RUTHFULLY YOURS

It’s hard to fathom. In March 2013, the UK, Europe’s largest gas consuming nation, was reportedly just “six hours from running out” of natural gas. With North Sea gas production falling and gas imports hitting a record high during the fifth coldest spring on record, the country’s dependence on overseas supplies is growing steadily. All of which has re-focused attention on the coalition’s dithering over the UK’s potential “new North Sea” of shale gas.

Along with increasing dependence on expensive Qatari LNG (which got the UK out of the fix it was in during March) and Russian and Norwegian imports, the UK government has just announced a prospective deal to import Azerbaijani gas. If UK industry and domestic consumers were hoping for an early cut in gas prices – already twice that being paid in the United States – it seems they can forget it.

At the root of the foot-dragging is a Department of Energy and Climate Change (DECC) headed by yet another green Lib Dem zealot Ed Davey. Davey is patently more concerned with theories about climate than he is with hard economic facts about energy. While George Osborne’s Budget ostensibly set up the Office of Unconventional Oil and Gas, allegedly to “co-ordinate” matters for potential shale developers, the plain reality is that the DECC has put a whole bunch of environmental obstacles in the way of a nascent shale industry.

Albeit the process of fracking (shale fracturing) has a 60-year heritage with not a single drinking water aquifer being polluted and with associated tremors equivocating to the impact of jumping off a ladder, thus far the DECC has imposed an 18-month moratorium while constantly playing down the prospects for UK shale extraction. The DECC has made no effort to help developers navigate the complexity of licensing laws, and there is no sign of George Osborne’s promised tax breaks.

When the most extensive assessment of the UK’s shale gas resources was carried out by the British Geological Survey, due to be reported in February/March this year, the DECC blocked it. According to one Times report earlier in the year, rumour was rife that that the BGS had been set to report that UK shale deposits could be “200 times greater than experts previously believed”. The figure was thought to have been upgraded from an estimate of 5.3 trillion cubic feet to a huge 1,300 to 1,700 trillion cubic feet. Or “enough shale gas to heat every home in Britain for 1,500 years.” The BGS report is not now expected until later in the summer.

Meanwhile, an economy-boosting shale boom beckons tantalisingly. Last year, in their licensing area around Blackpool in the UK’s north-west region, Cuadrilla upped their estimate of potential shale gas deposits to around 200 trillion cubic feet (tcf). In early June 2013 rival company IGas Energy plc, operating further south in the same Bowland Shale Basin, also upped its previous estimate of 9 tcf in its licensing area to as much as 172 tcf. IGas share value jumped ten percent after the announcement on June 3 with Goldman Sachs immediately upgrading the company from ‘neutral’ to ‘buy’.

But IGas CEO Andrew Austin believes there may be as much as 500 tcf in the entire basin. Industry speculation suggests that twice that figure may be present, and with good reason. While the highly productive Marcellus and Barnett shale plays in the US are around 300 feet thick, in places the Bowland Shale is 6,000 feet thick.

And while the Big Oil boys continue to await further developments, including those vital tax breaks, British Gas owner Centrica has just paid £160 million to buy a 25 percent stake in Cuadrilla’s shale licence. Considerable private investment still awaits the right signals from the government, however.

To put these estimates in perspective, the UK currently consumes 3 tcf of gas per year and the UK’s entire proven reserves currently stand at 7 tcf. Nobody suggests that, whatever reserves are eventually proven to be in the Bowland Basin and across the UK generally, that it could all be extracted. But even if just 10 to 30 percent proved extractable it still offers a vitally important national economic and energy resource; and one that could make the UK self-sufficient in natural gas for decades.

Far from fast-tracking shale gas development, however, Energy Secretary Davey has just ordered yet another study – this time an independent review of the offshore oil and gas industry and what is left of the UK’s North Sea hydrocarbon resources. Procrastination, it appears, is the name of the game, as the winter’s close-run thing with a gas shortage made clear.

In May a new report by the Institute of Directors cited UK shale as having the potential of a “new North Sea” that could create 74,000 jobs and slash gas imports. Tax revenues of up to 62 percent, it predicted, could offset a prospective tax shortfall gap of 1.25 percent of GDP from falling Fuel Duty and North Sea receipts. And shale gas investments generally could be worth over £4bn a year to the British economy.

But the specific impediment to a shale gas-fuelled boost to the UK economy continues to be Lib Dem Ed Davey’s DECC. It is no secret that any new investment in hydrocarbons does not sit well with the government’s anti-fossil fuel Lib Dem coalition partners. No surprise either that Davey’s Lib Dem colleagues in Hampshire are demanding a total ban on fracking and shale gas extraction in the county.

Meanwhile, as the Sunday Times reported on June 2, the DECC’s piloting of the new Energy Bill through Parliament threatens a taxpayer-funded new “£200bn makeover” strategy that, rather fancifully, aims to switch the UK from a hydrocarbon economy to a decarbonized one. With punitive punishments for “polluters”, the Bill, as its critics have long pointed out, will create the “world’s most expensive energy policy”. Offshore wind developers alone can expect to receive “roughly three times the wholesale power price”.

When it comes to a once-in-a-generation shot at a new UK economic miracle it seems that the Lord giveth (shale gas in abundance) and Davey taketh away (massive green energy subsidies).

Peter C Glover is co-author of the bestselling Energy and Climate Wars and is a contributing editor at The Commentator. For more: www.petercglover.com