December 14, 2012

Fracking Ban Lifted – What does the future hold for energy firms?

Article by Alexis Holden.

The UK Government announced on 14 December 2012 that it would be lifting its 18-month ban on fracking, allowing energy firms to resume exploration of Britain’s vast shale gas reserves in the North West, the Midlands and the South East of the country. The announcement comes shortly after the Chancellor of the Exchequer delivered his Autumn Statement on 5 December 2012, in which it was intimated that plans will be put in place to better exploit the UK’s gas resources. To compliment the Government’s plans, the British Geological Society has also recently indicated that shale deposits in the North of England are 50 per cent greater than initially calculated. The current estimate stands at 300 trillion cubic feet of gas, equivalent to 17 times the remaining known reserves in the North Sea.

The ban on fracking was first imposed in May 2011, amidst fears that the process itself could trigger earthquakes when seismic tremors were detected in close proximity to the country’s only fracking operation at the time in the Bowland Basin, Lancashire. Concerns exist over the safety of fracking, due to the large volumes of fracking fluid pumped down the well to open up the fissures and release the tightly held gas trapped in the shale formations underground. It is understood that seismic tremors may result from this process if the fracking fluid moves along a fault line and causes the energy stored in that fault to be released to the earth’s surface.

Despite these safety fears however, the removal of the ban on fracking does not come without the introduction by the Government, or more specifically the Department of Energy and Climate Change (“DECC”), of new controls to what some may consider an already stringent regime controlling the process. The DECC has proposed the following additional controls in an attempt to further reduce the risk of seismic tremors:

  1. A review must be conducted regarding seismic risk and the existence of faults before the process of fracking begins;
  2. Energy firms must submit a fracking plan to the DECC illustrating how they will respectively address seismic risks;
  3. Seismic monitoring must be in place before, during and after fracking; and
  4. A traffic light system will be introduced, which will categorise seismic activity and provide corresponding actions to be taken by the energy firm to address the risk. A trigger mechanism will also be in place to ensure that fracking operations are stopped altogether when certain conditions arise.

Although energy firms must now appreciate that more stringent checks and balances are set to be imposed, recognition must also be paid to the numerous rewards which may now potentially be reaped because the ban on fracking has been lifted. It is estimated that Britain is sitting on shale gas reserves worth GBP1.5 trillion. Shale gas exploration may only be in its early stages in Britain, but if the experience in the US is an example to go by, then shale gas could make a significant contribution to energy security and job production, as well as allowing British energy firms to be more competitive on a global level.

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