posted on: Thursday, July 31, 2014
In the first of a two part series on recent developments in the UK shale gas industry, this blog post considers the potential impact of the announcement on 28 July 2014 by the Business and Energy Minister, Matthew Hancock, inviting applications for Licences in the 14th Landward Licensing Round (the 14th Round) on the exploitation of shale gas in the UK, in the context of key recent developments in this fledgling industry.
The licensing system for the exploitation of the UK’s onshore and offshore oil and gas reserves is administered by Department for Energy and Climate Change (DECC). The award of a Petroleum Exploration Development Licences (PEDL) by DECC grants the licensee exclusivity in respect of oil or gas exploration or production within the licence area.
The 13th onshore licensing round (the 13th Round) was the latest onshore licensing round in the UK, occurring in 2008. In the 13th Round, onshore PEDLs were awarded by DECC for the exploration of unconventional hydrocarbons, including shale gas, for the first time. After planning permission was granted, consent was given to drill for shale gas in five locations, two of which were held by Cuadrilla, an independent UK exploration and production company. To date, the UK shale gas industry remains in the exploratory phase, which is the earliest phase of development.
During this initial stage, the shale gas industry in the UK has experienced notable setbacks. The UK Government announced a moratorium on fracking in the UK following seismic tremors (with magnitudes of 2.3 and 1.5) arising from fracking activities at Preese Hall in Lancashire in April and May 2011. Preparations for the 14th Round originally began in December 2010, but were suspended after the events at Preese Hall.
In December 2012, the Energy and Climate Change Secretary of State announced that new regulatory requirements were being introduced to reduce the potential seismic risks associated with fracking activities in the UK and that fracking could resume in the UK. With this announcement, preparations for the 14th Round also resumed.
Further positive news for the industry followed in June 2013, when a report published by the British Geological Survey (BGS) in association with DECC estimated that there is 1,300 trillion cubic feet (tcf) (central estimate) of shale resources deposits in the Carboniferous Bowland-Hodder Shale area, which stretches from Blackpool and Wrexham in the North West of England to Scarborough in the North East of England. The potential significance of these estimated reserves for the UK’s future energy needs is put into perspective when compared to the annual consumption in the UK of just over 3 tcf.