The UK government has lifted the moratorium on the drilling of exploratory wells and announced a favourable tax regime for shale gas in this year's budget.
The effect of US shale gas on global gas markets
Shale represents a potentially significant proportion of globally available gas reserves. These reserves could also significantly alter the geographical availability of gas, with notable political ramifications. Where once the US looked likely to remain a net importer of gas, that flow could soon change. The Sabine Pass liquefied natural gas (LNG) terminal is to be built in Louisiana and contracts for the supply of gas to the UK are already in place. US gas imports into Europe could diversify the currently concentrated UK wholesale gas supply market and have an important effect on European gas prices more generally.
Asian investors have also noted the potential effects that a supply of US shale gas might have on (the much higher) gas prices close to home. This can already be seen in the significant investments made in LNG terminals in the USA, such as Osaka Gas' stake in the Freeport LNG facility and the Government of Singapore Investment Corporation's investment in the Sabine Pass export terminal company.
Whether US gas is exported at all is however another matter. Policy makers in the US are still deciding whether cheap domestic gas, which has in part driven the US economic recovery, should be exported freely or considered a 'strategic asset' to be protected.
The estimated reserves of shale gas themselves have been subject to, in some cases, radical revision in quantity (both upwards and downwards). Such estimates are affected by the improving efficiency of the fracking process and changes in the understanding of the geology of a well once it has been drilled. Industry players indicate that the best way to establish firm estimates for the UK is to start drilling, thus allowing the performance of a well to be assessed accurately - an approach favoured in shale-gas friendly jurisdictions.
Without further drilling work, it is very difficult to get an accurate assessment of the realisable reserves in the UK. This is a position acknowledged by Tim Yeo MP, Chairman of the Energy and Climate Change Committee: "It is still too soon to call whether shale gas will provide the silver bullet needed to solve our energy problems. Although the US shale gas has seen a dramatic fall in domestic gas prices, a similar 'revolution' here is not certain." He added "The Government has dithered on this issue and should now encourage companies to get on and drill, to establish whether significant recoverable resources exist."
Consenting issues for shale gas in the UK
The current consenting regime for shale gas in the UK is complex and involves several different regimes. Multiple permits and rights are required from multiple agencies, covering areas as diverse as petroleum exploration and development, planning issues, radioactive substance dealing consent and land access rights. The UK Government has considered bringing shale gas development within the scope of the UK's Nationally Strategic Infrastructure Programme regime (which will allow a project to proceed on the basis of a single consent), but participants concluded that obtaining it will most likely be an expensive and time-consuming process.
Of the current set of required consents, the Environmental Impact Assessment (covering amongst other things the impact of seismic issues), is likely to be the most time-consuming to obtain, with an expected minimum 18 month period for issue.
In terms of future developments, the European Commission has been examining whether there are major gaps in EU member states' regulatory regimes that need to be plugged. It has also been looking at whether a single overarching regime is required (and whether such a regime would work). Although in the short term this might create some uncertainty as to regulatory and investment risks, in the long term it could well provide a regulatory framework for exploitation of shale gas in Europe. Any such proposals would need to take into account the issues arising from local community involvement in the benefits of shale gas exploitation.
Participants noted that the planning process could be used as a conduit for community engagement through the operation of section 106 of the UK's Town and Country Planning Act.
Environmental challenges and the industry's PR battle
There are some key issues that galvanise opposition to the shale gas industry and form part of the debate for and against shale gas in the public consciousness. These include:
- the use of water and water supply constraints
- air pollution and fugitive emissions
- contamination issues
- seismic activity
- local community impacts
The industry remains upbeat, on the potential for with technological developments that could reduce the footprint of well heads and the use of chemical agents as well as increase the recycling of water.
One argument is that was put forward was that while large volumes of water are needed 'upfront' to drill and frack wells, water use drops off rapidly. It may be the case that in terms of water used per unit of energy over the life of a producing asset, shale gas compares favourably with other sources of energy.
There was also a call for a more coherent, unified and effective industry response to those in opposition to shale gas. There certainly seems to be plenty of appetite to engage in the debate.