The success of shale gas extraction in the US has put shale gas under the spotlight. However, the UK faces significant challenges before a shale gas revolution can be replicated – on regulatory, environmental and technological fronts.
In the UK, where shale gas reserves are likely to prove considerable, shale gas production and use is still some years in the future.
Professor Paul Stevens, Distinguished Fellow at Chatham House, says some estimates put technically recoverable resources in the Bowland Shale Play in North West England at 210 trillion cubic feet, compared to nine trillion cubic feet of proven conventional gas reserves. “These are big numbers being bandied about and, of course, if they prove to be accurate, then it will supply gas to the UK for quite a long time,” he says.
When it comes to the reservations surrounding extraction, environmental concerns centre on underground water contamination through hydraulic fracturing – or fracking. Environmentalists also argue that shale gas operations will lead to methane leaks. Professor Stevens suggests that not all the claims are well founded. “My view of the scientific evidence is that properly operated and regulated, wells should not cause contamination, but there is no doubt that bringing these resources above ground is an extremely difficult business.”
Property rights are another far from straightforward matter. In the US, landowners stand to benefit from any discovery of shale gas reserves in their backyard, while in the UK subsoil minerals and hydrocarbons belong to the state, so issues around compensation are hard to resolve.
In Europe, individual countries are responsible for regulating shale gas extraction, but the argument for EU-wide regulation is gaining traction. Professor Stevens’ view is that Brussels realistically may not be able to bring a coherent regulatory regime together in any sensible timeframe. “Such an effort would simply delay the development of shale gas in Europe due to regulatory uncertainty,” he says.
In the meantime, China has been tipped as the next epicentre for a shale revolution. Shale gas resources are considerable and the prospects for bringing them on-stream are better than in Europe. China has invested in the necessary expertise and has a large number of recoverable reserves. It is not without its own issues, however. Most of its shale gas resources are in the west of the country, which is arid, and hydraulic fracturing requires access to water. Additionally, China is no longer immune to community opposition. Increasingly, local communities are beginning to exert themselves and quiet acquiescence is not a given.
The shale gas revolution in the US has had considerable impact on the dynamics of the international energy markets. Exploration activity has led to a glut in supply and the domestic gas price has fallen dramatically. That has made the US very competitive and demand for gas is quite buoyant in the US, as the manufacturing and petrochemicals sectors begin to revive. European industrialists are, Professor Stevens says, extremely disquieted about their competitive position compared to their American rivals.
“The plentiful supply of shale gas and its low price has also had the effect of pushing coal out of the energy market in the US and the US is now a major exporter of coal, particularly to Europe. However, demand for a domestic European gas supply is likely to pick up strongly, I believe. One reason for this is that European regulatory restrictions on gas-fired power stations are receding. Between 1975 and 1990, there was legislation against building a gas-fired power station in Europe as it was regarded as a primary fuel.” Today the picture is very different and as regulatory restrictions are lifted in the UK, so they are lifted across Europe, he points out.
So supply and demand for gas in Europe are going to increase. “There will be shortages and gluts, but as we go into the future I think we can talk about a ‘golden age’ of gas,” says Stevens. Will UK shale gas production play a substantial role? “The UK will probably start producing shale gas in the next five years but there are many barriers to overcome before it is produced in any significant quantities”
Head of Upstream Advisory Practice, UK
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