U.K. to Allow Fracking

Brian Hicks

Written By Brian Hicks

Posted December 14, 2012

The British government has granted permission for exploratory fracking operations, as Europe’s firm stance against the controversial procedure seems to be faltering.

The New York Times reports:

“Shale gas represents a promising new potential resource for the U.K.,” Edward Davey, the energy and climate change secretary, said in a statement. “We are still in the very early stages of shale gas exploration in the U.K., and it is likely to develop slowly.”

Europe, despite being the world’s second-biggest gas market, has recently come to rely more and more on imports from Russia, Algeria, and other nations—and many blame the widespread opposition to fracking for this situation.

Although Britain has made large strides in developing clean power—especially offshore wind—companies have directed plenty of criticism for the ailing economy at the country’s stand against fracking. And the fact that renewables involve high startup costs and government subsidies has not helped matters.

Britain, compared to the rest of the Eurozone, was actually more inclined toward allowing fracking. Now that they’ve gone and approved it, analysts and investors will undoubtedly be monitoring developments across the rest of Europe.

Poland, you may recall, has already invited exploratory drilling for shale reserves. But France, along with many nations in Western Europe, remains quite vehemently against fracking.

Their concerns aren’t very new—contamination, pollution—but a new twist is added by Europe’s population density compared to the U.S.; shale fracking requires extensive drilling operations. Most of Western Europe is very densely populated compared to the U.S.

Eastern European nations—Poland, Ukraine, for example—are much more eager to allow fracking. No doubt, the lure of gaining energy independence from Mother Russia is a powerful one.

Britain, for its part, is going to set up an Office of Unconventional Gas and Oil, the New York Times reports. It has said it will monitor fracking operations intensively, promising to shut down matters before any real damage can be caused.

In any case, the official approval of fracking is surely going to be received with cheers by major oil and gas companies who are keen on exploring Britain’s shale reserves.

One such company is Cuadrilla Resources, backed by Riverstone Holdings (SGX: AP4)—the American private equity firm—which is in fact connected to BP (LON: BP).

Incidentally, Cuadrilla is also the company that sparked widespread resistance to fracking back in 2011, when its operations set off two minor earthquakes.

At any rate, the company has estimated that around 200 trillion cubic feet of shale gas buried beneath a region in Lancashire. That’s enough to meet Britain’s national demand for almost seven years. But expect entrenched opposition from environmental groups.

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