IN HIS BUDGET for the next year, Britain’s Chancellor George Osborne has committed the country to exploring its shale gas future, and the controversial fracking method of extracting it, by offering tax incentives to companies and financial benefits to communities for exploring the potentially massive reserves in the country. With Britain and other European countries paying 300 per cent more for natural gas than the fracking-happy United States, he’s right to promote investment into exploring the potential of Britain’s shale gas basins.
Fracking is an emotively driven environmental issue. There are claims and counter claims about its safety, and the industry has met with considerable opposition in Europe. Many countries have either banned the practice of fracking or have kicked it to touch, awaiting studies – we have three in process – on its impacts. Other countries that have lifted bans, like Britain, are seeing slow progress as local government drags its heels and communities organise to protest the exploration wells being dropped.
Much of the bad image of the industry comes from the country that has most enthusiastically embraced shale gas, the US. The country isn’t best known for its quick and effective regulation of big businesses, and the emerging fracking industry seems to have gotten away with a lot in the US that one can’t see hard line European regulators turning a blind eye to. Improving regulation has been the key to improving safety and satisfaction of locals. A report presented to our own government before they kicked the issue to another three agencies to investigate concluded that with proper safety controls and regulation, fracking doesn’t pose a substantial danger.
Governments have been kicking the issue to touch because it’s politically unpalatable to be touching the issue. I think instead that they should allow the exploration of shale gas to move forward as they are in the UK, with financial incentives for communities sitting atop the fields and close regulation of the industry. The fact is that we need cleaner energy sources to replace the likes of King Coal, and natural gas is a key fuel to aid the reduction in greenhouse gas emissions, producing 45 per cent less carbon dioxide than coal and 30 per cent less than oil.
The upsides of shale gas are massive. People living on top of shale gas reserves can win big with massive leases on land into which wells are sunk; ranging from $500 to $25,000 per acre per month and with royalty fees into the six figures for successful extraction. At a higher level shale gas has been nothing but a positive success story.
The US had practically no fracking industry a decade ago. Now shale gas accounts for a quarter of the gas in the country, and is pushing up towards half in the next decade. The US pays $3.40 per Million British Thermal Units (mBTU) of natural gas. In Europe we pay north of $12, with the spot price sitting at $13.50 during the past week. The supply is so plentiful and the price so low that wells are being turned off in the US to limit supply and drive the price up. There has been a boom in jobs, industry and lower prices for consumers.
There is a debate in the US about whether or not to liquefy and export their gas across the oceans, which would attract better prices for the industry but drive up prices at home. It would cost about $5 per mBTU to liquefy the gas and export it to Europe or – even more attractively – Asia, where they’re paying $20 per mBTU. As a side win, if the US were to export gas to Europe, we wouldn’t be as dependent on the nice people of Russia’s Kremlin-controlled Gazprom.
Industry in the US has been a major winner, with energy intensive manufacturing jobs that previously went to China being kept at home because they’re now competitive with the all the filthy but cheap coal that’s being burned out there.
That’s the other thing about shale gas: It’s a lot cleaner than King Coal, which is the dirtiest but cheapest form of producing large amounts of energy outside of the cheap gas rich US. Oft derided as the country that has refused to sign up to greenhouse gas emission targets, the International Energy Agency has released data to say that America’s carbon dioxide emissions from generating energy have fallen by 450 million tonnes, more than any country over the past five years. Indeed, the country has fallen back 20 years to the level of greenhouse gas emissions produced in 1992.
That has been driven by a rise in natural gas in energy production, rising from 21.6 per cent in 1998 to 29.4 per cent in 2012; where renewable energy has risen from 8.3 per cent to 12.1 per cent. Coal has fallen from nearly half to just 36.7 per cent.
The insatiable energy demands of emerging countries like China, India and Brazil have seen them firing up filthy coal plants left and right. There are currently 1,200 coal plants in planning worldwide, with about three quarters in India and China according to the World Resources Institute. Even cleaner-than-thou Germany – with one of the highest recycling rates in the world no less - is building new coal plants and ramping up production in existing ones to make up for the nuclear power they’re switching off in the wake of Fukushima.
The great energy conundrum of the 21st Century is that we need more energy; we need cleaner energy; and somebody seems to have a problem with every method of producing it. Community groups becoming exercised about fracking are joining the queue behind community groups concerned with the effects of wind farms, national groups opposed to nuclear energy, and nobody wants a big dirty coal, oil or probably even gas fired power plant being built in their back yard.
We couldn’t deploy enough solar panels on our roofs to power the country if we wanted to (though heaven knows if we proposed it then People Against Birds Being Confused by Roofs Full of Solar Arrays would swiftly emerge) and there aren’t enough rivers to dam besides the fact that water management is another big environmental issue.
We’re hurtling towards energy crisis after crisis in the next century. Shale gas could be an alleviating solution on the way to totally clean energy production – which I firmly believe is where the future lays eventually – by making it more economical to burn a cleaner fuel than coal in an increasingly energy hungry world. There’s also the economic benefits of having cheaper gas to burn in our homes and businesses in the short term.
Of course, we’re only discussing exploration at the moment. Maybe we don’t have massive reserves; maybe we do. We need to explore the reserves rather than kick everything to touch for years on end, because those years are becoming finite where energy is concerned. The US went from a standing start a decade ago to reducing its carbon footprint by more than any other country in the world largely thanks to shale gas and fracking. We’ll waste half that scratching our heads and launching reports to gather dust.
If it turns out that, regardless of safety precautions and regulation, fracking will turn our water into a heating solution then fine – we’ll leave it be. But I think if you want to make an educated bet on a good way to secure some cleaner energy for the next few decades, the government could do worse than follow the UK in opening up the market here for exploration.
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