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How many lights have to go out before the UK embraces fracking?

Washington DC,USA 17 February 2013: A young man carrying a protest sign journeys to the nation’s capital to participate in the largest rally on global warming in US history.

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Market Briefing
Published: September 2013
Pages: For full details, please email keithw@cmsinfo.com
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Four things the British population doesn't want are wind turbines, HS2 (a high speed rail-link connecting the English Midlands with Europe), a third runway at Heathrow Airport London and fracking. And a surprising number people not only don't want them in their own back yard...they don't appear to want them in anybody else's either!

Yet there is a crucial link between the four. They all relate to energy and land use in some form or other.

HS2 and the Heathrow runway are transport projects, and as such would see an increase in the use of energy.

Another pairing might be wind turbines and HS2, as HS2 will be an electric railway and will have significant power requirements. Not so long ago the British Department of Transport was arguing that the increased railway electrification would require additional nuclear power stations, and argued that the likelihood of a Chernobyl-type event was too great a risk, preferring diesel powered trains. How times change.

Fracking is not so much new, as new to the UK, and new to areas of the UK that have previously not been associated with fossil fuel reserves. Yet it's a technique that the oil extraction industries have honed and polished over many years. The 'surprise' perhaps has been the arrival of the oil industry without any obvious oil.

Blackpool, which describes itself as the nation's premier seaside resort, was subjected to a minor earthquake which was quickly linked to a trial fracking program in 2011 being carried out in the vicinity. Southport, the next significant coastal resort south of Blackpool, has nodding donkey's dotted around its hinterland, so oil wasn't that far away if you know where to look. Cuadrilla Resources were the firm involved and tiny tremors of scale 2.3 triggered large environmental protests.

But our need for energy and its sourcing has never been more critical. From flying to fertilisers, and from heating to hottubs, our demand for the trappings of a modern lifestyle remains unabated.

Recently analyst firm Douglas-Westwood noted that since 2000, Britain has seen largest fall in natural gas output of any country, which it put at the equivalent of 1.22 million barrels of oil per day, whilst its prices have tripled.

It noted that in the USA production rose by 2.4 million boe/day whilst natural gas prices fell there by 35%.

Douglas-Westwood attributes difference to shale gas. It notes that Britain is also reckoned to have large shale gas reserves onshore. In July 2013 the UK government announced ‘the world's most generous incentives’ to reduce tax take on shale oil and gas production from 62% to 30% and in August Cuadrilla attempted to begin drilling in southern England. The result was more protests on a scale not normally associated with Middle-class England.

Locally-produced natural gas does provide a solution to some of our urgent energy needs which is readily attainable within a relatively short time frame - unlike some of the alternatives such as nuclear power. This not only requires high capital outlay, but is also highly political. The recent and sudden U-turn by Germany is a case in point. Douglas-Westwood points to capture the alternative of energy from ‘free’ renewable sources such as offshore wind costing some three times the Capex of natural gas-fired power plant.

It will need the lights to start going out before the greater British public will appreciate the need for action. Ironically this may have moved a step closer when leader of the UK political opposition Ed Miliband this week said he would cap energy prices which led energy producers to start to redo their Capex calculations on replacement power plant.

Regards

Keith Wallace
energy-market-research

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