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Shale Gas Could Be UK's New North Sea: Report

Wednesday, 22 May 2013 | 2:20 AM ET
Drill pipe at a shale gas exploration site in Singleton, U.K.
Bloomberg via Getty Images
Drill pipe at a shale gas exploration site in Singleton, U.K.

Shale gas development in the U.K. could create 74,000 jobs and halve the country's future dependency on gas imports, according to a new report by the Institute of Directors, a U.K. business lobbying group.

"Shale gas could be a new North Sea for Britain, creating tens of thousands of jobs, supporting our manufacturers and reducing gas imports," said Corin Taylor, a senior economic adviser at the Institute of Directors (IoD), in Wednesday's report.

The U.S. is currently the only country in the world which produces shale gas in significant volumes, but its success has piqued interest in the U.K., where the industry is in its infancy. However, the technologies needed to explore for shale gas have only recently become available in the U.K. and hydraulic fracturing, or fracking (the technique used to extract shale gas) remains controversial due to environmental concerns. Indeed, the U.K. government temporarily banned shale gas exploration in 2011-12 after two earth tremors in Lancashire that some blamed on nearby fracking.

(Read More: A US-Style Fracking Revolution for the UK?)

Nonetheless, Taylor said shale gas development in the U.K. could propel an energy boom like the one seen when North Sea gas production began. In the best case scenario, Taylor said U.K. shale gas production could reach 1.39 trillion cubic feet (versus U.K. demand of 3.06 trillion cubic feet in 2011).

"The U.K. has done it before. In the 1960s, Aberdeen [a city in Scotland] welcomed the development of a new off shore oil and gas industry, and the city grew to become the energy capital of Europe," Taylor wrote.

"North Sea tax revenues have been considerable, accounting for more than 5 percent of total government receipts for much of the 1980s and averaging 6.7 billion pounds a year (2011-12 prices) since the first tax revenues were received in 1968-69."

Taylor added that a move towards shale gas production could reduce the U.K.'s reliance on gas imports from 67 percent to 37 percent in 2030, with a cost saving of 7.5 billion ($11.4 billion).

(Read More: Falling Petrol Prices Drive Drop in UK Inflation)

The IoD's stance on shale gas production is supported by some U.K. politicians, who view it as a way to combat both overreliance on imports and flagging North Sea production. Last month, the U.K.'s influential cross-party Energy and Climate Change Committee submitted a report to parliament which said that the exploration and development of shale gas needed to be sped up in order to aid domestic energy security. Among other advice, committee members said the government should consider giving tax breaks to offshore projects, which could hold more reserves in the medium-to-long term than those on onshore.

However, energy analysts have flagged concerns about whether the U.S.'s success with shale gas can be replicated in the U.K.

(Read More: Shale Boom Sparks US Industrial Revival)

"The untested shale rock volume in the U.K. is very large… more drilling, fracture stimulating and production testing is necessary to prove that shale gas development is technically and economically viable," said government scientists Toni Harvey and Joy Gray in a January 2013 report by the U.K.'s Department of Energy and Climate Change.

So far, only one company, Cuadrilla Resources, has fracked for shale gas in the U.K. The British company is set to begin exploratory drilling this summer in Sussex, just 31 miles south of London.

(Read More: UK Shale Gas Drilling Moves Closer to London, Drawing Protests)

In their report, Harvey and Gray added that even if the U.S.'s experience of producing shale gas proves applicable to the U.K., operating conditions will still be different.

"In the U.K., land owners do not own mineral rights, so there is less incentive to support development, and local authorities must grant planning consent. The U.S. has relatively permissive environmental regulations, low population densities, tax incentives, existing infrastructure, well-developed supply chains and access to technology.

"Cumulatively, these factors mean that it is far from certain that the conditions that underpin shale gas production in North America will be replicable in the U.K.," they said.

—By CNBC's Katy Barnato

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