It’s the economics, stupid

From politicians to protestors, the debate that is being had about shale oil & gas in this country is anything but informed.

Those talking about shale use both the best and worst of the US industry’s experience to support their arguments either for or against development of unconventional resources here in the UK.

However, the US is not just a different country, it is an entirely different continent. Its geology is so vastly different from what lies beneath the British countryside that it is absurd at this stage to make comparisons between the two.

So few test sites have been drilled that it is as good as a guessing game as to whether shale reserves can be economically extracted

I say at this stage because, as the leader of the British Geological Survey’s unconventional oil & gas team points out in our November issue’s cover feature, we currently have so little information to work with. So few test sites have been drilled that for the vast majority of the country it is as good as a guessing game as to whether shale reserves can be economically extracted.

The only way to find out whether they can be extracted is to ramp up the amount of drilling that takes place.

Local communities need to be assured that such exploratory work does not commit them to a well for the next 25 years, that they are merely fact-finding missions.

For those opposed to shale development, for whatever reason, allowing the drilling of a test well could actually be a way of removing uncertainty once and for all: with UK shale lying much deeper and in more complex geological formations, it is likely that many areas currently highlighted as having the potential for shale oil & gas development will simply be ruled out on economic grounds.

Those project economics could become even more stretched as developers escalate the community payments they are willing to make to ensure a project receives planning approval: Ineos’ announcement in September that it would offer 6% of its shale revenues to landowners and local communities was given the cold shoulder by its competitors, and understandably so.

With higher levels of environmental regulation than the US, reserves that are more complex and costly to get to, adding US-style community payments could well be the final straw that breaks the economic case for shale gas development in the UK.