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Fracking boss hints at profitability concerns

Speaking at the UK Northern Powerhouse conference in Manchester earlier this week, Cuadrilla CEO Francis Egan tacitly acknowledged that there was no guarantee that hydraulically fractured UK shale gas would be profitable.

In the course of a presentation to promote UK fracking, Egan claimed it would be madness for the UK to choose to ship liquefied gas from Qatar and the USA rather than developing it here… provided that this could be done at a cost-effective price.  However, Egan conceded that the industry would only know if shale gas can be extracted commercially after test drilling is complete:

“If, and it’s still an if, it is then we are looking at multi-decades of gas supply and multi-billion pound investment opportunities in energy across the North of England.” (My emphasis)

As I have pointed out before, academic experts argue that it will require 20-30 test wells (costing around £10 million each) just to determine whether any of the gas under the ground can actually be recovered.  Even then, to actually recover even the lowest estimates of recoverable reserves will require another 15,000 to 20,000 wells; inevitably resulting in big increases in the cost of drilling.

In the end, whether fracking goes ahead in the UK will depend upon the price that gas can be sold for.  At current wholesale gas prices, fracking is unprofitable in all but the sweetest spots in the USA, where companies enjoy all of the advantages.  But in the UK, where some 3.2 million households are already experiencing fuel poverty, prices high enough to make fracking viable in the short-term are likely to so crush demand that people will simply disconnect themselves.  As the energy industry has discovered with oil, high prices simply cannot be sustained for long enough because the economy is too weak to afford them.

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