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Is fracking off the table in the UK after NAO says no?

It is becoming quite clear that broader narratives concerning hydrocarbons, fuel and industrial businesses are changing

Onshore drilling

It is no secret that Britain’s big shale gas opportunity has stalled, nevertheless a new report from the UK’s National Audit Office has been touted as a ‘hammer blow’ to the fledgeling industry.

The NAO report, published on Wednesday, suggested there is “no evidence” that gas prices would be lowered as a result of the so-called shale gas revolution.

It highlighted uncertainty around the possibilities that meaningful quantities of gas can be produced viably.

The report was also a reminder of the litany of environmental and regulatory concerns connected to the controversial extraction technique most often referred to as ‘fracking’ – or hydraulic fracture stimulation, which is the necessary measure to open and unlock ‘tight’ unconventional sources of hydrocarbons such as shale.

“The department does not expect shale gas production to lead to lower energy prices, but believes it could provide greater energy security and have economic benefits,” the NAO said in a statement.

“However, it has not analysed the benefits or costs of supporting the shale gas industry because it thinks this would not be meaningful due to the current uncertainty about how much shale gas can be extracted.”

“Public support for shale gas development is low and has reduced over time.”

The government department added: “Fracking has already placed financial pressures on local bodies, including local authorities and police forces, and other costs have been borne by a range of government departments and regulators.”

The NAO said that it did not know the full costs incurred by government in supporting shale gas but it estimated that at least £32.7mln has been spent by public bodies since 2011, including £13.4mln spent across three police forces to maintain security around shale gas sites.

Earthquakes and environmental concerns

Those familiar with the UK shale narrative will know that low level tremors / earthquakes are the most frequently highlighted example of environmental impact, albeit, industrial stakeholders have also previously noted that such impacts would be equivalent to other previously accepted activities such as mining or construction work.

For casual onlookers, and private investors who invest in shale ventures all over the world, it has perhaps become a confusing melee of opinion.

The NAO report’s conclusions, at surface reading, are for the most part self-evident.

It certainly makes some valid points. But, really, it tells us something that many of us following the story have been aware of for years – the future of UK shale gas industry is uncertain and noisy (figuratively and literally).

Indeed, most of the key facts by which we would assess the industry’s potential are unknown.

They are mostly unknown because efforts to explore and evaluate the shale gas opportunity have been stifled and frustrated in the early stages.

It has taken shale firms like Cuadrilla many, many years to drill only a handful of wells.

In other jurisdictions companies with a similarly high potential projects would likely have drilled tens if not hundreds of wells by now.

As a result, there can be no reliable or objective view of what a UK shale industry might be.

UK shale business is essentially where it was several years ago, stuck in mostly conceptual level, conversations with both proponents and protestors making or dispelling arguments of theory and extrapolation.

Could there be generations worth of gas buried beneath Chesire and Lancashire, available to heat homes and power grids to offset the requirement for ‘dirtier’ and expensive imports from Russia … yes, possibly!

Is there a possibility that the extraction process will damage the environment … yes, probably, if it is not properly managed!

But, these two points of view are not new. This was largely the state of play nearly a decade ago.

Government reports will come and go, but only a committed phase of physical well programmes will deliver sufficient data to answer any of the key questions.

The conversation is changing alongside the demographics

It is becoming quite clear that broader narratives concerning hydrocarbons, fuel and industrial businesses are changing.

Public opinion is moving quickly as the millennial and ‘Gen Z’ demographic become increasingly influential in terms of both politics and culture.

As Extinction Rebellion attempt to shut down capital cities and as the contents of public discourse move away from the natural resources industries, it may be the case that the opportunity for UK shale is quickly passing by.

Increasingly, politics (or at least the PR around politics) is acknowledging what may become new accepted norms, Ireland’s recent pledge to the United Nations that it would cease new offshore exploration is one example of that.

This would likely be a challenging time to deliver a simple or innocuous hydrocarbon project in Western Europe – albeit UK Oil & Gas et al are managing to drill wells and produce crude within just a couple of miles of Gatwick airport.

Cuadrilla’s project, however, is neither simple nor innocuous.

Since 2007 the unlisted company has become the leading player in UK shale. The company’s geologists believe they have some 200 trillion cubic feet of gas trapped in Lancashire’s Bowland Shale formation. For context the UK presently uses about 3 trillion cubic feet of gas per year, with around half of that being imported.

To extract the gas it must deploy discrete horizontally drilled wells and use fracking techniques. Cuadrilla’s models estimate that a 2,500 metre horizontal well would deliver something like 6.5bn cubic feet of gas over a 30 year life span.

Much of this analysis is, however, based on only minimal well data as its progress has slowed significantly due to technical, regulatory and environmental problems.

Most recently, detailed technical studies were required of Cuadrilla following the latest high-profile ‘seismic activity’ that occurred during this summer’s well programme at the Preston New Road site in Lancashire

Earlier this month, Cuadrilla revealed that it has been working closely with UK regulators on the matter, but, it had decided to suspend its planned programmes because such programmes “take time to conclude” and its planning permission for the fracking work will expire at the end of November.

Following on from the incomplete fracking programme Cuadrilla nevertheless intends to carry out production testing to further evaluation the technical and economic potential of the project.

In a statement, on 30 September, chief executive Francis Egan said: “Our second horizontal shale well was partially fractured in August and I am pleased that we are moving to flow test it in the next few weeks.

“We believe that this will further demonstrate the huge commercial opportunity here. Given the lower carbon footprint of UK shale gas compared to that of gas imported by ship from overseas, it clearly makes sense to look to develop this local resource rather than increasing reliance on imports.

“In addition UK shale gas has the potential to act as a domestic feedstock for Hydrogen production which can help the UK reach net zero carbon emissions by 2050.”

For Cuadrilla there is some valid internal logic to this proposition, but, rarely are such environmental matters detached from a not-in-my-backyard (or NIMBY) mentality. UK environmental protestors are, perhaps understandably, not concerned with how ‘dirty’ the gas industry is in other far-flung gas exporting markets.

UK shale continues to move at a snails pace and evidently operators need much more time.

Unfortunately, for them, it would appear that time may be the least available commodity they have.

It may be that Cuadrilla and other investors in UK shale are now watching in slow-motion as the window of opportunity closes.

Quick facts: IGas Energy Plc

Price: 15.6175 GBX

Market: AIM
Market Cap: £19.14 m

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