Lynne Freeman, partner at international law firm Reed Smith LLP, comments on the recent discovery of shale gas in the UK and its potential impact on energy supply, renewables investment, and the environment:
Diversifying the UK energy supply
"Based on US experience, fossil fuels will remain a significant component of the energy picture for the foreseeable future. However, the shale gas developments certainly demonstrate part of a move away from a reliance on coal powered energy. Natural gas from shale could be a growing part of that picture for generating electricity if the preliminary findings by Cuadrilla are as significant as they first appear to be. There is even the potential for shale gas to be used in fleet vehicles and other modes of transport. "Considerable investment will of course be needed in shale gas infrastructure if this is to be a viable energy solution. It would therefore not merely be a transitionary measure but a clear step away from coal towards allocating resources to the less carbon-producing shale gas equivalent. However, the government needs to foster further investment in renewables to ensure that the reliance on coal does not transfer to a direct reliance on shale gas."
Safety and environmental concerns
"New research from Cuadrilla Resources presented to the Department of Energy and Climate Change acknowledges the fact that fracking activity was the likely cause of recent seismic activity in the region, but noted the rare confluence of factors present in this instance. It also concludes that further seismic activity is highly unlikely to occur as a result of future fracking, and steps are being taken by the company to establish the appropriate protocols and a ‘warning system' to mitigate any risk. As such, a moratorium on fracking in the UK is not likely to be necessary and will allow the momentum on shale gas commercialisation to continue.
"In the US, where significant shale gas development has been underway for many years, the amount of drilling has increased significantly over the last decade and thousands of wells have been drilled and fracked there, but there have been very few instances of water contamination. Those instances have largely resulted from surface spills or improperly cemented well casing, and the fracking process has earned a strong safety and environmental record. Further, sound regulations and appropriate enforcement have served the public interest well and have protected the environment, and the same can be expected here in the UK.
"The main safety concerns are about potential damage to the environment, in particular water. Clearly everyone concerned will be keen to mitigate environmental impacts through the regulatory process, including planning consents and licences. The UK benefits from having greater controls in place than the US in terms of what chemicals are used in shale gas power generation. In the end, the UK is a safety conscious country with a well-evolved regulatory system, which will go a long way in mitigating any risk."
Impact on renewables investment
"The monies flowing into clean energy and shale gas are likely to be complementary. For example, shale gas-fuelled power stations could be complementary to wind farms, with shale gas picking up the slack when there is a lack of wind. The UK government is looking for ways to ensure that there is enough electrical capacity to cope with demand, and wind-generated energy is likely to remain important regardless of any developments in shale gas-powered energy.
"The discovery of shale is unlikely to reduce the amount being invested in renewable energy, particularly given a government commitment to achieve a target of 15% of energy coming from renewables by 2020 (and further carbon reduction targets by 2050). EU legislation also affects this, with the Large Combustion Plant Directive specifying that at least 15GW of coal-fired generating capacity will come off-line in 2015. There will clearly be enough opportunities for the market share of both shale gas and renewables to increase.
"The US has shown that shale gas investment does not compete with other investments in renewable energy, given that the risk and return profile for oil and gas investments is different from that of renewables. In the US, investment has typically been in the form of joint ventures between oil and gas companies and private equity dedicated to oil and gas investing."