Market view: Shale being prepped to go

This government has signalled a much more positive support for shale exploration than the last, and once the oil price recovers the UK could be ready for production. By Simon Colvin.

On 6 October Sajid Javid, the secretary of state for the Department for Communities and Local Government (DCLG), overturned Lancashire County Council’s decision of June 2015 not to allow Cuadrilla permission to undertake further exploratory drilling for shale gas at the Preston New Road site in Preston. Javid did not make a decision on a second appeal by Cuadrilla concerning the Roseacre site, but indicated that he is minded to grant permission if appropriate conditions can be developed to address concerns relating to vehicle movements.

The government confirmed its intention to call in the decision in November 2015. Their announcement last week followed the recommendations of the planning inspector after a public inquiry in February and March 2016. The decision marks another step on the road to more widespread shale gas exploration, and possibly production, across England.

The grant of permission for Cuadrilla to undertake further drilling is significant because other operators are following Cuadrilla’s lead. North Yorkshire County Council and Nottinghamshire County Council are both currently considering separate applications, from Third Energy and IGas respectively. The government’s decision sets a precedent for these other applications. Although those applications will be judged on their own merits, there is an air of inevitability.

Under the 2010-15 coalition government, the localism agenda suggested that decisions in relation to fracking and shale gas exploration would be left to local communities. That approach soon changed when the government woke up to the potential represented by shale gas. Government statements in recent years have indicated the level of support for fracking. Many believe that support is now being borne out in the government’s recent decision and will no doubt be reflected in future decisions should other applications reach the same point.

Many commentators have long believed that the government will at the appropriate time incorporate shale gas activities into the Nationally Significant Infrastructure Projects programme pursuant to the Planning Act 2008. The aim would be to try and accelerate the decision-making process and limit the influence of local politics.

The reality is that it is unlikely there was the political will to take such action with a general election looming. Fracking is not a vote winner. It may be that with Brexit on the horizon, the government takes the opportunity to centralise the decision-making process in relation to an area that is highly politically charged and at the centre of the UK’s ongoing energy debate.

In practice we will not see the widespread rollout of fracking operations in England until the oil price recovers and the economics of fracking make more sense. There is ongoing turbulence in the global oil markets as a result of the significant shale gas production by the US and the resulting impact this is having on oil production and prices, driven predominantly by the Middle East.

Once the economics do make sense, we expect operators to build on the foundations laid by these early applications and appeals. The scaling up of fracking operations will undoubtedly be more rapid than these pioneering projects.