Connect with us

Commodities

The Great British Frack Off

 6 min read / 

The premise of hit BBC One show The Great British Bake Off involves a nationwide search for the best amateur bakers in the country – it helped recapture Britain’s love of baking since it first aired in 2010. That year also marked the birth of another kind of search, one that has sparked an opposite reaction in public opinion: the construction of the UK’s first shale gas exploration well. 

Despite David Cameron’s admittance that his coalition is “going all out for shale” by offering monetary incentives to both local communities and to the shale gas industry, public opinion seems very much against the shale gas process with only a 24% approval rate. It seems that the public want a combination of lower energy bills and energy security without the consequences that come with domestic production. David Cameron, amongst others, insists that the net benefits outweigh any forecasted consequences. The British public cannot have their cake and eat it too.

The American dream

The pioneering fracking industry in the United States has shaken up more than just the shale rock it hopes to obtain natural gas from. The recent supply glut in US natural gas has had huge impacts on the energy market throughout the world, whilst driving down wholesale fuel prices and increasing energy security. The country has shifted from the world’s largest importer of energy to forecasts of self sufficiency and exports
 HM Treasury hopes to bring a similar shale success story to the UK. The creation of 64,000 jobs, a more competitive manufacturing industry and increased energy independence are strong benefits that have led the Treasury to try and galvanise the birth of a domestic shale industry with the most competitive tax breaks in Europe. This sends out a strong global message that the UK is willing to realise the potential of its resources and support fracking operators. Chemical giant Ineos recently invested £640 million in shale gas exploration in the UK, hoping to capitalise on the government’s eager attempt to kickstart the industry.

 Environment and local communities

The shale gas industry in the UK is still in very early stages but has already prompted strong local resistance and has become a controversial topic of debate across the country. The hydraulic fracturing, or fracking, process that produces shale gas involves pumping a combination of water, sand and chemicals deep down into a hole at high pressure to create fractures in the shale rock and release the oil and gas trapped inside.  
 
Opponents to the process argue that it can trigger earthquakes and the chemicals used can pollute groundwater. In order to appease communities potentially affected by fracking, the government has promised that 1% of revenues at production stage will be paid out to the local communities. 
 
A reassuring joint report from the Royal Society and the Royal Academy of Engineering concluded “the health, safety and environmental risks can be managed effectively in the UK” if high standards and robust regulation are in place. Some environmentalists maintain their skepticism for fracking as not a lot is known on the long-term effects so a delayed recognition of any previously unknown effects incurred can have serious environmental, health, and economic impacts.

Economic viability

The estimated breakeven cost of UK fracking is likely to be much higher than the US equivalent due to tighter land and environmental regulations. This could explain why investment from big oil companies such as Chevron, BP, or Shell is lacking during this exploratory stage – there are simply more lucrative opportunities elsewhere.
Although fracking in the UK is long-term, current oil and gas prices could undermine the infant industry’s economic viability unless it found a new way to cut costs. This casts a shadow on the proposed benefit of reducing consumer’s energy prices domestically as it may be cheaper to import liquefied natural gas (LNG) from abroad.

The future of UK energy

There are many challenges ahead for Mr. Cameron’s fracking future. If he wants to succeed he must continue to lure big investors in whilst swimming against a strong current of negative public opinion. In addition, external factors such as technical barriers and the future course of the global energy markets will dictate the extent of UK shale success more than just domestic policy alone.
There are also concerns that investment in unconventional carbon based fuels detract investment and attention from renewable energy. Natural gas may be a ‘cleaner’ fossil fuel than coal but it is still an unsustainable and an infeasible solution to the UK’s long-term energy problem. 
 
If the UK is to succeed in the long run and make the transition to a more sustainable green economy, the policy focus must also continue  fostering the growth and improving competitiveness of the renewable energy industry. There is little benefit in using domestic shale gas as a bridge if there is no green future on the other side.

Sign up to Mogul News.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Send this to a friend