LONDON: A significant new investor in Britain’s shale industry suggests there are prizes to be had, but big oil companies are unlikely to cough up serious funding until they have more reassurance about the size and shape of UK reserves and regulations.
British Gas owner Centrica is in talks with driller Cuadrilla about buying a stake in its north-west England field, a source with knowledge of the discussions told Reuters yesterday, renewing speculation about whether Britain can follow the United States into energy independence by using shale.
Europe’s largest gas consuming nation could have shale resources of more than 200 trillion cubic feet (tcf) according to some estimates, which a recent Institute of Directors’ report said would require investment of up to £3.7bn ($5.69bn) a year.
But funding for exploration has been very limited, not least because it is not yet known whether the estimated resources will produce gas that can be produced commercially. Cuadrilla has drilled only one well so far to explore for UK shale gas.
Add to that complicated licensing laws and a lack of clarity about government tax incentives, and names like Shell and BP, which helped pioneer Britain’s other great hydrocarbon resource the North Sea, are concentrating elsewhere.
Contacted yesterday, both companies referred to earlier statements made by top executives on UK shale. “It is not an area where we have been involved in, and it doesn’t mean we won’t be in the future, but it has not been a focus for us,” BP chief executive Bob Dudley said in at the company’s AGM in April.
Shell’s chief financial officer Simon Henry said in May that the company would not rule out looking at the UK if it reaches similar levels of potential attractiveness as other shale areas in the US, China and Ukraine. “Do we want to be first in and be in the headlines every day in the UK? Your answer is we are not. There are much higher priorities and more attractive opportunities,” he said.
RED TAPE, SMALL PLAYERS
For some big players, their recent experience in Poland — the last big European development hope — put them off the region. Initial reserve estimates were revised down, then early drilling suggested extraction would be tough.
Swathes of red tape and environmental regulation were the last straw: ExxonMobil, Canada’s Talisman Energy and US oil firm Marathon all quit.
Chevron, which has stayed the course in Poland, said Europe needed an EU-wide regulation framework if it was to tap into its shale gas reserves quickly enough to reap the benefit. “There’s a big unknown here,” Derek Magness, Chevron onshore Europe general manager, told Reuters recently.
Britain has promised tax breaks and new planning guidance for shale gas firms but the details have yet to emerge. Meanwhile its planning and permitting regime, which can require numerous licenses from different agencies for just one well has attracted criticism as a barrier to development.
“If you’re a global oil major, you can probably make a higher return in percentage terms and billions of dollars by going after the next place in North America, rather than coming here — where you might make a billion dollars over a very long period of time,” said UBS head of EMEA Oil & Gas Philip Wolfe.
However for Centrica, which knows the offshore geology near Cuadrilla’s onshore Lancashire licence area well, the UK shale deal is attractive. It currently operates gas fields in nearby Morecambe Bay and is looking to diversify its portfolio for gas, which it supplies to UK homes for heating and cooking.
Reuters
