Last week The Prime Minister David Cameron once again came out in support of shale gas, proclaiming it will help bring down energy prices, and that wells will be developed across the UK in a boon of domestic gas supply.
With this support from the top of British politics, it would appear that fracking would represent an essential opportunity for energy companies, although the protests this week, which led to the headquarters of fracking pioneer Cuadrilla being invaded by ardent protestors and the arrest of the former Green Party leader Caroline Lucus at the controversial shale oil exploration site at Balcombe could cause temporary reticence from potential investors.
Cuadrilla is currently the only shale exploration pioneer in the UK and temporarily suspended activity at the shale oil test site citing concerns over the safety of its staff, residents and the protesters.
However, Cuadrilla’s chief executive Francis Egan, was keen to point out that fracking does not take place at this location in West Sussex. “External groups protesting against hydraulic fracturing at Balcombe do so without any work proposal from Cuadrilla to judge”, he says.
The protestors are campaigning due to fears that fracking could cause earthquakes and pollute the water table – a claim many commentators dismiss as “myths”.
Mis-information
Ken Cronin, the chief executive of the United Kingdom Onshore Operators Group (UKOOG) concurs that “there has been a lot of mis-information”, adding “there have been 2 million wells hydraulically fractured in the world without issue, that’s the evidence we will be working off”, he says.
Away from the protests, it is thought that shale gas in the UK represents a good opportunity for the major energy supplier to invest in – such as Centrica’s £40 million deal in July to take a 25 per cent stake in Cuadrilla’s Bowland Basin in Lancashire, and the Prime Minister’s comments last week have only reinforced the government’s view – and the industries attractiveness.
“I’m quite surprised so far that Centrica is the only utility that has put any money down,” said Malcolm Graham-Wood, an analyst at the investment bank VSA Capital, adding that an investment in any of the drilling companies “would be money well spent”.
He said that he thinks the latest positive message from the government should lead to the other members of the big six getting a stake in UK shale: “There are very few ways of investing in this process because there are only three or maybe five potential players”.
He adds: “As a producer of energy for the UK market it would be very cheap to put a few quid down to do some drilling on the Cuadrilla site.
“If it didn’t work you’ve wasted a bit of investment, but if it did come in you’ve got yourself a big position on onshore energy.”
Investment
Stephen Hunt, an analyst at UBS, also says that investing in UK shale would represent a shrewd move for any of the other major energy companies and is “totally on the cards”, although this is “expected to be the case anyway” and the Prime Minister’s comments just “clearly reinforces the coalitions government’s position”.
He says that Centrica moved into the sector earlier than their rivals because “they have a much larger exposure to upstream gas” and needed to make a “defensive move”.
” has taken what is effectively a low cost option to participate in shale gas. If it turns out to be economic and that helps to defend their upstream business but in terms of the others they don’t have the same exposure – so they don’t have the same need to participate at such an early stage in proceedings.”
Hunt adds that Centrica’s rivals are likely to be looking at getting involved into the UK shale gas sector because “if they delay, and fracking does turn out to be significant and economically viable, of course the entrance costs become much, much higher.”
Cronin doesn’t want to link Cameron’s comments to “a wave on Centrica type deals” but says that “what it does do though is underpin investor certainty in what they are doing already”.
He is keen to point out that more deals are expected next year in the 14th licensing round that the government has already said will take place.
Potential
Energy minister Michael Fallon said earlier this year, the government will “accelerate shale gas development in a responsible way” by creating “the right framework”, adding that next year there are around 60 “substantial” licences for onshore exploration and development.
“Shale gas has great potential and we have the right regulation in place so the UK benefits as quickly as possible in terms of energy security, investment and jobs,” he commented.
It is this security from imported gas that Fallon’s department, the Prime Minister and the chancellor, George Osborne, believe could help to reduce energy bills.
The Department of Energy and Climate Change tells Utility Week that UK shale gas “could exert a downward pressure on the UK gas prices in the 2020s” and Cronin supports this view.
He clarifies: “I think it makes sense to be able to produce your own gas compared to import from elsewhere and be a price taker,” – if the shale gas can be physically and economically extracted.
However, both Hunt and Graham-Wood are less convinced that UK shale gas will bring energy bills down.
Hunt says: “At this point in time – the most likely scenario is that it will help to limit increases rather than push them downwards.”
Graham-Wood concludes: “It’s a bit too early to tell. We know that it’s down there but we’ve got to make it flow.
“If we don’t make it flow, everything is off anyway.”