U.K. Shale Gas Offers North Sea Potential

Brian Hicks

Written By Brian Hicks

Posted May 23, 2013

U.K. shale gas has the potential to give a tremendous lift to the British economy, creating countless jobs and slashing the nation’s gas import bill in half.

Given the rights to exploration, the U.K. could realize benefits not seen since the North Sea became one of Western Europe’s largest oil and gas reserves.

fracking rigThe U.K. has been slow to adopt technology that has brought such great success to the U.S. The drilling technique known as fracking is very controversial due to its environmental impact.

In the last two years, the U.K. government banned all shale gas exploration after two earth tremors in Lancashire were blamed on fracking practices.

But now, the North Sea output is slowing down, and a dependency on natural gas grows exponentially.

The U.S. is the only country currently producing significant amounts of shale gas, but improved drilling technology could give the U.K. a go at it. The success of the U.S. has definitely piqued interest.

With such a vast reserve of shale gas, the U.K. is, at the very least, weighing its options.

The UK Lobbies

A report released by a U.K. business lobbying group – the Institute of Directors (IoD) – echoes the great potential for shale gas the U.K. holds.

According to the IoD, not only will the oil and gas industry create thousands upon thousands of jobs, but manufacturing will see a boost and Britain’s gas imports could be cut in half.

The IoD claims that the act of exploration and procurement of its shale resources would create in excess of 74,000 jobs – a number that more than doubles a similar estimate made just eight months earlier.

According to that prior statement, the British shale would create 35,000 jobs. The estimate was revised as some figures showed the industry would eventually invest £3.7 billion ($5.57 billion) a year as U.K. shale gas takes off.

Jobs would explode in all different sectors: geologists in science, drilling specialists in gas and oil, construction, transportation, manufacturing, water treatment, and retail to service the growing economy.

The IoD report gathers data based on an expert analysis that says Britain has 309 trillion cubic feet of gas, enough to support 100 years’ worth of demand. And that number is an understatement compared to what the U.K. could actually possess – as much as 1,800 trillion cubic feet of shale gas. If that were true, these numbers would be astronomically higher.

These estimates are part of configurations gathered by top exploratory companies in the region including Cuadrilla Resources, IGAS Energy (LON: IGAS) and Dart Energy (ASX: DTE).

Shale gas could reduce imports 37 percent by 2030 based on these figures.

The IoD report goes on to examine the hypothetical chance that only 10 percent of U.K. shale gas is recoverable. It finds that this would still satisfy one third of the annual gas demand of Britain, as it is supposed to peak by 2030.

By that same year, without the nation producing shale gas domestically, it would rely on imports, at a cost of £15.6 billion (a little more than $23.5 billion), for 76 percent of the total demand, according to Bloomberg.

The Next Phase

It’s still too early in the game to forecast how U.K. gas prices would be affected, but there is certainty in import dependency, tax revenues, and the creation of jobs.

More testing is still necessary to prove just how much shale gas in the U.K. can become economically viable, but there’s no doubt that it’s down there.

And now that the fracking ban has been lifted, the U.K. stands a chance of making up for the declining North Sea output.

The North Sea has been a tremendous source of revenue for Britain. According to CNBC, tax revenues accounted for 5 percent of all government receipts as production surged through the 80s and 90s. And in 2011-12, while shale exploration was sidelined, those same revenues averaged £6.7 billion ($10.1 billion) per year.

But with waning production, the U.K. will likely turn to its own shale gas reserves for support.

Right now, however, only Cuadrilla Resources has done any fracking in the U.K. The British company is set for more exploration this summer in Sussex, just south of London.

The U.K. has seen something similar before. In the 60s, Aberdeen, a city in Scotland, opened up to offshore oil and gas. That city soon after became a mecca for energy across Europe.


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