A critical day in the development of shale gas in the UK

Monday 13 January will go down as a critical day in the development of shale gas in the UK, says Ken Cronin - chief executive of UKOOG. The Government, the industry and also a key new entrant all made important announcements that will help shape our energy future.

We welcomed the news that local councils and communities will benefit from 100% of the business rates generated from our industry, this is an addition to the £1.1bn community funds that the industry has already proposed. Together this creates a comprehensive programme of fair and just rewards for communities.

Many who are opposed to our industry have called these announcement bribes, but they are similar to proposals that have already been announced for the onshore wind industry and other energy related industries and reflect a growing understanding that industry needs to make efforts to ensure that local communities are rewarded for hosting sites on behalf of others in the country.

UKOOG has also launched a comprehensive supply chain study. This early study is to ensure that UK companies benefit as much as possible from the potential £3.7bn peak year investment in the supply chain and skills ensuring we create as many of those opportunities in the UK as possible.

But why is all of this important?

• Today over 80% of our homes rely upon gas for heating and cooking needs and upwards of 30% of national electricity is produced by gas;

• A number of major UK industries rely upon gas as an important direct feedstock and also energy source. Industries that employ over a million people and pay £millions in tax revenues;

• The IOD estimate that declining North Sea oil and gas production and more efficient car and truck engines will lead to a fall in tax revenues from Fuel Duty and the North Sea, opening up a tax gap of around 1.25% of GDP over the next two decades;

• A multi-year development of 100 shale gas pads of 40 laterals each could see peak production of 1,121 bcf and capital and operating expenditure could peak at £3.7 billion a year, supporting 74,000 jobs in total (direct, indirect and induced).

This should be set in context with estimates that by 2030 the UK will be reliant for about 75% of its gas from imports. These imports will potentially increase price volatility and will not contribute to UK tax revenues. Potentially imports could have much greater environmental consequences than those from indigenous sources of gas.

I am also delighted to see the announcement today by Total and a number of UK operating companies. Total with their experience of working in shale projects across the world, is giving a timely boost to our industry.

It is important to be clear that this is not a case of shale versus renewables or even nuclear. We will need all forms of energy in the course of the next few decades. In the short to medium term we don’t have a renewable solution yet that covers all of the country’s electricity, heating and transport requirements. While we develop this we will need to import our gas at times when we can least afford it or we will have to reduce dramatically the way we use our resources with all the damaging consequences that will have on our economy.

This country has a massive opportunity in all three. Unfortunately we will do none if we continue to have a debate that mirrors the absurdities of Orwell’s Animal Farm – renewables, all good- shale gas, all bad. We have a brilliant opportunity in this country to provide economic benefits through job creation, energy security through less reliance on imports and major benefits for local communities through the industry’s community benefit scheme and business rates.

We need to build on a successful and safe heritage of oil and gas exploration onshore and to capitalise on the natural resources of wind and wave.

We now need to get on and start the exploration phase to understand the geology, flow rates and costs, working with local communities in a safe and environmentally sensitive manner.