from Theresa May.

Earlier this week, in a speech for her leadership campaign, May stressed the importance of secure energy supplies, which shale advocates say is one of their industry’s strengths.

“I want to see an energy policy that emphasizes the reliability of supply and lower costs for users,” May said

Stephen Bowler, chief executive of London-listed shale gas developer IGas feels Brexit has made the case for shale more vital: “An independent Britain needs and independent supply of energy. Security of supply becomes even more important now.”

The UK’s start to producing shale gas has not been great. The first well to be fracked, near Blackpool in Lancashire was abandoned when some of the work there was a catalyst for an earth tremor that resulted in an 18 month ban on the technology.

More recently, low energy prices have added to the strains.

“The weak gas price certainly doesn’t help the economics. But there’s still a lot of potential there,” said David Round, analyst at BMO Capital Markets. “You’d expect costs to come down once you get a few years into the development.”

A couple of months back, Third Energy received the first planning approval for a shale gas fracking well since 2011. It says it will start hydraulic fracturing at it’s Kirby Misperton site in North Yorkshire before the end of the year.

Other shale gas developers, including Cuadrilla Resources and IGas are relying on government support for domestic energy sources and an offer of compensation to landowners to reinvigorate their campaign .

Cuadrilla aims to produce gas next year in the northwest, subject to planning approval, and Bowler’s IGas plans to test first gas in northern England by 2018.

The British government has made amendments to planning rules to speed up shale gas projects by giving the communities minister ultimate decision-making power on planning applications.  

A decision whether to grant a permit under these new rules to Cuadrilla is due by early October and will be a first indication of government support for shale gas under Theresa May.

Coal-fired plants are due to close in coming years, making Britain more reliant on natural gas. Britain’s network operator said last week that the country may need to import an estimated 93% of its gas by 2040 if economic growth slows and domestic gas production is not supported.

Shale supporters say relying heavily on imports would make Britain more vulnerable to events out of its control that could affect supply. Regardless, environmental campaigners intend to challenge shale gas, which they say would undermine the UK’s target to reduce carbon emissions by around 80% by 2050.

“Theresa May should not be under the illusion that fracking is the answer to the UK’s energy needs,” said Daisy Sands, head of energy at Greenpeace.

Shale took much longer to take hold in Britain as opposed to the United States due to the fact that British Law does not allow private land owners the same rights to mineral resources as U.S. law, which aided American profit from the shale boom there.

British shale companies are hoping to win over communities by sharing the wealth. Britain's most ambitious shale developer, Swiss group Ineos, with more than 1 million acres of land has assured local communities, landowners and residents that it will share 6% of revenue from shale gas wells

“Shale gas is a natural resource which should be shared. At the moment we’re spending an enormous amount of money to buy gas for the UK while we have this resource sitting under our feet,” said Gary Haywood, chief executive of the Ineos shale business.

The shale industry is still finding it’s feet but the local companies are confident once they have started production that bigger companies will join in with the funds to ramp up output.

“We’re never going to have access to the sums of money to develop these plays at scale,” said Mark Abbott, CEO of Egdon Resources, which has signed up French Major Total as a partner on some shale gas licenses.

“Our strategy is to be an early stage acquirer, to bring in the big companies, to de-risk and to monetize a lot of that position prior to development.”

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