With energy prices on a steep upward curve fracking for gas has re-entered the energy debate. Ineos, a global petrochemicals manufacturer, has written to the UK government arguing that it should be allowed to restart fracking. But how strong is their argument?
On 11th April 2022 a Director of Ineos was interviewed during the business section of Radio 4’s Today programme. He put forward a number of points for restarting fracking ( for a transcript of the interview click here ).
The strength of an argument depends on the validity of each point supporting it and whether it leads to a valid conclusion. Also, it would be unfair to take the interview literally because of the time constraints of a radio programme, in this case just under 4 minutes. Therefore I have expanded and corrected some of the points to clarify their meaning ).
Fracking in the UK started in the late 1970s and it was mainly offshore. Onshore exploration for shale gas started in 2008 and was pursued until 2011 when drilling in Lancashire, by Cuadrilla, was halted after fracking caused two earth tremors. In 2019 the UK Government stopped its support for fracking because it was found that it was not possible to accurately predict the probability or magnitude of earthquakes linked to fracking operations. Ineos have a wide range of licences to pursue oil and gas activities in the UK. In 2015 they were awarded three shale gas exploration licences covering an area in the east Midlands. A further 21 licences were granted in December 2015. Against a background of increasing gas prices, it was reported on the 5th April 2022 that Business Secretary Kwasi Kwarteng had ordered a scientific review of fracking to assess any changes to the science around fracking.
During the interview the following points were made for restarting fracking:
Point 1: The company has spent £250 mn on exploratory fracking for gas.
It is not clear why this point was being made. Was it because Ineos had invested a large amount of money in fracking and therefore they didn’t want to lose it, or was it that they could quickly restart gas exploration to support the science?
Point 2: There is massive value for the economy and for deprived areas from shale gas.
There are two parts to this point. First the reliance of gas on the UK economy is significant. About 85% of households are heated using gas and around 50% of electricty is generated by gas. The UK imports at least 60% of its gas and is projected to increase to 70% by 2030. Secondly, linking deprived areas to a potential increase in shale gas production is complex issue. The factors affecting deprivation are more than economic. For example they include other factors such as crime, education and the environment all of which fall under the control of local and national government.
Point 3: Ineos will guarantee 6% of the value of the gas, not the profit, to local communities.
It was not clear how the guaranteed amount was arrived at. Why not other financial mechanisms to support local communities?
Point 4: There is a huge amount of shale gas but there is a need to do the science to assess how much can be extracted safely.
There is an ongoing debate about the amount of shale gas in the UK and estimates vary. For example in the UK there are shale formations bearing oil in the south and gas in the north. The Bowland Shale in the north of England is thought to contain about 1,300 trillion cubic feet (Tcf) of gas. By comparison, the UK consumes about 3 Tcf per year. However, it is believed that only a small proportion of gas in the Bowland can be extracted – maybe only about 4%.
Point 5: Although gas is not an energy security issue it can have a high price because it has to be bought on the spot market.
With a high dependency on imported gas ( see Point 2 ) then the spot price is driven by global issues. However, the UK government has stated in its latest British Energy Security Strategy, published on 6th April 2022, “that it will accelerate the deployment of wind, new nuclear, solar and hydrogen, whilst supporting the production of domestic oil and gas in the nearer term – with the target of 95% of electricity by 2030 being low carbon.” If the target is met then the UK’s dependency on gas would be reduced within the next 8 years. Against this time scale, it would be a steep challenge to establish the safe extraction of shale gas and produce it at a level that would have any impact on the UK’s gas imports.
Point 6 The UK government takes half in tax when produced in the UK.
The tax on oil and gas is a complex subject and depends on a number of factors. When I asked the North Sea Transition Authority about the level of tax on gas production in the UK they replied that it would be 40% but depended on certain criteria.
The strength of the points put forward in the interview are mixed. Although they did cover the strategic issue of energy security they didn’t address the climate crisis or how fracking would fit in with the UK governments stated medium to long term aims of reducing the UKs reliance on hydrocarbons.
I’m sure that many other companies with interest in fracking will be putting forward similar arguments to the UK government - will they frack or not frack?