Brexit could provide boost for Britain’s shale gas
By Karolin Schaps
LONDON (Reuters) – Britain’s shale gas industry could get a helping hand from a falling pound and a supportive new prime minister just as it is gearing up for its first production this year, after facing economic and political challenges that slowed its start.
The British pound’s weakness since the Brexit vote has made it more expensive to import gas, helping the case for shale gas which had been hurt in the past by weak oil prices and by opposition to planning approval from local campaigners.
After setbacks including a temporary ban in 2011 on the hydraulic fracturing – or “fracking” – technology used to extract gas from shale rock, those in the industry hope for support from Theresa May, who takes over on Wednesday as prime minister.
In the speech launching her campaign for the leadership on Monday, 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 emphasises the reliability of supply and lower costs for users,” May said.
Stephen Bowler, chief executive of London-listed shale gas developer IGas, told Reuters Brexit made the case for shale more vital: “An independent Britain needs an independent supply of energy. Security of supply becomes even more important now.”
Shale gas had a poor start in Britain. The first well to be fracked, near Blackpool in the northeastern county of Lancashire, was abandoned when some of the work there triggered an earth tremor that resulted in an 18-month ban on the technology.
More recently, low energy prices have added to 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.”
Two months ago, Third Energy received the first planning approval for a shale gas fracking well since 2011. It says it will start hydraulic fracturing at its Kirby Misperton site in North Yorkshire in northeast England before the end of the year.
Environmental group Friends of the Earth and a residents’ anti-fracking group have applied for judicial review of the decision at London’s High Court.
Other shale gas developers, including Ineos, IGas and Cuadrilla Resources, are now banking 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 government has already changed planning rules to speed up shale gas projects by giving the communities minister ultimate decision-making power on planning applications.
A decision on whether to grant a permit under these new rules to Cuadrilla is due by Oct. 6 and will be a first indication of government support for shale gas under the new prime minister. Australian engineer AJ Lucas owns 45 percent of Cuadrilla.
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 have to import 93 percent 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 divert supply. Still, environmental campaigners intend to challenge shale gas, which they say would undermine Britain’s target to reduce carbon emissions by at least 80 percent below 1990 levels 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.
In a 2013 protest at the Cuadrilla-managed Balcombe oil exploration site south of London, demonstrators chained themselves to gates. Some were arrested, including Caroline Lucas, the Green Party’s only MP.
INEOS IN DRIVING SEAT
Shale was slower to take hold in Britain than in the United States in part because British law does not give private land owners the same rights to mineral resources as U.S. law, which helped many Americans profit from the shale boom there.
British shale companies are hoping to win over communities by sharing the wealth. Swiss chemicals group Ineos, Britain’s most ambitious shale developer with more than 1 million acres of land, has promised to share 6 percent of revenue from shale gas wells with local communities, landowners and residents.
Shale gas is a national resource which should be shared, said Gary Haywood, chief executive of the Ineos shale business.
“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,” he told Reuters.
For now, the industry is still tiny, but local players hope that once they have started production, 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, boss 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 derisk and to monetise a lot of that position prior to development.”
French gas producer Engie is in partnership with IGas and Britain’s biggest household energy supplier Centrica shares some acreage with Cuadrilla.
(Additional reporting by Susanna Twidale; editing by Peter Graff)