Shale Gas and Pieces of Silver

10 August 2016

By Craig Stevens

Back in 2013, the House of Commons energy select committee suggested that communities affected by shale-gas project “should expect to receive, and share in, some of the benefits of development”. Quite a bold statement considering the relative infancy of the industry in the UK and, at that stage, real lack of viability assessment.

Three years on, a small number of wells have been drilled. But we still have no clear idea of the potential of shale-gas in the UK.  We do know, however, that there is very little likelihood of progression in Scotland, due to the moratorium on unconventional hydrocarbon extraction.  So that leaves England as the main playground for the various onshore players.

This week’s proclamation by HM Government that up to £1bn will be paid into a Shale Wealth Fund, arising from tax receipts from onshore companies, and that they were exploring ways of making payments direct to affected householders may look, on the face of it, like the 2013 suggestion was coming to fruition. But such promises and the economic reality are two very different things.  The reality is that many people who applaud the announcement may not be clear on the timelines involved. 

Thus far, single digit vertical wells have been drilled. And no horizontal wells.  Moreover, only one shale development has been approved in England.  Shale-gas in the UK is at an early stage.

Furthermore, experience from the shale rich US suggests that in order to prove up the viability of a shale-gas region one might require to drill as many as 50 horizontal appraisal wells.

And once you’re done with that, you then need to move into the commercial development stage which in all likelihood would mean that it will take several years to start to generate taxable profits. And all of this, didn’t even factor in the time to get approval to drill in the first place.

So, very early stages indeed and very far away from the proverbial palms being crossed …

Whilst it is admirable that the HM Government policy of putting people first is at the forefront of the shale “revolution” in the UK, the many perception issues facing the industry largely still exist. Whilst the promise of jam tomorrow might work for some opponents of nearby developments, others will still need to be convinced by clear scientific evidence.

Clearly population density is the largest single factor stalling progress on shale– it’s clear that geographies with wide open spaces, as in the US and South Africa, seem to have much less, in the way of negative public opinion, stopping them. Indeed, already, as oil prices hint at starting to creep ever so slightly upwards, shale producers in the US are talking about stepping up production levels once again.  But the reality here is that a lot of the alleged rich seams of opportunity are beneath people’s feet and it’s no surprise that the prospect of that is difficult to stomach for many and difficult for local governments to give a green light to.  Even in less densely populated spaces, concerns around contamination of water supplies are a major issue.

So, fracking remains an emotive, divisive and challenging topic – there is scepticism around reviews and enquiries, who is sponsoring the review and where allegiances lie. It seems that until such times as a truly independent scientific study takes place, conducted by a team on which all sides agree, we will continue with this current piecemeal, development by development, county by county, country by country approach.

This is a frustrating situation for all players, not least those who have staked their reputations and their shareholders’ money on it being a success. And it creates a challenging hole to fill as we transform our energy mix.  The need to ensure security of supply, as the North Sea’s economics are leading towards decline, renewables aren’t generating sufficient scale and nuclear stalls on its near term expansion, is paramount and, provided that viability can be proved, shale-gas could bridge those gaps.

But, as has been said all along, the need to balance the public perception and public benefit, with the fiscal and economic benefits to the UK from shale-gas, is vital in this debate. The Government’s announcement therefore only addresses one part of the conundrum and it’s still not clear how we demonstrate the balance of mutual benefit for all parties impacted.  And, we’re a very long way away from those palms being crossed …

Craig Stevens | Senior Manager
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