Shale Update: Is Britain on the cusp of a shale gas boom?

by Reed Smith
Contact

Supply to more than meet demand

It was recently reported that iGas studies show that sites in the north-west of England contain much larger shale gas resources than previously anticipated. These studies indicate that north-west sites (areas in Lancashire and Cheshire) have a capacity of somewhere between 15-170 trillion cubic feet (tcf) of shale gas, up from the 9 tcf previously estimated by iGas. Reports in the press this week have added credence to these studies, with an announcement that The British Geological Survey, in a report prepared for the Government, has found that there could be 1,300 tcf of shale gas at a single site alone in the North of England. To give this some context, the entire gas reserves left in the UK North Sea are estimated to currently be as little as 7 tcf. If these potential shale gas resources can be utilised, reports suggest that this could meet Britain’s gas consumption for decades to come, narrowing the ever-alarming “energy gap”.

Studies have suggested that the most likely outcome of these discoveries is confirmation of a 102 tcf resource in an area covering some 300 square miles of Cheshire. This is a sharp contrast to the preliminary estimates of the British Geological Survey of Britain’s shale gas resources, which had previously estimated recoverable shale reserves to be at around 5.3 tcf. Although it is anticipated that confirmed resource figures may be lower than the top end of iGas’s estimate, in due course, the iGas studies which seem now to be solidly supported by the latest finding of the British Geological Survey, do raise the possibility that the UK energy market may be able to utilise the nation’s shale gas resources to boost the UK’s energy independence and position the UK to benefit from its own “on-the-doorstep” available resources.

“Home-grown” potential

Britain’s current gas use comes in at around 3 tcf per year. On this basis, even if the lower end of iGas’s findings is used as a starting point, the identified resources could account for in excess of 5 years’ worth of Britain’s gas consumption. The UK currently relies on some 1.5 tcf of imported gas per year, which represents about 50% of the UK’s consumption. If iGas’s findings are substantiated, (as appears to be the implication in light of the British Geological Survey report) and can lead to a fully available (and extractable) resource, the UK may no longer need to expend sums obtaining any imported gas for energy use.

The iGas study and the British Geological Survey report demonstrate that there is some clear discrepancy between the previously estimated resources, including iGas’s own estimates for its own licences held in the north-west, with potential shale gas quantities outstripping those previously anticipated. Cuadrilla has also, when carrying out its own studies in 2011, estimated its resources to be around some 200 tcf. Combined, these significant findings represent a substantial shale capacity here in the UK, which is, as yet, being untapped. Interest in the UK’s shale capacity is certainly mounting, with recent reports suggesting that significant energy players, such as Centrica and Total, are gearing up to invest in shale opportunities in the UK. Indeed, Centrica has already signalled its intent by purchasing a 25% stake in the Bowland exploration licence from Cuadrilla for £40m. This suggests that the market is sitting up and taking notice of what could be a potentially extremely valuable opportunity for key investment in the UK energy market.

The market appears to be quietly optimistic about the UK’s potential. Notwithstanding the current reports, the only way to confirm the viability of, and in turn exploit, the UK’s shale gas resources is to drill wells and begin fracking. However, in the current political climate, this is easier said than done, especially on a large scale, although the industry remains hopeful that the Government, along with the industry, can reassure communities of the potential benefits of exploiting the UK’s shale gas reserves. This stance appears to be further strengthened by the market’s anticipation that the Government is likely to announce plans for tax incentives to encourage investment in shale gas, coupled with anticipated streamlining of the process to award drilling permits. Indeed, in his Spending Review this week, Chancellor George Osborne said that the Government would “make the tax and planning changes which will put Britain at the forefront of exploiting shale gas.”

Things do appear to be moving in the right direction, as demonstrated by the strong economic case presented by the Institute of Directors for proceeding without delay to exploring for and developing the UK’s shale resource, as set out in the report “Getting Shale Gas Working” published on 22 May 2013. The market’s focus on shale gas is further evidenced by the April 2013 Energy and Climate Change Committee report on the impact of shale gas on energy markets and the establishment of the Office for Unconventional Gas and Oil, as well as the draft guidelines published by the UK Onshore Operators Group (which we have discussed in a previous alert).

What’s in it for the consumer?

The global energy market has witnessed the revolutionising of the US energy industry as a result of the exploitation of shale gas and there is growing excitement as to whether the same can be achieved here in the UK. There are some concerns amongst market analysts that the shale geology of the UK is more complex than that in the US and there are other constraints (such as planning laws) and so costs of exploration and production may be a lot higher than they have been in the US.

However, the recent reports, if nothing else, confirm that there is certainly large-scale shale gas potential in the UK. If these resources can be utilised this could revolutionise the UK’s energy production and could have far-reaching effects for the UK’s energy market. The UK’s gas import costs could plummet and consumers could, in the long-term, see a cap on gas bills. Added to this, communities could also benefit from the extraction process itself, as it is estimated that the labour market will be significantly boosted in shale-rich areas. In addition, the government has outlined plans for the shale industry to share revenues with communities located near the wells, by providing £100,000 worth of benefits as well as 1% of the revenue generated from each well.

Boom or gloom?

The industry will continue to proceed with caution as, of the shale resources discovered, it remains unclear how much of this will actually be recoverable. As we have commented on in a previous alert, numerous challenges still need to be overcome. However, there is some inevitable excitement within the industry that useable resources will allow the UK to lessen its dependency on the use of imported gas and could even, in time, become a potential exporter.

iGas is scheduled to commence a drilling programme later this year, to enable it to further crystallise its estimates, and Cuadrilla is also due to begin drilling its first exploration well in Balcombe, West Sussex later this year. These explorations should hopefully give a more accurate picture of the resource available.

Whilst it is anticipated that actual recoverability of the identified resources will further lower current estimates, the potential recoveries remain material. The market will no doubt now be eagerly anticipating more concrete results, but in the meantime, it appears that, in light of Government promises to give tax breaks to the shale industry and the lifting of fracking restrictions in December 2012, the UK market is gearing itself up to benefit from these exciting shale gas discoveries.

Green groups, who have on the whole have received the news of the UK’s shale potential with negativity, have responded to latest reports with scepticism. The industry appears to be gearing up for a UK shale gas “boom” and the support that the British Geological Survey report adds to these studies, suggests that we may not simply be witnessing industry hype. The full picture cannot be known until fracking begins…

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith
Contact
more
less

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.