‘Too early’ for shale gas fund
THE plan for shale gas revenues to be put into a new sovereign wealth fund for the North was first trailed by the Government last month.
The idea was formally confirmed in yesterday’s Autumn Statement but has already been the subject of a Lords debate.
Michael Bradshaw, a professor of global energy at Warwick Business School, believes it is too early to discuss such a fund as the industry is in its infancy.
And Simon Colvin, a lawyer at Weightmans in Manchester, believes more clarity is needed on how the money will be raised and how it will be spent.
Energy and climate change secretary Ed Davey has previously said the proposed fund would be set up once commercial production of shale gas begins.
He has said the money could be used for low carbon energy projects across the UK, but George Osborne made it clear in his Autumn Statement that investment would be focused on the North, where most of the shale deposits are.
Environmentalists claim fracking, which involves pumping water and chemicals deep under ground at high pressure to release gas, can pollute water supplies and the atmosphere.
But the industry, and the Government, argues the gas is essential for the UK’s energy security and could drive a massive new industry, worth £33bn over the next 15 years.
Mr Bradshaw said: “This is laudable, and one wonders why the UK never did it with North Sea revenues, but it is premature in the extreme, as we do not yet know if we have a commercial opportunity. For now the focus should be on gaining public acceptance for exploratory drilling, rather than on spending money that may never materialise.
“All the indications are that the UK’s reliance on imported gas will continue to increase. It currently stands around the 50% mark and could be as high as 70% by the end of the decade. This explains the Government’s desire to promote shale gas development in the UK, not only would increased domestic production reduce dependence on imports, it would promote the domestic economy and improve our balance of payments.
“The problem is that the unconventional oil and gas industry in the UK is barely in its infancy. Before we can properly assess the possibility of commercial shale gas production we need to see a programme of exploration drilling.”
Mr Colvin, a partner who heads the environment team at Weightmans, said: “The real questions are what is meant by revenue? Will it be all income generated in terms of tax? How will the money be distributed? There are already concerns as to how other financial benefits will be shared with communities. Will the money be targeted at communities and locations that are particularly affected by fracking operations, or will the money be used across the wider region? These are issues that will need to be discussed and worked out.
“There is still a long way to go before the fracking industry in the UK gets off the ground, but the UK government has again shown its commitment to fracking as part of the UK’s future energy mix. The irony is that all of this might not matter if the attempts by Saudi Arabia and OPEC to drive down oil prices succeed in making fracking unviable. That’s likely to be the next big story.”
In the North West IGas is carrying out exploratory work at Ellesmere Port and Cuadrilla is preparing to drill next year in Lancashire.
