Frack to the future as Centrica bids for shale gas

British Gas owner Centrica is reportedly negotiating over new drilling rights in Lancashire, with a view to getting a head start in the shale gas revolution.

by Andrew Saunders
Last Updated: 30 Jul 2013

It is said to be in talks with exploration business Cuadrilla to buy a stake in its claim in Lancashire’s Bowland Shale, an area reckoned to contain some of the greatest potential reserves of shale gas in the UK.

Cuadrilla, you will remember, is the business which got into hot water over a couple of years ago over claims that its tests of the controversial fracking technique – which involves pumping water at high pressure deep underground to fracture shale rocks and release the gas trapped within - had caused earth tremors in the nearby resort town of Blackpool.

The news comes just days after another shale gas exploratory outfit, iGas (no it’s not a chat app for your iPad despite the name), bullishly revised estimates of its own shale gas reserves (it hold licenses covering 300 sq miles of Cheshire) upwards by a factor of around 10. IGas now reckons that it could be sitting on between 15 – 170 trillion cubic feet of gas in Lancashire, with the ‘most likely scenario’ being around 100 trillion cubic feet. Given that the annual UK gas consumption stands at some 3 tcf, that’s not to be sniffed at.

But  as the only firm to have actually fracked any gas in the UK so far, Cuadrilla has to be the most likely contender to land a big fish like Centrica. Indeed, this is precisely the sort of ooutcome that Cuadrilla’s owners (Aussie mining outfit AJ Lucas and private equity group Riverstone Holdings) must have had in mind when they set it up. It would also be a personal coup for Riverstone’s chairman and ex BP top dog Lord Browne.

Of course, shale gas remains a controversial subject. On the one hand, against a background of rising gas prices, dwindling north sea supplies and the UK’s history of hamfisted energy policy, it looks like a godsend which might just help keep the lights on (see this feature from the latest issue of MT). On the other, fracking itself is a much more complex and expensive business than normal gas extraction, and can result in all kinds of collateral difficulties if not done properly – earth tremors and potential contamination of the water table being two of the best documented.

Then there’s this optimistic talk of huge reserves. It all helps get the punters juices flowing of course, but the reality is likely to be that only a small fraction of the theoretical shale reserves will actually turn out to be extractable.  And unlike the large, empty expanses of much off the US, where shale gas revolution really has made an impact on energy prices, the UK is a small and densely populated island where the logisitics of extraction will prove testing.

Despite all that, the news that a Big Six energy firm may be on the point of signing up for fracking does mark a significant shift in the industry’s fortunes. It may not turn out to be quite the revolution some are hoping for, but shale gas’s days as a cottage industry in the UK may be drawing to a close…

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