Does the UK really need shale gas?

New research claims the prospect of shale gas in the UK has been overhyped and that the geology is not right for it, but Michael Bradshaw, Professor of Global Energy, believes such arguments may become irrelevant as it will be cheaper to import gas and to meet carbon budgets it will be gone by the 2030s.

Research by Professor John Underhill, of Heriot-Watt University, suggests that the complex geology of the UK is likely to mean that talk of a shale gas bonanza is overhyped.

As he rightly points out, to date we only have ‘gas-in-place’ estimates from the British Geological Survey that suggest that there is a substantial amount of gas in the rocks of the Bowland-Hodder formation across Northern England and a much more modest resource across the Midland Valley of Scotland.

Those estimates came with a huge health warning that actual reserves estimates could not be made until there had been sufficient exploration and that even then the economics of production would be difficult to assess.

What Professor Underhill is suggesting is that the complexity of the geology is such that the prospects of significant commercial shale gas production are limited. That may well be the case, and I am not a geologist, but the industry’s response has been to suggest that the complexity is understood and that nothing can be determined until there have been sufficient exploration wells drilled to assess the commerciality of the shale gas prospect in the UK.

Whether the ‘rocks will work’, as the industry puts it, is fundamental to whether there will be commercial shale gas production in the UK. The Polish experience is one of US technologies and techniques being applied to a different geology and failing to yield commercial production.

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The present danger facing the nascent shale gas industry in the UK is that they are struggling to drill the wells necessary to determine if there is a commercial prospect.

Today, horizontal drilling and hydraulic fracturing is essentially banned in Wales and Northern Ireland as the devolved Governments have determined to block planning permission and in Scotland drilling is suspended while the Scottish Government undertakes an extensive public consultation.

It is currently swamped with responses, but is expected to reach a decision this autumn. One senses they are likely to conclude that the size of the prize is not worth the public upset. Thus, it is only in England that companies can seek permission to explore and drill for unconventional oil and gas.

In England, the shale gas industry has run up against a coalition of concerned local people and environmental activists who are determined the stop exploration in it tracks.

The current regulatory process involves central Government regulators - the Environment Agency and the Health and Safety Executive, who, so far, has been satisfied by most of the applications they have seen, and the planning committees of the county councils where the potential wells are located.

Why has drilling not started for shale gas yet?

It is here that ‘the rubber hits the road’ as the Americans say. The councillors on the planning committees and their planning officers have found themselves on the frontline between the UK Government and industry on one side and the local community and environmental groups on the other.

The previous Conservative Government pronounced that shale gas exploration is in the national interest; however, Theresa May's Government has distanced itself from David Cameron’s infamous statement that they were "going all out for shale".

Instead, May is proposing a shale gas wealth fund to ensure that the regions where the industry would be located will see a share of the wealth. As Professor Underhill’s research shows, this is premature in the extreme; but it is a political tactic to try and gain a social licence to drill.

The current Government still supports exploration, if it is environmentally safe, but the recent election result means that its manifesto proposals to create a single shale gas regulator and reduce the role of local planning committee’s did not appear in the Queen’s Speech.

Today, Cuadrilla’s Preston New Road drilling site in the Fylde region of Lancashire is ‘ground zero’ for England’s shale gas conflict and has become the location for ongoing protests as residents and various interest groups have sought to slow progress and increase cost. They have also targeted companies supplying goods and services to Cuadrilla, with some success. 

The local police force is struggling to deal with the protests and the cost of policing continues to grow. Shale gas activists maintain that the industry will damage the environment, threaten the health of the local people and harm the economy; furthermore, they argue that exploring for hydrocarbons is just the wrong thing to do considering the Paris Agreement on Climate Change.

Finally, they maintain that the central Government’s determination to over-rule decisions made by locally-elected politicians is anti-democratic and contrary to the its devolution policies. Thus, the shale gas conflict has escalated into a protest about a much broader set of issues, which makes it much more difficult to constrain.

Professor Underhill’s warning that "the opportunity has been overhyped and reserve estimates remain unknown" is correct. The industry still maintains that by operating 400 well pads it could create around 64,000 jobs and reduce future import dependence by half.

Will gas be cheaper to import than to drill for? 

But, the reality is that it is currently facing multiple ‘above ground’ challenges trying to drill the wells that could prove Professor Underhill wrong in his prediction that the geology will disappoint.

Even if they are drilled and gas flows, it is by no means certain that the cost of production will make the resources commercially viable.

The world is on the brink of a glut of natural gas that could last well into the 2020s and it may prove much cheaper to import the gas we need.

The industry stresses the dangers of increasing import dependence and relying on other countries gas, but customers are more concerned with the size of the bills they must pay and we already have sufficient infrastructure to import the gas we will need.

In the end, the most effective way to reduce import dependence, as well as our emissions, is to use less gas. The reality is that to meet our carbon budgets we will need to move away from natural gas in the 2030s.

In this context, I would suggest that the Government should not count on there being significant shale gas production in the UK and should design a post-Brexit gas strategy that is compatible with its wider energy policy goals of security, affordability and sustainability.

Michael Bradshaw teaches Forecasting for Decision Makers on the MSc Management programme.