LONDON (Reuters) - Britain’s bid to exploit shale-gas deposits was boosted on Thursday as utility Centrica Plc bought a quarter stake in a major gas-bearing formation in northern England, ahead of expanded drilling next year.
Shale gas has helped transform the U.S. energy market, lowering gas and coal prices, and offers Britain, Europe’s biggest gas user, a means of bolstering its falling natural gas production.
Centrica, parent of British Gas, paid 40 million pounds ($62.8 million) for 25 percent of the Bowland Shale in Lancashire, owned by license operator Cuadrilla Resources and its Australian private-equity backer A.J. Lucas.
Britain’s biggest energy provider will invest 60 million pounds in developing Cuadrilla’s Bowland licenses and a further 60 million depending on production and exploration tests.
“This is a big step forward for shale in Great Britain and starts to move it beyond the speculative,” said Richard Sarsfield-Hall, principal consultant at energy consultancy Poyry.
The deal marks Centrica’s first-ever shale gas exploration project after it recently branched out into liquefied natural gas (LNG) imports from the United States and Qatar to offset rapidly declining North Sea production.
“This gives us an option of going into shale at a good price to establish what’s down there,” a Centrica spokesman said.
“A lot of people are saying that sounds quite cheap, but that’s because we’re buying into an exploration licence rather than buying gas in place,” the spokesman said.
Cuadrilla previously said its Lancashire licences could contain as much as 200 trillion cubic feet of gas-in-place, although recoverable volumes are expected to be significantly smaller.
Britain’s energy ministry expects to update domestic shale gas recovery estimates by the end of July, in what is widely expected to be a major upgrade. But experts say only exploration drilling can determine the extent of recoverable deposits.
Although shale gas is ordinary natural gas trapped in dense rocks, it is retrieved through a controversial process known as hydraulic fracturing, or fracking, whereby water and chemicals are blasted deep underground to prop open rocks.
Some environmental groups say the process is unsafe and could contaminate drinking water supplies.
Last year Britain lifted a ban on fracking imposed after Cuadrilla triggered two small earthquakes near Blackpool, northwest England, during exploration drilling.
Britain’s growing dependence on foreign gas comes at a time when the government’s plan to build a fleet of nuclear plants is delayed due to disputes over high construction costs with French developer EDF Energy.
“If you’re asking me would I rather Centrica put money into that type of exploration, or into building new nuclear plants, this is a very sensible allocation of capital,” said Harold Hutchinson, utilities analyst at Investec.
“It’s a boost for UK shale gas,” Hutchinson said. “For (Centrica) to throw their hat in the ring is a net positive.”
Cuadrilla also announced an accelerated exploration drilling program in the Bowland formation, with at least six additional wells planned from next year, chief executive Francis Egan said in an interview.
Egan said Cuadrilla was not holding talks with any other investors, ending months of speculation concerning other buyout partners.
Additional reporting by John McGarrity; Editing by Jane Baird and David Holmes