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UK gas industry boxed in as fracking tsar quits over strict rules and tremor myths

Yet again, we’re talking about politics and regulation rather than wells and production tests.

fracking protesters
Slowed to a halt

Britain’s shale gas industry is suffering a de facto ban according to Natascha Engel, who has just resigned as the government’s ‘fracking tsar’.

She left in a bid to highlight overly strict regulations that are causing potential projects to stall.

Yet again, we’re talking about politics and regulation rather than wells and production tests.

Set aside, for a second, the compelling argument that the UK has an opportunity to develop a seemingly abundant resource to the benefit of the national trade balance, and likely household purses too.

Ignore that the UK consumes more gas than it produces and must rely on imports of ‘dirtier’ gas from elsewhere.

Discount the fact that new industry would bring jobs and spur economic activity into the so-called ‘Northern Powerhouse’, and, that as Brexit looms Britain’s untapped shale gas resources likely represents decades of domestic ‘energy security’.

Then look at the awkward reality that gas is one of few sources of large scale and economically viable fuels from which the UK can base a cleaner energy mix.

Moreover, it is the primary source of heating for most homes in the country and it remains the only accessible means of heating a home for most people.

Speaking of homes, the objections to fracking are really cemented in more of a NIMBY (not-in-my-back-yard) stance rather than true environmentalism - after all, consumption of imported and transported gas has a substantially higher carbon footprint.

As such it is proving very difficult for onshore UK projects to secure planning permissions, even when the applications are being recommended by officials.

Even renewable projects such as wind farms have also struggled in this regard.

Tremor rules are stalling projects

Shale gas proponents believe that the parameters of the current rules are far too conservative, especially compared to other non-hydrocarbon based projects.

Rules supposedly aimed at preventing ‘mini earthquakes’ mean that operations in the field must be suspended for days at a time when a 0.5 magnitude tremor is detected.

For context, that threshold is around four times lower than in the United States and, even here in the UK, it is three times lower than the threshold imposed on construction sites.

The seismic monitoring and the attached ‘traffic light system’ capable of suspending work were caveats inserted into a regulatory framework that aimed to unlock shale projects.

It was effective in as much as it allowed a sprinkling of projects to move forward, nevertheless, the most recent evidence suggests that the pace of development is far too slow.

Natascha Engel claimed that environmental protest groups were presently ‘driving policy’.

Engel only served six months in here role as Commissioner for Shale Gas.

Cuadrilla says the impasse is “embarrassing” for UK

Unlisted Cuadrilla, the most advanced UK shale firm, was recently frustrated by the denial of planning permission for a new site in Lancashire and had been working through the stop-start fracking and testing programme at the Preston New Road site.

Efforts were stifled by the regulations, and that dampened enthusiasm for what had previously appeared to be an exciting success.

In a statement reacting to Engel’s resignation, Cuadrilla chief executive Francis Egan today said: “Natascha Engel has accurately assessed the current situation with regard to shale gas extraction in the UK.

“UK shale explorers have spent hundreds of millions of pounds proving that we have enough gas beneath our feet to supply homes across the country for the next 50 years.

“We can extract and deliver this gas safely and responsibly – helping to reduce emissions as we eradicate the need for imported gas, currently being shipped to the UK from across the globe.”

Egan added: “But instead of embracing this huge opportunity we remain wedded to a miniscule micro seismic threshold which has no scientific basis and is without parallel anywhere else in the world.

“Meanwhile other industries – including key Government projects like Crossrail, quarrying operations and geothermal – produce ground vibrations far in excess every working day.

“The situation is beyond ridiculous, it’s embarrassing.”

In London, AIM’s IGas Energy Plc (LON:IGAS) has seen drilling successes - most recently hitting over 250 metres of hydrocarbon bearing shale – but, the company has yet to reach the stage where it needs to start fracking (and adhering to the seismic monitoring).

Conventional onshore oil and gas face roadblocks too

Besides the frackers, other UK oil firms have struggled to gain planning approval for their projects.

Egdon, Europa and Union Jack Oil have been tangled in the application and appeal process at the Wressle project which could deliver significant production for each company.

A new public inquiry is due to take place later this year.

The breakout Horse Hill project has skipped over and navigated its regulatory requirements and operations are moving forward apace, though the roads around the Surrey project have not been without protests and an injunction was required to help protect the site.

The Holmwood project next door was stifled in planning, however, and leading Horse Hill partner UK Oil and Gas is now looking at alternative options having recently taken control of the venture.

Is the headache worth it for explorers and their investors?

While there are only few examples of listed companies investing in the UK onshore, it is plain that politics and regulation present the biggest challenges.

The uncertainties and risks of UK shale increasingly have little to do with the geology or engineering – which would be quite a rare claim to make for any projects elsewhere.

It had been the hope of many involved and invested in the industry that by getting the first few projects up and running without incident they would win hearts and minds, and, that the realities of shale gas and fracking would become evident.

That has yet to happen. And, it remains to be seen whether the enthusiasm of these early movers endures, or whether the nascent industry will be left with so much potential unfulfilled.

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Price: 15 GBX

Market: AIM
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