Centrica puts momentum behind UK shale
The UK utility company has bought a 25% stake in Cuadrilla Resources’s shale gas acreage in northern England
Centrica has bought a 25% stake in Cuadrilla Resources’s shale gas acreage in Lancashire, northern England, underlining the potential of the UK’s nascent unconventional gas sector.
The UK utility company said it will pay Cuadrilla and AJ Lucas, which holds 42% of Cuadrilla, £40 million ($62.7m) in cash for the stake.
Centrica said it will also pay exploration and appraisal costs of up to £60m for the PEDL165 licence in Lancashire’s Bowland basin. Following the exploration and appraisal phase Centrica can choose whether to continue with the development phase. If it does then it could pay a further £60m.
“With North Sea gas reserves declining and the UK becoming more dependent on imported gas supplies, it is important that we look for opportunities to develop domestic gas resources,” Mark Hanafin, Centrica’s managing director of International Upstream business, said in a statement. “The Government’s clear commitment to developing the UK’s shale gas industry is creating the right environment for companies to invest and to deliver those benefits.
Cuadrilla operates the licence and has so far drilled three exploration wells. The company said in 2011 there could be 200 trillion cubic feet (cf) of gas in place within its Bowland licence. Centrica said further drilling would be needed to establish whether the discovery is commercial.
The Department of Energy and Climate Change will soon release a long-awaited study on the UK's prospective shale-gas reserves. In the meantime, drillers suggest a shale-gas bonanza is in the cards.
At the end of May, Egdon Resources, another UK independent, said there could be up to 16 trillion cf of shale gas in its East Midlands acreage, equivalent to 12 years of North Sea gas production.
IGas, another firm, said at the beginning of June its licence in northern England could hold 170 trillion cf of shale gas.
If confirmed, the size of the bounty would dwarf the UK’s 1.7 trillion cf of conventional gas resources.
Centrica has been also buying into US natural gas projects to secure supplies for the UK. The company recently signed a 20-year liquefied natural gas (LNG) export deal with US independent Cheniere Energy. Centrica will buy 89bn cf per year of LNG from the Sabine Pass plant in Louisiana starting from 2018.
In April, Centrica and Qatar Petroleum International (QPI) bought conventional natural gas and crude-oil assets from Canada’s Suncor Energy for C$1bn ($980m).
Centrica’s latest move in the UK is timely. A combination of the global financial crisis, tough environmental targets for reducing carbon emissions and the closure of ageing power stations are all expected to tighten supply and may lead to higher electricity prices for consumers, believe some analysts, who predict that about 20% of the country's existing generating capacity will be shut down over the next 10 years.