U.K. Government Lifts Ban on Shale Gas Fracking

Britain ended a ban on exploring for gas with hydraulic fracturing, allowing Cuadrilla Resources Ltd. to resume the use of technology that caused earthquakes in 2011.

The U.K. has set up controls to curb the risk of quakes in developing shale gas, Energy Secretary Ed Davey said in London.

“Shale gas could have potential to help the U.K. to diversify its energy mix and provide an indigenous source of gas to support the move to the low-carbon economy,” Davey said.

The government is promoting gas with tax breaks for shale exploration to try to secure energy supplies while replacing aging coal and oil power stations. Prime Minister David Cameron said Dec. 11 the U.K. should be at the heart of a “shale gas revolution.” Critics say the plans push climate change targets out of reach and leave the U.K. at risk when gas prices rise.

Higher gas costs may add more to consumer energy bills than support for clean energy, a government adviser said today in a report. Rising wholesale gas prices would add 130 pounds ($210) to household bills by 2020, from 2011, compared with 100 pounds from spurring renewables, the Committee on Climate Change said.

Hydraulic fracturing, known as fracking, was halted after two tremors at Cuadrilla’s wells in northern England last year. The technique involves pushing pressurized fluids into wells to break apart underground rock formations and unlock gas deposits.

Turning Point

The government will set levels of unusual seismic activity at which operations must stop at a 0.5 magnitude, Davey said. The Cuadrilla quakes were probably caused by frack fluid moving along a fault already under stress, the government has said.

The company said today’s decision was a “turning point for U.K. energy” and it’s ready to push ahead next year with plans for fracking and testing at wells in Lancashire. It estimates 200 trillion cubic feet of gas is in place in the Bowland Shale area. Chief Executive Officer Francis Egan said this had the potential to supply as much as a quarter of U.K. demand.

Fracking has also raised concerns that groundwater may be contaminated by its use of chemicals pumped underground.

The U.S. Environmental Protection Agency in 2011 linked fracking to contaminated drinking water in Pavillion, Wyoming. The agency is retesting Wyoming wells, while industry-funded studies say the technique poses no threat to groundwater.

The government’s critics have warned against a program to build gas power plants while U.K. shale projects are unproven.

Gas Prices

U.K. reliance on gas, including plans for 26 gigawatts of new gas-fired stations, is a “high risk gamble” that hampers a goal of reducing greenhouse gas emissions by 80 percent by 2050, according to WWF-UK. Caroline Flint, who shadows Davey for the opposition Labour Party, said his plan threatens higher prices.

Using gas within a diverse set of resources is “the most sensible” policy and compatible with climate goals, Davey said.

Corin Taylor, senior economic adviser at the Institute of Directors business lobby, welcomed the government’s decision, citing a U.S. shale boom that has cut the country’s energy prices. “We should seek a slice of that pie,” he said.

European shale projects will be more controversial and costly than in the U.S., where public opposition and geological challenges are less pronounced, according to Jonathan Lane, GlobalData’s head of consulting for power and utilities.

The U.K. doesn’t yet know how much gas can be economically tapped, Davey said. The government and British Geological Survey are due to publish a report on shale resources early next year.

The second reading of an Energy Bill to spur investment in gas, nuclear and renewables is expected next week, Davey said.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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