BRITAIN’S much-vaunted shale gas bonanza might just happen. This month’s dual announcement on UK shale gas means that two more major pieces in the development jigsaw of this important national resource have fallen into place.
Total’s decision to invest $50m in British shale exploration following Centrica and GDF Suez last year is a significant confidence boost to an industry that up until now has endured an all too typical Whitehall turf battle between those who want to see shale go forward and those who don’t. Importantly, the Treasury got its way and a new energy revolution can start to plan.
The Total and GDF announcements puts real investor cash and skills behind the niche players, drawing in further backers, and will allow for the development of between 20 and 40 wells over the next couple of years. These wells will help us determine just how much shale gas we have; initial surveys suggest deposits of up to 1.3 trillion cubic feet, but maybe more. We will also learn how easy it is to extract. Total’s announcement should be seen as a green light from conventional energy developers that the race for British shale gas is on.
Yet the Government’s timely release of its community pay back plans to encourage communities to exploit their own local assets is arguably even more significant. One of the biggest roadblocks to expanding their paltry number of exploratory wells that shale gas players such as Cuadrilla and iGas say they face is the worry of local communities sitting on top of shale deposits, and the reluctance of local authorities to work through the planning process.
Time is money, and long delays discourage exploration, as the professional protesters who go around the country opposing unconventional gas drilling know full well. So a generous scheme to encourage local people to look upon their shale gas as their own valuable resource, and not a threat to their community, is essential to the rapid development of the industry to a scale where it can have a meaningful impact on job creation, tax revenues and, potentially, local energy prices.
This will also require clear and unambiguous guidance to local planning officers from Government that shale gas proposals must be regarded favourably, alongside the need to satisfy all existing planning hurdles.
So greater local benefit is crucial. The announcement that local councils will be able to keep all of the business rates from shale gas development, rather than half as they could do previously, is worth an estimated £1.7m for each 12-well site. And that is on top of the community investment each drilling company habitually makes in local causes near to its well sites and the one per cent of revenues from any well that the government has already promised communities.
In the US, where its massive shale gas reserves have driven its energy revolution and held down power prices, American firms have used the cost advantage to fight more effectively in the battle of trade. JP Morgan is reporting that US growth is now tracking ahead of expectations as the trade deficit fell by $5bn between October and November 2013.
That improvement in their trade position is down in no small part to the much lower energy costs US firms have to bear when competing to sell their goods on the open market. The determined exploitation of UK reserves could also have a real impact on our own economy. While we do not have the vast quantities of shale gas enjoyed by the US nor are we a closed energy market but there is no doubt that additional and home grown gas could help insulate British consumers from energy price spikes and give British firms a sharper competitive edge.
It is important to recall that the UK is set to become much more dependent on gas for domestic use and in the generation of electricity in the future and this increase in supply will largely be imported. Also, importantly, the development of a shale gas industry supporting up to 74,000 British jobs and contributing billions of pounds to the Exchequer could help to finance tax cuts, socially desirable spending on sensible infrastructure, or contribute towards innovations such as a British Sovereign Wealth Fund; something which was ignored during the 1980 and 90s when the UK was a major global oil and gas producer.
But shale is just one part of the unconventional gas bounty which Britain can exploit with the right government support. Advances in horizontal drilling pose a huge opportunity for the UK to develop Deep Underground Coal Gasification (DUCG) on a significant scale in coastal locations where stranded coal resources are vast. Coastal locations allow for the process to be carried out away from towns and cities.
DUCG allows the coal to be gasified in situ deep underground where it produces a syngas when piped back to the surface. This can then be used to generate electricity, power industry and again reduce our foreign gas dependency. Unlike shale, this technology should have a head start as we know exactly where the coal is (courtesy of old Coal Board surveys), its quality and its depth.
Some readers will recall the large scale attempts to mine out under the sea off Durham and Northumberland, usually in difficult conditions.
Again, usefully, the Minister for Energy has just announced the first ever DUCG working group to examine how more support can be given to getting gas out of the UK’s vast but now largely abandoned coal resource.
Clearly, unconventional gas like shale and underground coal gasification have key roles to play and must be supported. They can and should play an important role in our energy mix, smoothing out the spikes in prices to give consumers and business a more stable, predictable bill. And they can provide a welcome and long term revenue stream to the Treasury which it would do well to invest carefully.
While the professional protest community will warn of Armageddon, they will inevitably become yesterday’s news. The real story is the vast opportunity of again utilising our indigenous energy reserves and maximising their potential in the national interest.
• Tony Lodge is a Research Fellow at the Centre for Policy Studies.