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Cameron’s fracking backing gets warm welcome

A hydraulic fracturing site
Getty Images
A hydraulic fracturing site

British Prime Minister David Cameron's explicit backing of fracking – the controversial process of recovering gas and oil from rock, which has divided communities across the U.K. – was welcomed by analysts on Monday.

Cameron wrote an article in the The Daily Telegraph newspaper on Monday which said the U.K. could "not afford" to miss out on fracking because the "benefits were clear".

This unequivocal support of the process was welcomed by analysts, who said the economic benefits of fracking in the U.K. could be significant.

"I welcome the move. Anyone with an open mind can see the potential benefits of fracking so vastly outweigh any potential risks," Malcolm Bracken, oil analyst at Redmayne Bentley, told CNBC.

Likewise, Malcolm Graham-Wood, oil and gas analyst at VSA Capital, said Cameron was right to argue in favor of the process.

(Read more: US shale oil threatens to derail OPEC's future: IEA)

"We know there's lots of gas down there; we don't know whether we can get it out or not," he told CNBC. "But you've got to give it a chance. To not try – and you weigh this against potential problems – you risk missing out on a whole host of economic benefits."

Fracking, which is also known as hydraulic fracturing, involves directing a high-pressure water mixture into the earth to force gas out. Earlier this year, the British Geological Survey estimated there was around 40 trillion cubic meters (1,300 trillion cubic feet) of shale gas in the ground in the north of England.

But the process has become a matter of national debate in Britain, with protesters arguing the process could cause earthquakes, pollute the water supply and destroy the environment. Local residents have rallied against plans to build wells in their areas, and campaign groups like Frack Off have organized protests against "unconventional gas" which it says "threatens communities".

Cameron, however, insisted on Monday that fracking was safe and said international studies had proved there was no evidence it caused environmental damage, if properly regulated.

Bracken agreed: "Yes there are some environmental issues, such as the potential for methane leakage, but if it is tightly regulated, you can keep these at a minimum."

Not in my bad yard?

Neil Atkinson, director at Datamonitor Energy, said the issues surrounding fracking were political, rather than scientific.

(Read more: Underground economy: How shale is 'fracking' the old order)

"The risks of earthquakes and water contamination have been grossly exaggerated," he told CNBC. "Instead the main problem is political: no one wants a fracking well in their backyard, and people might not vote for a political party that has given it the O.K."

As such, he said that Cameron's supportive article on fracking was surprising – especially given his Conservative Party's delicate position in a coalition government.

"I actually think it is quite brave of him to come out so whole-heartedly in favor of it ahead of the next general election," Atkinson said.

One of the main thrusts of Cameron's argument was that fracking has "real potential" to push energy bills lower. The process has certainly had this effect in the U.S., where gas prices have fallen steadily as a result of the increased gas production.

"It's simple – gas and electric bills can go down when our home-grown energy supply goes up," Cameron wrote.

But Bracken warned this might not happen to the same extent in the U.K.

"It wouldn't bring down gas prices in the same way, because we're plugged into a much larger gas network," Bracken said, adding that prices might fall due to increased supply, but the effect would be much less dramatic that in the U.S.

Instead, Bracken said the bigger impact would be increased government revenues from taxing fracking producers. "That would be a bigger economic effect than on straight-forward fall in gas prices."

VSA Capital's Graham-Wood added that another benefit of fracking in Britain would be to reduce its reliance on gas imports from countries like Norway, Qatar and Russia.

(Read more: Fracking Bringing Economic Growth to Pennsylvania, for Now)

"If for whatever reason, these countries didn't want to supply Britain it would be in serious trouble," Graham-Wood said. "But if it has got its own supply, it won't have to buy it from anyone - which is actually more important than getting the gas price down."

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

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