New U.K. Report Gives Cautious Green Light to Shale Gas Development

Shale gas is a relatively recent topic of discussion in the House of Commons.

The rapid development of shale gas in the U.S. has inspired a good deal of speculation about whether, when and how the so-called shale gas revolution will go global. In a report released earlier this week, the UK House of Commons Energy and Climate Change Committee concludes that while the UK could have significant a shale gas resource, it is unlikely to represent a game changer in the British energy portfolio. Nonetheless, the report finds, shale gas could present a useful additional source of natural gas, and one that can be produced with without major environmental risks if strong regulations are put in place.

In the UK, where the first shale gas well was hydraulically fractured this March in Lancashire, the government has tended to be slightly more supportive of shale gas development than others in Western Europe. France has placed a moratorium on hydraulic fracturing until additional reports on its environmental risks are completed, and its lower house of parliament approved a permanent ban on the practice on May 11. The Senate will consider the ban in June. The German state of Nordrhein-Westfalen has asked ExxonMobil to cease test drilling and hydraulic fracturing activities while a government-commissioned study on potential environmental risks is completed.  Elsewhere in the world, the governments of South Africa and the Canadian province of Quebec have all taken measures to halt shale gas development until public concerns over hydraulic fracturing have been investigated. All of these countries will be eagerly anticipating the U.S. Environmental Protection Agency (EPA) study on hydraulic fracturing, which is not expected to be released in its final version until 2014.

The point of these moratoria is to buy decision-makers time: time to better understand the environmental risks associated with shale gas development, time to put adequate regulations in place, and time, perhaps, for some of the political rhetoric about shale gas and hydraulic fracturing to be dialed down. The British Energy and Climate Change Committee’s report, by contrast, finds “no evidence that the hydraulic fracturing process itself poses a direct risk to underground water aquifers,” pointing instead to failures in gas well integrity as the source of water contamination. “We conclude that,” the authors write, “on balance, a moratorium in the UK is not justified or necessary at present.”

Still, the report cautions against unmitigated optimism about shale gas, from either an energy supply security or low-carbon energy point of view. While a recent study from the U.S. Energy Information Administration estimated that the United Kingdom could hold 20 trillion cubic feet of technically recoverable natural gas in shale formations, perhaps enough to “help the UK increase its security of supply,” the report concludes “it is unlikely shale gas will be a ‘game changer’ in the UK to the extent as it has been in the U.S. In addition, according to the report, the UK’s higher population density and stricter environmental regulations compared to the U.S. will mean that shale gas development will have to be more carefully regulated.

Finally, the report argues, “The Government needs to be cautious in its approach to natural gas as a transition fuel to a low carbon economy. Although emissions from gas power plants are less than from coal, they are still higher than many lower carbon technologies.” With EU member countries obligated to generate 20 percent of their electricity from renewable sources by 2020, some are concerned that new supplies of low-cost gas could undermine those targets.

Nonetheless, it seems unlikely now that natural gas production from shale formations in Europe will ramp up anywhere near as quickly as it has in the United States. Though some have argued that Europe can springboard off of the technological and scientific progress that the U.S. natural gas industry has made, the moratoria that have been put in place over the last year suggest that for many governments, the U.S. experience is as much a cautionary tale as a game-changing success story. And although this new House of Commons report lays out a clear path forward for shale gas development in the UK based to a significant extent on information from U.S.-based sources, it implies that major differences in the two countries’ physical and political landscapes make the prospect of an American-style shale gas boom not only unlikely, but even undesirable.

As more major international natural gas companies enter the shale gas business, they should consider the import of the global attention that is focused on the Marcellus Shale states of New York and Pennsylvania. The industry may find it difficult to move development forward quickly in other parts of the world if it cannot demonstrate that it can resolve concerns that local communities in the U.S. are raising about the environmental risks associated with shale gas development.

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