Nick Butler: Could The UK’s Shale Gas Revolution Fail?

  • Date: 24/05/14
  • Nick Butler, Financial Times

The only people making money out of shale gas in the UK are conference organisers and the security industry.

Many revolutions fail. They run out of ammunition or leaders or popular support. We hear a lot about the revolutions which succeed. History is written by the winners. But we hear much less about the failures – the promises of change which don’t materialise.

The UK shale gas revolution, much hyped by the Prime Minister and the Chancellor, is in serious danger of slipping into the second category – a revolution that never quite happened. Despite the publication of an optimistic study of the potential for oil from shale in the South of England there is no guarantee that the resources will be produced.

Last week I chaired the UK shale gas conference in Birmingham – a big event with hundreds of delegates. There is certainly no shortage of conferences on shale gas – two last week, another next weekend. Unfortunately the number of conferences is far outstripping the number of wells drilled. As one cynic put it the only people making money out of shale gas in the UK are conference organisers and the security industry.

The conference was a good event – serious and well informed with a wide range of participants from the industry, academia and local government including sceptics such as Greenpeace. The only problem was the one clear message which came out of the meeting. The promised revolution is postponed.

The industry representatives were clear. Up to 10 wells might be drilled in the UK over the next two to three years. Even that number is far from certain. It is quite possible that no new new wells at all will be drilled during 2014. A small number of applications have been submitted but the full process can take up to a year even before the risk of a legal challenge is taken into account. Ten wells over three years might give us some greater certainty about the potential for commercial development in the North of England. If the prospects look good then the next process begins – the applications for production licences. That could take as long again which means we are looking to 2020 for the first material production.

Of course, the process of development of any new oil and gas province is gradual and takes time. It is commonplace to say that development of the North Sea took five to ten years from discovery to full scale production. But the comparison is false and dangerous. North Sea development was unprecedented and required a technical leap. Onshore shale gas development is established and familiar. No new technology is needed. Most important of all is the difference between the companies involved. The North Sea was developed by the major international oil and gas companies who had deep pockets and a wide portfolio of other assets many of which were producing revenue. They could absorb the costs, uncertainties and failures which go with exploration. It is not clear if the shale gas business in the UK can do all that. [...]It is important to stress that the current delays are not being produced by concerns over safety or by public hostility. The report published two years ago by the Royal Society and the Royal Academy of Engineering demonstrates very clearly that the concerns around the environmental impact can be addressed by clear and effective regulation. Public hostility seems to be fading. On the second day of last week’s conference we were guarded against a single, completely harmless protestor by six security men.

The House of Lords Economics Committee in its report published three weeks ago described the development of shale gas as a national priority with great potential to create wealth and jobs and to enhance energy security. But they also expressed frustration that the potential is not being realised because of the lack of any sense of urgency in Government. Proposals for clarifying the law on access have not been published. Offering small bribes to local communities is irrelevant.

The problem is the regulatory process, which has not been unified and streamlined. In Whitehall responsibility is split across at least four different Departments. The result is a mire of bureaucracy with no apparent political will to get development going. In the commercial world that is how revolutions fail.

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