Public opinion on unconventional gas development in the UK has, to date, taken two opposing points of view. There are those who refer to recent developments in the US and claim that unconventional gas, such as shale or coal seam, could replace North Sea gas. Their opponents claim that fracturing will cause an environmental disaster – and they also cite examples in the US and elsewhere.
As usual in debates like these, the truth lies somewhere between the two poles. Yet one thing is certain, if managed correctly, unconventional gas could make a significant contribution to the UK energy sector.
To realise this potential, we need to learn from countries that have already made unconventional gas an integral part of their energy mix and export potential. Australia, for instance, saw widespread opposition to the development of coal seam gas just over a decade ago. In Australia, spokespeople from the mining industry, environmental lobby and government argued against development on the grounds of environmental impact, damage to coal resources, unreliability of supply, and poor commercial feasibility.
Ultimately, however, the developers – including BG, Origin Energy, Santos and Shell – convinced the different parties that coal seam gas development could succeed. The results speak for themselves. Whereas coal seam gas supplied less than 5 per cent of the country’s east coast market in 2000, by 2010 it supplied 50 per cent. In addition, Australia is developing three LNG export plants to supply gas to Japan, Korea and China. It is also expected to become the largest exporter of gas in the world by 2017, much of which will derive from unconventional gas.
The UK can learn a great deal from Australia’s stance on policy and regulation, as well as its approach to community and stakeholder engagement.
First of all, the UK needs to cut the hyperbole and be realistic about what shale gas can achieve. The evangelists would have us believe that shale gas will replace North Sea gas and ensure future energy security at competitive prices. The reality is different.
To produce quantities of shale gas anywhere near current North Sea levels, the UK would need in excess of 10,000 wells. This is unfeasible – we simply do not have the space. Instead, the industry needs to establish a more realistic level of development. It would be possible, for example, for shale gas to meet between 5 and 10 per cent of demand. Development on this scale would be more in tune with community expectations.
It is worth remembering that the main coal seam gas-producing area in Queensland, Australia, is at least four times the size of England with a population of just several hundred thousand. Even so, the scale of unconventional gas development there has created tension with the local community, particularly those with competing agricultural interests. In the UK, we need to avoid the hype and focus on a realistic scale of development.
Much of the debate about shale gas recovery relates to its impact on the environment. There are certainly isolated examples in other countries where development has not been well managed and the environment has suffered. In Australia, there has been concern over the impact on the water table and water quality. In the US – in Gillette, Wyoming – unconventional gas development undertaken many years ago has resulted in notable areas of land degradation.
Since then, however, we have learnt how to address many of these issues. We can use our knowledge to establish best practice environmental standards and regulations, drawing on the best environmental regulation in the US and Australia and adapting it for UK conditions. We need to develop these standards and regulations in partnership with the environment sector and demonstrate that they can work.
Another potential hindrance, about which we can learn from Australia, arises from confusion around the ownership rights of landholders, resource developers and the government.
Unlike in the US – where landowners have rights to the resources on and underneath their land – in Australia and the UK all resources are owned by the state. As a result, gas developers must acquire leases to develop resources, which can lead to conflicts with landowners and third parties.
The UK will be different to Australia, where gas developers have clashed with mining companies over extraction rights in the past, but landowners and gas developers will still need to reach legal agreement. The first task should be to clarify the legislative rights of landowners and developers. Once the legislative and regulatory arrangements are in place, developers will need to engage and co-operate with landholders, which may extend to compensation.
Once the above measures are in place, initial small-scale development will be vital in demonstrating the environmental safety and commercial viability of unconventional gas. Developers need to pay close attention to how they commence, phase and ramp-up the scale of their development.
In Australia, the catalyst for the widespread commercial development of coal seam gas was a 300MW gas-fired power station in Townsville in 2001, fuelled entirely by coal seam gas. Such small-scale development now seems insignificant but, at the time, it demonstrated that coal seam gas was a commercial and reliable source of energy. In the UK, similar power station developments could do the same thing for shale gas.
Just proving that unconventional gas is feasible is not enough. Gas developers in the UK will need to demonstrate that they are responsible and engaged corporate citizens who take on board and address concerns. This will be crucial to the success of large-scale unconventional gas development in the UK.
Global experience shows that while many countries have significant sources of unconventional gas, few have successfully developed them on a large scale. If the UK draws on the experience of countries where unconventional gas development has been successful, it should have a viable and sustainable new source of gas.