Could regulation squash the UK's shale gas potential?


Back in 1859, the self-styled Colonel Drake famously struck oil in Titusville, Pennsylvania and, in effect, laid the foundations for the global oil industry. A similar hype is now being accorded to energy’s latest wonder weapon, shale gas, which has boomed of late in the southern states of the US. The Barnett Shale site in the Fort Worth Basin in Texas was the first to be developed. Just a decade later, the Barnett Shale field accounts for 5% of the US’s natural gas supply. Crucially, the arrival of shale gas has both depressed US gas prices and apparently broken – temporarily at least – the long-term relationship between international oil and gas prices.

Estimated US and EU shale gas reserves are massive, although the level of recoverable reserves is far more questionable. Nonetheless, against this background, it would suggest that the many concerns about EU energy security – long-term gas price supplies and prices, serious delays in developing carbon capture technology, nuclear generation costs as well fears and expensive renewables - could be readily overcome. But many environmentalists harbour serious concerns about shale gas’ ‘fracking’ technology and its impact on the water table.

However, developing shale gas in Europe has particular challenges compared with the US. Less favourable geology, differing sub-soil property ownership laws, less experience in ‘wild-catting’ technology, less attractive tax regimes and tighter environmental legislation all argue against a straightforward read-over from the US experience. In the UK, following two minor earthquakes in the Blackpool area, where it has recently been drilling for shale gas deposits, Cuadrilla Resources has now suspended its operations there.

In short, despite its popularity and rise in the US, it is unlikely that the development of shale gas will transform the mainland European energy scene – with all its vested interests – over the next decade. Without serious regulatory reform, the scenario in the UK is unlikely to be any different.