UK shale gas firms plan make-or-break drilling effort

LONDON Thu May 2, 2013 4:03pm BST

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LONDON May 2 (Reuters) - Britain's shale gas companies plan to drill at least 20 to 40 exploration wells over the next three years to test the production potential of newly discovered deposits, making or breaking hopes of a full-scale drilling boom.

The next few years will prove critical for an infant industry that sees itself as vital to reversing Britain's rising dependency on foreign gas but which must tread carefully in order to reassure a skeptical public and vocal environmental lobby.

"Around 10 companies at present are looking at drilling 20 to 40 wells before 2015. Some of these will be plain vanilla exploration wells and some will be hydraulically fractured," Ken Cronin, chief executive of the UK's Onshore Operators Group, which represents shale companies, said in an interview on Thursday.

Many countries including Britain want to follow the example of the United States, where surging shale gas production has transformed its energy market, lowered prices and drastically cut imports.

Shale gas is ordinary natural gas that is trapped in dense rock formations. It is retrieved through a controversial process known as hydraulic fracturing or fracking, whereby water and chemicals are pumped deep underground to prop open rocks, which leads to fears it could contaminate drinking water.

A preliminary estimate by the British Geological Survey puts recoverable shale reserves at around 5.3 trillion feet, enough to meet national consumption for about 18 months.

A year-long ban on drilling was recently lifted after the government imposed more stringent rules on fracking to reduce any risk of earthquakes.

Drilling companies will include Cuadrilla Resources, IGas , Celtic, Dart Energy, Egdon Resources , Third Energy, Reach, Europa, Aurora and Rathlin among others, Cronin said.

Although Britain expects to issue an upward revised estimate of its shale gas resources in the next few months, companies must drill appraisal wells in order to see how much of that total amount can be recovered commercially, Cronin said.

"Only when those exploration wells are drilled will we know the scale of the UK's potential production," he said in an interview.

Although many doubt that UK shale development will come anywhere near U.S. rates, it could conceivably reduce dependence on foreign energy and help moderate the forecast trend of rising prices.

"Aside from the tax benefits to the Exchequer (UK's finance ministry), shale gas could provide an anchor to UK gas prices when prices in Europe, which are linked to the cost of crude oil, start to rise," Cronin said.

CHARM OFFENSIVE

Unlike in the United States where private landowners receive royalties from shale gas production, in Britain mineral rights belong to the crown, a fact that helps explain greater opposition to fracking by local communities.

In a bid to win over the public, politicians this week raised the possibility of giving residents near shale exploration sites access to cheaper gas supplies.

"It is true that some onshore wind farm operators offer local residents discounted electricity supplies, but that is only in cases where the energy supplier (utility) also owns the wind farm," Cronin said.

"None of the shale gas explorers are linked with utilities, so it would be difficult to offer residents a similar deal," he added.

One option raised by the UK Parliament's Energy Select Committee envisages that shale gas companies paying business tax rates directly to local councils, instead of the UK Treasury.

"The council could then use that money to give residents a rebate on their council tax, if it so wished," he said.

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