Thursday, 15 August 2013

Cameron talks up fracking

This week the Prime Minister David Cameron suggested in a national newspaper article that local communities will become richer and we will all see reduced energy bills if the UK embraces a shale gas revolution.

There was no discussion of other issues (such as reducing our dependence on energy) and only a cursory dismissal of some of the very real concerns that fracking for shale gas might cause – irreparable damage to our countryside, pollution in the ground and atmosphere, and severe water shortages.

But different stories are beginning to emerge from the lands of eastern Europe and even America (more of which later) where the mining of shale gas has been seriously on the agenda for a while longer.

Take Poland for instance. The Prague Post – the Czech Republic’s English-language newspaper - reported back in June that the Polish government had announced plans to improve regulation and postpone tax collection on shale gas production in the hopes of encouraging investors to continue their explorations for the fuel.

A somewhat strange move if things were going so well – but then something had to be done following the unexpected withdrawal of three North American companies from explorations in the country.

Doubts over the estimated scale of Poland's shale gas reserves began surfacing more than a year ago after ExxonMobil announced plans to cease exploration in the country, citing disappointing test drilling results.

The withdrawal last month of two more multi-nationals - Talisman Energy of Canada and US oil giant Marathon - has now cast more uncertainty over the commercial viability of shale gas in Poland.

Marathon stated this summer that it had decided to end its Polish operations after ‘unsuccessful attempts to find commercial levels of hydrocarbons’.

Talisman, meanwhile, announced the sale of its Polish operations to the Irish-based San Leon Energy group, which is presumably going to tackle things in a different way - or perhaps with the ‘luck of the Irish’ where the talisman failed.

Exploration company executives had complained that complicated environmental regulations in Poland, along with a lack of legislation on shale gas, has also caused difficulties. Some foreign firms also found the legal framework for shale gas investment in the country to be less straightforward than expected.

Shale gas mania was triggered in Poland when a report by the United States Energy Information Agency estimated the country to have untapped reserves of some 5.3 trillion cubic meters - enough to meet domestic demand for 300 years.

Polish leaders – quick to jump on the fast moving shale gas gravy train (and which government wouldn’t?) soon made shale gas exploration a priority, voicing ambitions that the country could surpass its own domestic requirements and even become a gas exporter.

The country's policy-makers had high hopes that shale gas would provide Poland with a boost to its slowing economy and help reduce its high unemployment rate of around 14 percent.

The strategy was also touted as an energy diversification tool that would lower dependence on Russia's Gazprom, which currently supplies around two-thirds of Poland's gas at some of the highest prices in Europe.

While the initial excitement and unrealistic optimism over a possible shale gas bonanza is fading, some companies remain hopeful. Lower shale gas projections arrived at by the government more recently might still be enough to meet Polish domestic demand for some 70 years and Chevron continues its explorations in Poland, currently drilling a fourth well with two more planned later this year.

The government is now working on a raft of new regulations that it hopes will prevent further departures of these firms, whose expertise and prior experience in North America is thought to be vital.

New regulations will also give North American companies the same rights as EU companies in in the belief their expertise will allow Poland to replicate the recent US ‘energy revolution’ brought about by (racking (hydraulic fracturing ).

The word ‘desperation’ comes to mind and some experts believe that attracting US companies may not be the answer because their techniques may not be as transferrable as they hoped.

So far, Poland has granted more than 111 permits to at least 30 investors, many of them from the United States and Canada, to explore what its government has touted as Europe's richest shale gas deposits.

Thirty-nine wells were planned for 2013, but according to Environment Ministry data only two had been drilled by May this year. Some 300 wells are thought to be needed to determine whether Poland could realistically be self-sufficient.

Back in the UK, in a week when the big six energy companies touted likely increases in the price of energy for the autumn, David Cameron chimed in with a lightweight piece suggesting the UK public should accept fracking and claiming the controversial method of extracting gas will attract ‘real public support’ once the benefits are explained.

Writing in the Daily Telegraph, the Prime Minister said the process would not damage the countryside and would cause only ‘very minor change to the landscape’.

His whimsical PR pros, penned in a let’s ‘dispel the myths’ style, added no depth to the case for fracking and only served to highlight once again the UK government’s inexcusable lack of a long term energy policy and failure to manage properly some of the big issues that really matter.

In demanding that shale gas drilling take place across the country, Cameron is playing a high-stakes political game based more on wishful thinking rather than hard economic analysis.

The Lighthouse Keeper is written by Clive Simpson - for more information, commission enquiries or to re-publish any of his articles click here for contact information