The core question for the UK shale industry is whether investors are prepared to fund this endeavour without any meaningful revenue generation for 8-10 years? Given: 1) widespread capex drawdowns from the supermajors – who have been the historical paymasters of the small E&P companies; 2) the recent politicking from Labour on energy policy; 3) the public unarrest towards shale; and 4) the current state of the Polish shale industry, which is more established than the UK, this is highly debatable.
The last point is particularly salient. If one wants to understand the future history of UK shale companies, such as Igas or Cuadrilla Resources, then reviewing the Polish shale industry is an excellent place to start. For example, 3-Legs Resources, a Polish shale gas pioneer, reveals the bleak reality of shale development outside North America. The share price of 3-Legs has being trading at cash for the last 3 years; its capital is dwindling as its expensive drill tests have produced unconvincing results and new investors stopped buying into catalysts.
Sources and analytics available on request
Unsurprisingly, the primary data providers of the aforementioned analysis, Woodmac, are also the most bearish on the potential commercialisation of UK shale. In its 2012 report ‘UK Shale Gas – fiscal incentives unlikely to be enough’ Woodmac concludes that a commercially viable UK shale gas development will only be possible if the subsurface is as good as the very best shale plays in North America. This prognosis is entirely independent of public disdain towards shale. It’s hard not have admiration for protesters who are steadfastly contesting the development of UK shale, but one wonders whether these individuals would be more relaxed if they knew the UK shale industry has a greater chance of failing than succeeding.
California’s shale flop highlights the perils of politicising shale resources. EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.
If clear, objective research on the potential for commercialisation was not continuously drowned out by ridiculous claims about UK shale reducing gas prices or causing destructive earthquakes, then perhaps the public could make an informed decision about this energy source and its potential role within the UK’s energy mix. Currently we have a shouting match between the absolutists who are against shale and the game-changers who are pro shale. Both are misguided and are unknowingly undermining their interests.