INSIGHT: Fracking on amber in the UK

14 December 2012 16:29  [Source: ICIS news]

By Nigel Davis

A Cuadrilla drilling rig in Lancashire, UKLONDON (ICIS)--The UK has taken the first steps that might yet see fracking for shale gas more widely encouraged in European countries. But that is as long as the EU does not clamp down hard on the hydraulic fracturing process – widespread consultation on fracking in the EU is expected next year.

While opposition to fracking remains a significant issue for the fledgling industry, the UK government has given the go-ahead for further fracking to be carried out, subject to strict controls.

Energy firm Cuadrilla had fracked in the northwest of the UK in 2011 but fracking was suspended following unusual seismic activity.

Concerns have been raised on a number of fronts, from the clearly disturbing seismic question to the volumes of water required for fracking, and the potential for noise and general disturbance around fracking sites.

Fracking is not expected to be adopted or developed easily in densely populated Europe.

The advantages of producing considerably more natural gas onshore in the UK, for instance, are being weighed against environmental and climate change impacts and the fact that the country’s North Sea gas reserves are dwindling.

“Shale gas represents a promising new potential energy resource for the UK. It could contribute significantly to our energy security, reducing our reliance on imported gas, as we move to a low carbon economy,” Britain’s energy minister, Ed Davey said on Thursday.

His department, which is trying to balance Britain’s drive towards renewables with the potential benefits of a significant onshore natural gas supply, laid out new controls that are designed to mitigate seismic activity risks.

They include a prior review of fracking proposals and a traffic light system that might stop fracking activity under certain circumstances.

Davey’s department wants to see fracking firm Cuadrilla adopt better internal controls to monitor the impacts of its fracking activities. It is also working closely with other branches of government which monitor health and safety and the environment in considering the expected expansion of fracking activity in the UK.

Earlier this week, UK chancellor George Osborne indicated that tax incentives might be available to those involved with or affected by fracking. “We are consulting on new tax incentives for shale gas and announcing the creation of a single Office for Unconventional Gas so that regulation is safe but simple,” he said.

The streamlined regulatory approach will be welcomed by the sector as will the potential for tax breaks.

“We welcome the government’s initiative to help the emerging shale gas industry get established,” Cuadrilla’s CEO, Francis Egan, said.

Cuadrilla added that it is seeking approval to drill, fracture and flow test a small number of wells in 2013.

“Exploration is necessary to have a better understanding about how shale gas can be developed safely and sensibly from the Bowland Basin,” Egan said. This geological formation lies across the northwest of the UK.

“Costs in a technology industry such as ours will be higher at the outset, but will reduce over time as the industry grows,” Egan added.

Cuadrilla acknowledges that it is operating within one of the world’s tightest regulatory systems for oil and gas and will have to meet tough environmental health and safety standards. There is no gas production from fracking in the UK, the technique so far having been used only in exploratory wells.

But the UK regulators are gearing up for a gas production phase, although Davey said it is likely to be some years away.

A more detailed analysis of the shale gas resources in Great Britain has been commissioned from the British geological survey (BGS). It will be published early next year.

“I emphasise that this will provide only an estimate of the resource, the gas in the ground, and not the reserves, the amount of gas which can in practice be produced economically from that resource,” Davey said.

“Until more exploration work has been done, a significant number of wells fracked and production patterns established over time, it will not be possible to make any meaningful estimate of likely economically recoverable resources of shale gas in the United Kingdom.”

His remarks underscore the fact that hydraulic fracturing is a gas and oil extraction technique in only the very early stages of deployment in the UK and in the EU.

Gaining approval for further fracking and ultimately gas production from fracked wells in the UK would be a great step forward and could be used to encourage other European countries to reverse opposition to the drilling technique.

However, the impact of shale gas on energy prices in the UK market, however, is not expected to be great.

Opposition to fracking has gained ground in the European Parliament.

Members of the parliament (MEPs) voted in November for a tough regulatory regime to control the emerging sector. And some of them were vocal in their criticism of fracking before Davey made his announcement.

So 2013 could be another critical year and one in which Europe’s fracked, gas rich energy future hangs in the balance.

By: Nigel Davis
+44 20 8652 3214

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