The U.K. wants to get moving on fracking. The nation sees the steps the U.S. has taken to achieve its own success, and with a good benchmark laid out, why shouldn’t the U.K. follow suit?
Many Brits, including Prime Minister David Cameron, see much potential in extracting oil and gas reserves across the U.K. landscape in places like Lancashire, Wiltshire, and Oxfordshire. With the advent of fracking, there is no fundamental reason why the U.K. can’t experience a similar boom like that of the U.S.
The hope is that long-term benefits can be shared by residents of the U.K., pushing energy bills down and creating confidence for a fruitful future in the British energy sector.
But there is still another side of the coin.
Naysayers argue that the U.K. will never see a boom anywhere close to that of the U.S. Those against fracking claim that the cost of production will be too high, and therefore oil and gas can’t single-handedly reduce the cost of electric bills.
The outlook in the short-term does creates some obstacles. But the U.K. has proven its resilience before – successfully operating oil and gas finds in the North Sea. And it has proven itself effective in regulating those operations, too.
If you’re for fracking, now seems to be the opportune time to move ahead.
The cost of extracting in a prominent U.K. deposit, such as the Bowland basin in Lancashire, would be between $7.10 and $12.20 per million British Thermal units, according to OilPrice.com. That, unfortunately, is much higher than many fields in the U.S. which hover around $5-6 per million British Thermal Units.
The main difference stems from a lack of drilling service providers, high land costs, and a lack of infrastructure – things you would expect from a country still in its infantile stages of development.
And then there are the angered residents that you find wherever you go, concerned and ignorant to much of the facts about fracking.
Taking Steps
But some of those headaches may go away sooner rather than later.
Britain’s water utilities are ready to start talking with drillers who need massive amounts of water supplies for fracking their wells. These same utility companies are willing to offer a discount for water to drillers at a price below what residents are paying.
The reduction would make extraction much more profitable, where municipal water rates are two-thirds higher than prices found in the U.S. That price would only impede progress and development.
Of course, this has many residents up in arms, especially as Britain has seen increasing periods of drought – most notably last spring, when several utilities imposed restrictions on their customers.
But this news falls in line perfectly with Prime Minister David Cameron’s strategy for fracking. He urges for cheap water, along with tax breaks and full government support if needed. This is part of the Prime Minister’s push for petroleum as investments in the U.K. as wells in the North Sea begin to dry up.
Cameron’s regime believes that shale is the solution to high energy costs and the British economy’s saving grace. Last year, U.K.’s natural gas production was its lowest since 1985 while the U.S. reduced its gas prices to the lowest in a decade.
The U.K. government controls water prices through the industry regulator Ofwat, according to Bloomberg. It already offers cheaper tariffs to users who consume more than 50 million liters (13.2 million gallons) a year, which reflects a cheaper cost for large volumes.
By law, British utilities must supply water for any non-domestic purpose that does not pose a risk to further supplies. Therein lies the problem; utility companies have to provide the water, but they have no idea how much they will need to provide.
Rules must be established. Question must be answered. How much water per well? How many wells? And for how long? These answers will affect not only the rate of shale production in the U.K., but the rate of consumption by its residents.
The U.K.’s largest water utility company, United Utilities Group PLC (LSE: UU), is in negotiations right now with some large industrial customers to work out low rates. These large customers are shale drillers.
Southern Water Ltd. said its industrial rate is $1.69 per cubic meter, but it is willing to drop it even lower for the right customer, according to Bloomberg – as much as 25 percent less than for your average home and business. These rates would go to shale drillers, but as of now, the company hasn’t received one application.
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Frack It
Once questions are answered and regulations are in place, things will take off, like it or not.
Water is a big issue getting started. Water supplies are crucial to drilling wells. One well alone could use 5 million gallons, and that all depends on length and how many fractures it will have. It could easily use more than that amount.
As of yet, only one company is fracking in the U.K., and that’s Cuadrilla Resources Ltd. It’s using roughly 2.5 million gallons of United Utilities water supply and won’t disclose the rate it pays.
Others in line to start fracking are IGas Energy Plc (LSE: IGAS) and Dart Energy Ltd. (ASX: DTE), the Australian explorer who is looking to start drilling in the next year.
In that time, we will see more action then we’ve seen to date, but we could be waiting a while if we have any U.S.-like boom aspirations. That won’t happen right now, and it probably never will.
