Latest announcements from the Chancellor's Autumn Statement and from climate change secretary Ed Davey indicate that shale gas could play a significant role in the UK's energy future. Indeed, it may prove to be more significant to the UK than for other countries in Europe.
Here, Wragge & Co's energy experts provide a helpful overview of shale gas and discuss latest developments in the field.
Shale gas is a naturally occurring unconventional gas. It consists mostly of methane and is found deep beneath the ground, trapped within shale formations.
As shale gas does not flow readily from a well, a process of hydraulic fracturing, or 'fracking' has to be used to extract the gas. During this process, great volumes of water and chemicals are pumped into shale wells at very high pressure. This causes the shale rock to fracture and allows the gas to escape.
The shale revolution
In 2000 1% of US gas came from shale. Since then, the US has undergone what has been termed by many as a shale gas 'revolution'. By 2010 the country's shale gas usage had soared to 20% and it is predicted to reach 46% by 2035.
It is estimated that the US is home to 862 trillion cubic feet (tcf) of recoverable shale gas. This wealth of recoverable gas, combined with a relatively low population density and the fact that mineral rights belong to the land owner rather than the crown means that the environment in the US is very conducive to shale gas extraction.
In the event that the UK proves to have significant viable resources, shale gas could have a very considerable impact, both in terms of energy security and its balance of payments (as imported gas is once more replaced with indigenous supply).
There is also little doubt that significant commercial exploitation of shale gas could also change the economics of using gas for electricity generation in the UK and herald a new 'dash-for-gas' in the electricity sector.
The process used to extract shale gas is not without controversy. Some of the major environmental concerns were highlighted by speakers at Wragge & Co's round table event:
- There is very little to see above ground in a shale well-site. Because of this, a lot of trust has to be placed in the shale companies. It is very hard to be sure that what they are doing beneath the surface is not contaminating the ground beneath and crucially, the water contained in local aquifers. For example, more than 2,500 chemicals were recently found in 'fracking' mixtures, some of which were toxic. Consequently, many US states are now either already demanding disclosure of the chemicals used or will soon make disclosure mandatory.
- The process produces carbon dioxide, methane and hydrogen sulphide in unknown (but in all likelihood, significant) quantities. Hydrogen sulphide is a chemical that is notoriously hard to eliminate as it has to be converted into solid sulphur which is an expensive and slow process.
- In 2011 there were two seismic tremors in Blackpool shortly after a developer carried out 'fracking' (although later reports indicate the extent of these were greatly over-estimated and over-reported).
- The process of 'fracking' requires the use of large quantities of water and sand. Not only does this cause an increase in road traffic in supplying these materials but more worryingly still, in some areas this has been known to cause drought!
Europe is yet to embark upon commercial shale production to any great extent. It has adopted a notably more cautious approach to shale gas development than the US.
Take France for example, where François Hollande has recently declared that despite fertile ground for extraction, there will be no 'fracking' during his term as president. He believes that 'fracking' poses too heavy a risk to health and the environment.
With only three wells currently drilled, the UK shale gas market is still in its early life. However, it does appear to have adopted a much more pragmatic approach than France. A number of reports have concluded that with the right well construction and operational safeguards, shale gas development could be carried out safely here.
Notably, and having consulted leading experts in the field, energy and climate change secretary Ed Davey announced that the controversial process of 'fracking' would be allowed to resume.
Further encouragement for the future of shale gas in the UK can be drawn from the Chancellor's Autumn Statement. It announced that tax breaks for shale gas are being considered and that an Office for Unconventional Gas and Oil (which he hopes would ensure safe and simple regulation) is to be established.
Combine the implications of these announcements with increasingly favourable media attention, and a growing recognition of the macro economic benefits that shale could yield, and it seems that shale gas may be of increasing importance for the UK.