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Fracking done… for now

Image: Ric Lander

It would be an understatement to suggest that the UK government is in crisis.  Brexit has become a kind of political black hole that is fast consuming the political energy of government and opposition alike.  It seems increasingly likely that the Tories will reap the disapprobation of the electorate – leave and remain voters – both for calling the EU referendum in the first place and then for making a complete dog’s breakfast of the leave negotiations.  In such circumstances, the very last thing on Ministers’ minds is propping up a collapsing fracking industry that has thus far failed to produce a single drop of commercially viable shale gas.

The latest issue to halt UK fracking in its tracks is the series of small earth tremors triggered by Cuadrilla at its Preston New Road site near Blackpool, Lancashire.  As Nathalie Thomas and David Sheppard report in the Financial Times:

“Over the past three months, Cuadrilla has had to stop work at its site near Blackpool on several occasions after fracking tests triggered earth tremors exceeding 0.5 on the Richter seismic scale.

“Francis Egan, chief executive of Cuadrilla, in October claimed that the government’s so-called traffic-light system, which requires fracking work to cease if tremors exceed that level, risked ‘strangling’ Britain’s fracking industry ‘before birth’.

“He said the rules would need to be loosened ‘within weeks’ or the company may never be able to discover if the UK’s shale gas resources are commercially viable.”

In a letter obtained under the Freedom of Information Act, however, energy minister Claire Perry rebuffed Egan:

“Ms Perry… stressed Cuadrilla ‘at no point’ contested current regulations when it developed its plan to frack at the site at Preston New Road, even though its strategy was ‘reviewed over several months’.”

As I noted eighteen months ago in the wake of the Helm Review, the UK government has effectively switched from actively supporting fracking to merely passively supporting it:

“Does this mean that UK fracking is finished?  Far from it.  If – and it is a big if – the fracking companies can secure the private investment required to move from inconclusive small scale test drilling to full scale profitable gas recovery without government support, it is unlikely that the UK government will stand in their way.  But the days when David Cameron and George Osborne fawned over the UK frackers appear to be behind us.”

In 2017 the fracking companies went cap in hand to the government in the hope of securing government handouts to replace private investment as institutional investors like Barclays got cold feet.  It now appears that the frackers have also been unsuccessfully lobbying for a relaxation of the regulations governing UK fracking. Perry’s letter to Egan would seem to confirm that the government will continue to facilitate fracking through the previously agreed planning and regulatory process, but it is not about to squander what little remaining political capital it still has on an industry that has no short term future.  

The underlying problem with UK fracking is simple economics – back in 2010 when Cameron and Osborne decided to hitch Britain’s energy waggon to the fracking industry, oil and gas prices were at an all-time high.  Following the collapse in prices from 2014 – by which time a series of earth tremors had prompted a moratorium on further UK fracking – it became obvious that attempts at fracking outside the USA (which, together with geological and geographical advantage, already had the equipment, personnel and regulatory framework in place) could not produce gas at a price the market would bear.

Aside from potential tax revenues, energy security is the other driver of government policy.  With Britain’s North Sea gas production falling dramatically after the 1999 peak, and with the UK becoming a net importer of gas from 2005, the prospect of developing the 3.7 trillion cubic metres of gas allegedly trapped in the Bowland shale deposit in Northern England appealed to the incoming Tory government.  However, energy security is a double edged sword.  As Heidi Vella at Power Technology points out:

“The issue of energy security is often politicised, which could be in part driving current government policy. For example, much was made of the fact the UK took a shipment of liquefied natural gas (LNG) from Russia during a cold spell last winter…

“However, in reality, the UK’s reliance on Russian gas is only around a meagre 1% of imports, according to reports. On the contrary, the UK has access to diverse sources, including Europe and the Middle East…”

In fact, for some years to come the UK’s main source of gas imports will be from Norwegian fields in the North Sea – which share the same pipeline network as the UK.  In any case, As Vella notes:

“Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, argues that spikes in demand can be managed in other ways; rather than addressing the UK’s over-reliance on gas, building a new industry around it reinforces the problem.

“’There are other ways to manage heightened demand such as by reducing it overall, by making industrial processes more efficient and insulating homes, which could compensate for the shortage,” he explains. “We should be diversifying [away from gas] with more wind farms and solar panels to make it easier to trade energy’.”

The recent global oversupplies of gas – in part due to increased production but also because of the slowing economy – make a strong economic and energy security case against further fracking.  Even if the UK’s shale deposits will one day be needed for energy security reasons, it makes no sense tapping into them today when they will have to be sold cheaply and when the UK has more than enough gas to heat its buildings, run its industries and power its electricity grid.  As the UK government’s energy reviewer, economist Dieter Helm recently pointed out:

“The world is absolutely awash with gas. There’s no shortage of gas globally, including fracked gas from the United States, some of which is being imported into Scotland already. Do we have to produce it ourselves? No.”

With the UK government refusing either to bend regulations or to stump up public funds for an industry that the majority of the electorate oppose, this suggests that the (relatively) small scale fracking operations currently taking place or already approved will mark the end of the current foray into Britain’s shale deposits.  Only if and when the UK is faced with gas shortages and eye-wateringly high gas prices are politicians likely to revisit plans to frack the UK on the scale envisaged by Cameron and Osborne… by which time, of course, the post-Brexit UK economy is very likely to be too poor to afford it anyway.

As you made it to the end…

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