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UK shale sector seeks revival

Sentiment towards fracking remains lukewarm

Cuadrilla Resources, Ineos and Third Energy are among the firms hoping to start hydraulic fracturing in the coming months. They've weathered protests and litigation over the potential environmental impact of hydraulic fracturing and drilling infrastructure since 2011. Earth tremors that year prompted the cessation of drilling by Cuadrilla Resources at a site in Lancashire, northwest England.

Since then, no hydraulic fracturing has taken place in the UK. But that could be about to change—if only in England and Wales, with a moratorium on fracking in Scotland, imposed in 2015, still in place.

Legal claims aimed at overturning a government decision to allow Cuadrilla to use fracking at its Preston New Road site in Lancashire were dismissed by the UK Court of Appeal in January. That paved the way for exploration to restart. Cuadrilla has already been doing test drilling, without using fracking, and has issued upbeat assessments of what it has found.

"We are very encouraged by our early analysis of the data and confident that there is a very sizeable quantity of natural gas in the Bowland Shale," the company's chief executive Francis Egan said. Cuadrilla expects to start hydraulic fracturing in the second quarter of 2018 and will test the flow rate of natural gas for around six months after that.

Another drilling firm, Third Energy, which is 95% owned by Barclays, is waiting for government approval for fracking to begin at its site at Kirby Misperton in Yorkshire, northern England.

Ineos, which has exploration licenses in northern and central England, said in January it was taking legal action in a bid to have the Scottish moratorium overturned. The company owns the Grangemouth petrochemicals and refining complex near Edinburgh and wants to use nearby shale gas reserves to provide feedstock for it.

The British Geological Survey estimates that the Bowland-Hodder shale, which stretches across a swathe of northern England, could contain 1,300 trillion cubic feet of gas. If the explorers could produce from even a small fraction of this it could make a significant contribution to the country's energy supply. The UK wants to use gas as a bridging fuel, while renewable energy production is ramped up and energy storage is improved.

The country consumed around 2.7 trillion cf of gas in 2016, around 12% higher than the previous year, while indigenous production stood at 1.45 trillion cf, around half what it was 10 years earlier, according to BP data, published in 2017.

But, while the drillers play up their prospects, they're struggling to get full-blooded support from a UK government that's focused on Brexit negotiations and whose position on shale-gas drilling seems ambivalent.

The government's official position is that shale gas can play a valuable role in the UK energy mix, if companies can make the economics stack up. "Shale gas can enhance our energy security, provide economic growth and be an important part of our transition to a low-carbon future," the Department for Business, Energy and Industrial Strategy says on its website.

However, there was no mention of shale gas in the UK's Clean Growth Strategy, published in October, and no measures to support it in last November's UK budget statement. That suggests, perhaps, that Prime Minister Theresa May's government may consider high-profile support of shale gas a potential vote loser, given continuing public mistrust—or that it feels alternatives, such as liquefied natural gas, may prove more attractive.

Recent government action has focused on greater regulation of the industry rather than giving it a helping hand. Technical and environmental requirements have been tightened up since 2011, and now their finances are coming under scrutiny.

Third Energy, which has satisfied the government of its technical competence, could fall foul of this more robust approach to finance, as by the end of January it had failed to submit financial accounts for calendar 2016, four months after the statutory deadline. Clark said he needed more information on the company's finances before giving the go-ahead for drilling.

The industry may feel that the benefits to energy security that domestic shale gas—if it can be produced relatively cheaply—may be being underestimated, at a time when North Sea gas output is on the wane. But it's a difficult argument to make, politically, in an era of copious international pipeline gas and LNG supply to the UK.

The protestors haven't gone away either, but drillers will be hoping that their efforts to woo the local populace in the areas where they plan fracking, through community initiatives and financial compensation, will reduce the potential for further setbacks. More importantly, if they can show that they can provide reliable, affordable homegrown energy supply, with a minimum of environmental impact, then political and public support may just swing behind them.

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