Utilitywise plc

Frack to the future

Blog post   •   May 24, 2016 11:26 BST

What is fracking?

Fracking is short for hydraulic fracturing. It is the process of extracting gas from the ground using a highly pressurised mixture of water, sand and chemicals. This concoction is injected into layers of rock to release the gas inside.

Hydraulic fracturing is not simply a drilling technique, but a means for enhancing the production of oil and gas reserves, from both new and existing oil and gas wells. Use of a high pressure water mixture injected into rock formations, both vertically and (more commonly) horizontally, creates small fractures within the rock. This allows for previously untapped gas and oil to be released and extracted. Carried out at depths typically between 5,000 – 20,000 feet, fracking is required to enhance the permeability of the more unconventional shale rock and allow for a
more efficient flow of natural gas and oil.

Commercial Development

The process has been commercially operational in the United States since the 1950s and commonplace in the North Sea since the 1970s. However, fracking has only recently attracted nationwide attention, following the application for shale gas exploration licenses across the UK.
Shale gas reserves have been identified across the UK, particularly northern England, with exploratory drilling being carried out since 2007; however no fracking has taken place as yet. Whilst the UK has so far refrained from fully embracing the technology due to their environmental concerns, recent studies have shown the potential for substantial energy production. Precise figures on shale gas reserves are difficult to obtain, however, estimates from the British Geological Survey have suggested around 1,300 trillion cubic feet of shale gas in the north of England alone, double the quantity previously thought to be available. Extraction estimates of 10% would generate an energy boost for the UK of 130 trillion cubic feet, enough to power the nation for the next 50 years.

One major concern for the UK is that as yields from wells decline over a very short timescale, a large number of new wells are required to maintain production. This issue may be more problematic for the densely populated UK, than those experienced in sparse US states such as North Dakota.

An American success

In the United States, where fracking is more advanced, there has been a raft of economic benefits from the increased gas yields, which supporters believe the UK could emulate. By 2012, the United States had surpassed Russia as the world’s largest producer of natural gas, helping to drive down US gas prices to less than a third of the gas prices in Europe. The resulting energy boom has bolstered the manufacturing sector, generated over 2 million new jobs and added $75 billion in tax revenues. Overall, shale gas reserves in North America are estimated to provide energy security for 100 years.

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Recent progress

The controversial process of fracking is set to remain at the forefront of energy conversations in 2016 as the UK Government presses ahead with plans to utilise the process.
The identification of new shale gas reserves since 2013 has the potential to provide energy security across the UK for the next 50 years. However, concerns lie in the controversial method of extraction. Fracking in the US began amidst a backdrop of environmental protests. Two years on from the initial UK discoveries, the Conservative Government has pushed forward with plans to develop a shale gas industry as energy security becomes the focus of policy ahead of decarbonisation.

Government support to win over divided public

The Government remains supportive of the fracking process, with both Prime Minister David Cameron and Energy Secretary Amber Rudd reiterating their support for the technology. Public opinion on fracking remains divided, with opposition citing environmental concerns. Despite this, the Government progressed plans last year, with 2015 seeing a rise in new licences for onshore exploration. Fracking under National Parks was permitted and the Infrastructure Act 2015 outlined a range of controls and safeguards on the process.

Under the new legislation fracking is now permitted under homes, without consent, and the definition of hydraulic fracturing was clarified:

“Associated hydraulic fracturing” means hydraulic fracturing of shale or strata encased in shale which –
(a) is carried out in connection with the use of the relevant well to search or bore for or get petroleum, and
(b) involves, or is expected to involve, the injection of –
(i) more than 1,000 cubic metres of fluid at each stage, or expected stage, of the hydraulic fracturing, or
(ii) more than 10,000 cubic metres of fluid in total.

The scale of the UK shale gas reserves suggests potential energy security for the next half a century, reducing dependence on imports into the UK. As pressure increases on the UK’s domestic gas supplies, Government support for the technology grows in a bid to strengthen the nation’s energy diversity. In an attempt to boost development and investment in the industry, where public unease continues to delay plans, the Government has introduced a number of reforms. These include tax incentives and the streamlining of the licensing process, as well as providing community benefits and revenue shares to the local areas affected by shale gas extraction. Meanwhile, ministers announced their intention to intervene on planning applications if local authorities fail to act quickly enough. The slow rate of progress on exploratory drilling has frustrated the industry, with applications in Lancashire delayed by 16 months after being rejected by the county council.

Conservative energy reset

Amber Rudd vowed to “reset” the UK’s energy policy in a speech in November 2015, with the new Conservative Government placing energy security above all else. With the UK’s fleet of coal plant to shut down by 2025 at the latest, and subsidies slashed for wind and solar generation, the UK Government has by default made gas-fired power stations a priority, alongside new nuclear build. A consultation will also be launched on maximising fossil fuel production in the North Sea.

Environmental impact

Environmental concerns feature prominently in any debate over the fracking process with issues of groundwater contamination from the methane, carcinogens and toxins used in the hydraulic mixing fluid prominent. Concerns have also been raised over the required water usage for the fracking process. With up to eight million gallons of water needed, this could result in a potential supply concern for sites in the drier South-East of England.

The effects of shale gas extraction on carbon emissions vary with supporters citing carbon reductions from switching to natural gas over coal. Opponents argue fracking will prolong the nation’s dependence on fossil fuels, preferring emphasis to be placed on clean renewable energy instead.

Following concerns over minor tremors from exploratory drilling in 2011, the UK Government suspended fracking for nearly a year, until an investigation by the Royal Society concluded the potential for earthquake or contamination to drinking water was very low risk. It then went on to recommend fracking for international development. Concerns over the environmental impact of the process led to a moratorium being put in place, banning fracking in Scotland, Wales and Northern Ireland until sufficient research is undertaken on the environmental impact. However, no such legislation has been introduced in England, despite opposition from the Labour Party.

Public opposition and environmental concerns are just two obstacles the industry must overcome in the early stages of its development. While the UK Government at present seems committed to its future plans for utilising the reserves, there remains questions over the viability of the process.

Risk and reward

The rewards from fracking are potentially highly lucrative, with a swathe of new supplies boosting energy security and reducing the UK’s dependence on imports to meet demand. However, current gas prices are at multi-year lows with oil prices at their lowest levels since 2004 amid a global supply glut. The oil producing cartel OPEC continue to flood the global market with supply outstripping demand with the implicit intention of driving US shale oil and gas out of the market, and protecting its market share.

Shale production costs in the UK would be high as the industry fully develops with heavy initial investment required. The additional output to an already oversupplied market could unintentionally drive prices to levels which make production uneconomical. This would place questions on the viability of shale gas production, particularly given the hefty environmental costs required to get the industry off the ground.

An uncertain future

The upcoming years will likely see further developments in the growth of the shale industry in the UK as the Government presses forward with plans to provide energy security at an affordable cost to consumers. A raft of challenges awaits them environmentally, politically and from the general public. Furthermore, even once stablished, the industry would be at the mercy of global markets, threatening the affordability of the process from day one.

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