Every four years English people whip themselves into a deep delusional state.
A catchy mantra and a dollop of wishful thinking never fails to drown out more sensible, pragmatic voices. Never stop dreaming is pretty much the gist of the message from chart topping ‘90s comics Baddiel and Skinner.
A national dose of ‘its coming home’ fever is only a matter of weeks away and Eng-er-land silly season is nearly upon us again.
Kicking off in November instead of June, it is going to be a weird World Cup.
The short dark days of winter mean the beer gardens will be comparatively empty and with inflation predicted to bring the price of a pint to £20, it might be even quieter inside the pubs.
In the grip of a grim energy crisis, football fans will huddle for warmth in front the TV distracting themselves with an absurd spectacle of FIFA football hosted in a petrostate so unsuitable for the sport that matches will be played under air conditioning.
At home a carnival atmosphere will be hard to summon, not least because the World Cup kicks off around the same time as British households will receive their first post-price-cap-hike monthly bill.
British households are already bracing for record-high energy bills – in April the price-cap (the ceiling price designed to protect consumers) was pumped up by some 54% as regulators were forced into allowing utilities and energy resellers breathing space amidst soaring wholesale prices and the collapse of a number of smaller operators.
Ofgem later announced a massive further hike to the price cap, steering it to an additional 80% in October. That would mean that annual bills would rise to £3,549, and, it's feared that the resulting squeeze on consumer spending will tip an ailing economy firmly into recession.
Tackling the so-called cost-of-living crisis is evidently top of the agenda for Liz Truss, after her appointment by the Conservative Party as leader and, by extension, the country’s new Prime Minister.
Truss on Thursday announced her package of interventions which includes a lower cap of £2,500 for a two-year period.
Next, the new PM lifted the ban on fracking, providing a massive boon to Britain’s domestic hydrocarbons industry.
Allowing fracking reawakens hopes that a huge, and still mostly theoretical, gas resource beneath swathes of England can be developed and exploited.
Geologist estimates over the years have seen the potential for decades worth of gas to be extracted which, certain significant caveats notwithstanding, could go a long way to solving the country’s lack of energy security.
The popular narrative among fracking advocates is that the UK’s dependence on foreign (i.e. Russian) gas imports is ultimately an issue of national importance that needs to be addressed.
Energy security is coming home?
Every few years advocates for and investors in UK shale enter the deep delusion state shared by England fans.
A catchy narrative and a dollop of wishful thinking never fails to drown out more sensible, pragmatic voices. This particular silly season looks to be upon us again.
Or, this time, maybe, it could be different.
The war in Ukraine and the energy price crisis has solidified a political will for the UK to develop more of its own domestic resources, to ease dependence on imports.
Onshore shale gas deposits are amongst the priorities, along with any remaining undeveloped areas of the North Sea.
For investors, the shale gas story is not a new one.
Nevertheless, the market has so far keenly backed small-cap UK shale shares.
Murmuring speculation built in volume over the course of recent weeks, with punters and longer-term investors pouring into the likes of IGas Energy PLC (AIM:IGAS, OTC:IGESF) and Egdon Resources PLC (AIM:EDR) - the two small-cap energy companies listed in London with proper interests in shale gas.
On paper asset valuations were left in the doldrums since the 2019 moratorium, and, many industry commentators felt the window of opportunity had closed.
AIM-quoted IGas reckons it can develop five well ‘pads’ over an eighteen-month period if it is given the right financial and political support. Each pad can host up to sixteen individual production wells.
It is envisaged that such a project could deliver enough gas to supply 3mln homes with cheaper domestic gas.
Igas has apparently developed a very strong fan club with the stock up more than 100% in the last month amid hedge fund interest in the stock.
Notably, Brexit-supporting investor Crispin Odey (who has built a career and a personal fortune estimated in excess of £800mln through his ability to spot a market opportunity) was revealed in early August to have taken a stake of 6% in hydrocarbons firm.
Interestingly, the position was not taken directly but via certain unnamed financial instruments, making it smell a bit more like a trade than an investment for the long term.
Elsewhere, Egdon Resources, which is also a UK onshore play that has designs on a shale gas future, saw its shares bid up through August.
Stockbroker VSA Capital, in a note, highlighted that Egdon has a significant shale position spanning 164,280 net acres including the Bowland Shale at Springs Road which analyst Oliver O'Donnell described as ‘one of the most advanced targets in the country’.
“EDR’s [Egdon’s] share price has risen strongly in anticipation of the lifting of the moratorium, however, there is considerable further upside potential to come from de-risking and then commercialisation of the portfolio should this prove successful,” O’Donnell said.
Obstacles remain – political, environmental, and operationally.
A decade long hinderance has meant that a lot remains untested in UK shale. Investors will be keen to see progress to new well drilling and production testing. Production data will be key to making a commercial case for development.
Shale firms will need to get local planning authorities on-side, and, will need the support of investors and financiers if they’re to deliver expedited projects.
It’s not at all surprising that IGas and Egdon shares are in high demand, the projects and the future possibilities are indeed very substantial.
But success is certainly not a given and a lot of time has been lost.
It is still too soon to say whether the UK shale industry can finally get off the ground, football might just come home first.