Britain's bosses back shale gas to cut imports

LONDON Fri Sep 21, 2012 12:36pm BST

A drilling rig is seen at sunset at Grabowiec 6 near the village of Lesniowice, southeast Poland, home to U.S. giant Chevron's first shale gas well in the country, November 28, 2011. REUTERS/Kacper Pempel

A drilling rig is seen at sunset at Grabowiec 6 near the village of Lesniowice, southeast Poland, home to U.S. giant Chevron's first shale gas well in the country, November 28, 2011.

Credit: Reuters/Kacper Pempel

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LONDON (Reuters) - Britain must begin shale gas exploration to ease its growing dependency on imports, the Institute of Directors (IoD) said on Friday.

Without the development of new domestic gas resources, Britain's import costs for natural gas could rise from $8.5 billion (5.2 billion pounds) today to more than $11 billion by 2015 as North Sea supplies dwindle and Norway struggles to fill the gap, Reuters research showed this week.

Britain was a net exporter of gas until 2004, but a steady decline in output over the past few years has made it more reliant on imports, mostly from Norway and, increasingly, Qatar.

The only way to offset the effects of this increasing dependency on imports is to begin shale gas exploration in Britain, the IoD said in a report.

"Shale gas development can counter falling North Sea production, halting the increase in gas imports," the business lobby group said. "It can also help to reduce price rises for consumers."

In the United States, a shale gas boom has resulted in a sharp rise in natural gas production, leading to a collapse in domestic prices and the possibility of the U.S. exporting liquefied natural gas (LNG) by 2015.

The British Geological Survey estimates Britain's onshore shale reserves at 5.3 trillion cubic feet (150 billion cubic metres), which would be enough to meet Britain's gas consumption for one and a half years, though UK shale gas exploration companies such as Cuadrilla Resources have put their figures as high as 200 trillion cubic feet.

However, the IoD said that the development of a shale gas industry in Britain would not be on a scale comparable with North America and that Britain would still face several energy problems.

"Shale gas development does not magically solve all the UK's energy issues," the report said. "North Sea production will still fall, the renewables programme will still increase energy prices for industry, and coal and nuclear will still decline in capacity.

"A mix of power sources is vital, and domestic shale gas is unlikely to account for a majority of the UK's electricity generation, or even of its gas usage. But it could and should play an important role."

The Institution of Mechanical Engineers also published a paper this week, saying UK shale gas reserves would not end the country's reliance on costly and unpredictable gas imports.

ENVIRONMENTAL CONCERNS

Shale gas production, known as fracking, is a controversial technology requiring the use of large amounts of water and chemicals. Environmental groups and large sections of the public oppose using the technology in western Europe, where population density is much higher than in North America.

Bulgaria and France have both banned shale gas exploration. In Britain the technology has yet to receive full government approval.

Environmental group WWF questioned the report's assumptions and said shale gas could increase global warming.

"The fact that estimates currently vary by trillions of cubic feet highlights why we really shouldn't be gambling on shale gas," said Jenny Banks, energy policy officer at WWF-UK.

The IoD report said that the environmental issues associated with shale gas exploration "are not to be taken lightly", but that "good practice can significantly reduce many of these environmental risks".

"Carried out properly and under strict regulation, hydraulic fracturing is safe," the report said.

In the long term, and to avoid the public debate that fracking causes onshore, some geologists say that fracking could move offshore to tap what are believed to be vast reserves in the North Sea.

This, however, would be extremely costly and would require an oil price of far more than $200 a barrel to make it profitable. Analysts say that it would be a back-up option against an oil price spike rather than a viable option of gas supply in the mid-term future.

(Additional reporting by Nina Chestney; Editing by William Hardy)

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