In face of intensifying local opposition?
By Don Quijones: The United Kingdom has had to wait a long time for its shale gas revolution to ignite. According to the government and industry insiders, the extraction of the country’s shale gas deposits will bolster its energy security, drive down national energy prices and provide much-needed funds for local communities.
Yet despite the government’s every effort to kick-start the industry, including tax breaks, payments of £100,000 [nearly $170,000] per site, plus a 1% share of revenue to local communities, there is still no fracking in the UK. The so-called gas revolution continues to fizzle.
But that could be about to change. In the last few days the government has announced plans to fast-track applications for shale gas projects. As the BBC reports, the move comes on the back of attempts by a number of local councils to block applications on environmental or health and safety grounds, setting the stage for a battle royale between national government interests and the rights of local communities:
Councils will be told they must rule on applications within the current 16-week statutory timeframe (DQ: almost certainly giving civil servants not enough time to perform a through cost-benefit analysis). If they repeatedly delay, ministers might take over the power to decide all future applications in that local area.
Environmentalists say it makes a mockery of the government’s promise to give power to local people.
The government says it will take local views into account, but that developing shale gas is a national priority that must not be held up.
The government also issued 27 licenses to frack on land across the country – in particular in the Midlands and the North.
This could be a risky move, given the specter of rising public opposition to shale gas extraction. In May a survey conducted for the Sunday Times showed that, provided with a description of how the process works as well as some of its potential benefits and risks, 43% say fracking should not be allowed to happen in the country while a third think it should. This represents a significant change in sentiment: just two years ago the same survey found that as many as 44% of British people supported the use of fracking and only 29% were opposed.
Intensifying local opposition is just one of myriad problems facing the fracking industry in the UK:
1. Zero Compensation. One of the main reasons shale oil and gas has been feasible in the U.S. is that landowners who own the mineral rights of their property get a handsome cut of the action, which compensates them for the perhaps irreparable environmental damage fracking leaves in its wake.
In the UK, by contrast, the State owns all rights to all valuable minerals under people’s property, including gold, silver, coal, oil and gas (read: To Launch Fracking in the UK, Property Owners Get Shafted). In an attempt to sweeten the deal, the UK government has promised that local councils will receive some money from the drilling rights. But it’s unlikely to sway public opinion. After all, there’s a world of difference between hard cash in your own wallet and a derisory amount of money in the local government’s coffers.
2. Population Density. Most of the countries that have seen extensive shale gas exploration and extraction have low population densities. They include the U.S. (83 inhabitants per square mile), Argentina (37 per square mile) and Canada (8.3 per square mile). By contrast, the UK has a population density of 660 inhabitants per square mile.
This means that a considerably larger proportion of the population will be exposed to the side effects of fracking (while, of course, receiving no compensation). Rural Britain would have to undergo a massive makeover as large tracts of pristine agricultural or public park land are outfitted with pipelines, storage tanks, sluice pits, and all the added infrastructure needed to support them.
3. Terrible Timing. The current economic reality is hardly favorable for the mass extraction of shale gas. Current gas prices, at 38 pence ($0.59) per therm, are so low that fracking in the UK would only be financially viable if the government offered the industry huge taxpayer-funded subsidies, under the very noses of an increasingly hostile public.
In a 2013 submission to Parliament, Bloomberg said it would cost between 47 and 81 pence per therm to extract shale gas in Europe (using USD-to-GBP conversion rates). More to the point, those prices do not include the potential additional costs of building local pipelines and processing equipment to get gas to market.
According to a study by the Oxford Institute for Energy Studies, shale extraction would probably be even more expensive, costing between 49 and 102 pence per therm. Even the British energy giant Centrica, which backs UK fracking firm Cuadrilla, predicts that it would cost a minimum of 46 pence per therm to frack.
In each of these scenarios, the price of fracking is significantly higher than the current price of gas. And according to many projections, it’s likely to stay that way for years to come.
4. Mind the Debt Gap. To fund the development and extraction of shale gas and oil in the U.S., energy companies have relied on ever-expanding, dirt-cheap credit. Now, the era of massive credit expansion has ended and the bust phase of the classic boom-bust cycle has begun. As a result, growing numbers of overleveraged and cash-flow negative energy companies are unable to cover their costs – a situation that is sharply exacerbated by cascading global oil and gas prices.
Yet even as U.S. drillers are increasingly getting caught up in a liquidity death spiral, the Cameron government and energy lobby are determined to repeat the exact same experiment in the UK, a country with much poorer-quality gas deposits, no extraction or distribution infrastructure to speak of, stringent European environmental standards, and a much more hostile public.
As Paul Stevens, a distinguished fellow at the energy, environment and resources department at Chatham House, pointed out in an article for The Guardian (since removed, link here to the original paper), even if the UK experienced a shale gas revolution it would not bring prices down, as it has done in the US. Nor would it bolster the UK’s energy security, given that the UK’s largest gas companies much prefer to export to more expensive European markets such as France and Germany.
All it will likely achieve is to make a few hyper-connected companies and investors fabulously rich (in the short term, of course) while alienating the vast majority of Middle England, including many of the government’s own supporters, and setting in motion yet another insane debt cycle. It’s hardly the basis for a sustainable revolution.
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