UK government lifts ban on shale gas fracking


LONDON -- The UK backed the use of a controversial process for extracting shale gas in the country, which the government hopes will help stimulate renewed investment in Britain's energy sector as its aging North Sea oil and gas fields start to run dry.

Exploratory hydraulic fracturing, colloquially known as "fracking," can go ahead, subject to new controls to mitigate the risks of seismic activity, the government said Thursday.

The technique has helped unlock gas reserves trapped in underground shale rock, but critics say the technique risks damage to the environment.

"It is essential that its development should not come at the expense of local communities or the environment. Fracking must be safe and the public must be confident that it is safe," said UK Energy and Climate Change Secretary Ed Davey.

Shale oil and gas in the US has transformed the North American energy market and beyond, raising alarm bells among some members of the Organization of the Petroleum Exporting Countries who say the group may eventually need to rein in output to avoid glutting the market as US oil production surges.

Governments in the UK and elsewhere in Europe are hoping that companies can help replicate the American boom. Major global oil companies Chevron, Royal Dutch Shell, France's Total and Italy's Eni have been piling into European shale exploration for the past three years.

However, their lack of success so far has dented enthusiasm in Europe, where a US-style shale gas production boom isn't likely any time soon due to regulation, public opposition and high production costs, say some industry experts.

The UK halted exploratory fracking in May 2011 after two small seismic tremors were detected near the country's only fracking operations, run by privately held Cuadrilla Resources in Lancashire, northwest England. There has been no commercial shale gas production in the UK. so far.

The lifting of the ban is important for Cuadrilla - the only company using fracking to explore for shale gas onshore in the UK - so it can more accurately quantify how much of the estimated gas resource of 200 trillion cubic feet can be recovered.

The UK has put natural gas at the heart of its energy policy as it seeks to secure energy supplies and meet international climate targets.

The Conservative-led government has realigned its energy policy to encourage the construction of new gas-fired power stations in efforts to keep the country's lights on as old coal and nuclear plants close, while it also looks to reduce greenhouse gas emissions.

"We're very pleased that there is approval to begin to move forward. It's very significant--it's important not just for Cuadrilla but for the country to know what we have got," said Cuadrilla CEO Francis Egan in an interview Thursday.

Exploration is still at an early stage in the UK making a reliable estimate of the country's reserves difficult, and shale gas exploration has yet to attract major oil companies such as BP and Royal Dutch Shell, who say they are more focused on prospects elsewhere, including the North Sea.

"We have a broad and diverse business portfolio and look at opportunities globally all the time," said a spokesman for Shell.

Environmental concerns have presented the biggest hurdle to shale gas development in Europe.

Green groups allege that fracking, a technique which blasts the rock with sand, chemicals and water to release the gas, can contaminate groundwater. There are also fears that the drilling can cause earthquakes.

Campaigners from Greenpeace criticized the government's decision. "[Chancellor] George Osborne's dream of building Dallas in Lancashire is dangerous fantasy," said Greenpeace energy campaigner Leila Deen.

"He isn't JR Ewing and this is not the US. Energy analysts agree the UK cannot replicate the American experience of fracking, and that shale gas will do little or nothing to lower bills," said Ms. Deen.

Mr. Davey said the government concluded that seismic risks can be managed with controls that include assessment of the seismic risks and existence of faults before fracking starts, a plan showing how the risks will be addressed and seismic monitoring before, during and after fracking. The new controls include an early warning system to monitor unusual seismic activity.

The lifting of the suspension doesn't mean that fracking will start straight away.

Mr. Egan said that Cuadrilla, which obtained a license to explore in Lancashire in 2008, but had to halt fracking last year following minor earthquakes in the area, is spending "several million pounds' on advanced systems for seismic monitoring.

It must also get approval from local authorities, a process that is likely to take several months, Mr. Egan said. Cuadrilla is expected to start fracking in the first half of next year in two or three wells, he said.

In addition to lifting the moratorium on fracking, the UK government is consulting on tax incentives to open up the country's potential shale gas reserves and is creating a new Office for Unconventional Gas and Oil to give investors a single point of contact and to simplify regulation.

Dow Jones Newswires

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