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Fracking Remains Light Years Away for the UK

energy newsWith the news still resonating that DECC have moved to secure an amendment to the Infrastructure Bill absolving fracking companies from seeking permission from landowners to drill below their land, British householders can only look on with envy and no little trepidation when seeing America’s recent shale experience.

The US has seen and delivered a shale bonanza over recent years, almost single handedly decoupling it from the global energy complex and the reliance on other countries’ indigenous energy reserves.

Indeed 20,000 wells have been drilled in the last year on American soil opening up huge volumes of untapped reserves.

Not only that but the owners of the land on which the drilling has taken place have become extremely rich as a result, it’s no surprise therefore that the ‘shale revolution’ has been described as the second oil boom.

Sadly for the UK however such a boom will simply mean 20,000 wells on privately owned land, no compensation and no chance of striking it rich, all the while having their trespass rights infringed.

That is because unlike in the US in the UK mineral rights are owned by the Crown, not individual landowners.

However one company keen to get in at the outset of any extraction boom, Ineos, the chemicals giant, has proposed to return 4% of revenues from fracked sites to the landowner and a further 2% to the local community.

Whilst that might not promise US levels of oil wealth, it certainly goes some way to make up for the disruption and traded property rights that fracking promises.

Not only that but Ineos have gone to great lengths to portray a responsible face in ensuring that shale gas can be “safely extracted in an environmentally responsible way”.

The only thing is the rest of the industry doesn’t really like the idea, much preferring the mooted 1% compensation on offer from the government’s policy.

Ken Cronin, the chief executive of UK Onshore Oil and Gas (UKOOG) the fracking trade body, said:

“Ineos has a very important role to play in the development of natural gas from shale in the UK. UKOOG, on behalf of the onshore oil and gas industry, looks forward to discussing Ineos’s proposal [to share 6% of revenues].

“To be clear, Ineos’s proposal relates to the production phase of natural gas from shale, which is still some years off, and the focus in the next few years will be drilling exploration wells and determining how much of the gas underneath licence areas is economically recoverable.”

In describing Ineos’ plan as a “giveaway” Cronin again reiterated that the hoped for energy boom from fracking and the expected downwards pressure on the cost of energy was a long way off with the UK firmly still in the exploratory phase. Drilling wells simply to determine if fracking, to release shale gas is economically viable. Something that even now, after all the furore, is far from proven.

Ineos’ ‘secret’ though is that theirs is not simply a plan of extraction and retailing taking a margin on such activity, instead their businesses are already major users of gas sourced from shale and have been voracious importers of cheap US gas enabling it to reduce the cost of its operations and deliver greater benefit to it’s shareholders.

The sums done suggest that Ineos could afford to share £2.5 billion over the life of its shale business with affected landowners and that the attractiveness of such a commercial proposition could overcome the current inertia towards the fracking industry.

That said, the biggest take-out from this proposal is not the potential for the landowners to share in the wealth created by fracking (despite the government’s best efforts) but the fact that any material benefit from shale gas extraction is many many years away.

The much vaunted energy ‘glut’ that fracking proponents have long promised is no closer to being realised. Protest or not, the viability of fracking in the UK has simply not yet been proven and as a result UK consumers will be waiting a very long time before a revolution as seen in the US is experienced on these shores.

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