Alf Young: Inevitable cracks begin to appear

The Chancellor is gambling that �100,000 pay-offs to communities will quieten protests about fracking. Picture: AFP
The Chancellor is gambling that �100,000 pay-offs to communities will quieten protests about fracking. Picture: AFP
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GEORGE Osborne’s plans, unveiled yesterday, to introduce the lowest taxes anywhere on the planet on companies seeking to exploit reserves of shale gas in the UK have two objectives.

First he wants us all to know he is serious about heading off any energy supply or price crunch that might overshadow the next UK general election. Second he hopes to ape the economic impact of the shale boom across the Atlantic that has helped transform America’s supply position and brought boom times to unlikely places like remote North Dakota.

His determination to pursue a production tax regime for onshore shale gas less than half as onerous as the one currently levied on offshore hydrocarbon production is already outraging green politicians and conservationists. It could also become a major issue in the ongoing debate over Scotland’s constitutional future, where the future economic impact of North Sea oil and who controls it is seen by nationalists as one of their core arguments for independence.

On these long, hot, summer days, with the gas central heating finally switched off for a while, public concern about ever higher bills for heating and powering our homes has abated. There are warnings for car owners of higher prices at the pumps soon. But raw anger about rip-off Britain on the energy front has waned. Not for long, perhaps. Fresh concerns are lurking when winter conditions return.

Last month National Grid, the company that controls the big wire networks that keep electricity flowing around the country, asked companies to consider curbing their use at peak times on workdays during the winter after next, in return for big compensation payments. The industry regulator Ofgem had earlier argued that, because of the closure of older generating plant through to the end of the decade, the UK’s spare generating capacity at times of peak demand could fall as low as 2 per cent as early as the winter of 2014-15.

The spectre of sustained power black-outs, last seen in the 1970s, are suddenly back on the political agenda. As if that wasn’t enough, we’ve discovered the UK is also facing a gas supply crunch, so another gas price hike looming this coming winter. And a significant risk of the lights going out in the dark days of the winter after that. Not scenarios politicians want to see making the headlines when a vote on Scotland’s constitutional future and a UK general election are looming.

Across the Atlantic, in the remote prairie lands of North Dakota, what a recent essay in National Geographic calls “fracking frenzy” has already propelled that state ahead of Alaska and hard on the heels of Texas, as the biggest supplier of indigenous oil in the United States. Already 8,000 wells are operating, drilling into the vast Bakken formation of shale reserves, producing more than 660,000 barrels of oil a day. Before the frenzy ends there could be 50,000 wells in production in North Dakota alone. Some suggest the US could become the world’s largest oil producer as early as 2017.

It’s an extraordinary turnaround, generating growing thousands of high-paying jobs, cutting the price of gas at US pumps and helping propel the world’s largest economy towards energy self-sufficiency. David Cameron is openly envious. And the tax breaks on shale gas production here unveiled by his Chancellor yesterday are clearly designed to try and create something resembling fracking frenzy over here.

“I want Britain to be a leader of the shale gas revolution,” claims Osborne, “because it has the potential to create thousands of jobs and keep energy bills low for millions of people.” The UK already has the biggest onshore oil field in Western Europe, the long established Wytch Farm site in south-east Dorset, discovered by the long-forgotten state-owned British Gas Corporation in 1973.

What the UK government is really after are the reserves of gas in the Bowland shale formation that stretches across eleven counties in northern and central England, from Wrexham and Blackpool in the west to Nottingham and Scarborough in the east. The British Geological Survey now believes Bowland could contain as much as 1,300 trillion cubic feet of gas.

How much of that could be recovered is, for now, anyone’s guess. And the process of getting it out – fracking or hydraulic fracturing – is a dirty, potentially polluting business. High-pressure water, sand and chemicals are injected into the shale to open up the formations and allow gas to escape up the bore hole. There are seismic risks. And potential pollution of aquifers and other water sources. There’s lots of waste material requiring safe disposal. But the prize, for prospectors, could be many years supply of indigenous natural gas.

So this chancellor is using the tax system to back a boom. There will be big capital allowances on investment. And a rate of tax on production (30 per cent) that is less than half the main current rate in the North Sea Affected communities are promised a minimum of £100,000 in local benefits from each well drilled. It remains to be seen whether that is enough to silence vociferous local opposition.

But if George Osborne does pull off a fracking boom over here and the gas begins to flow on anything like the scale fracked oil is flowing in America, there could be significant consequences for the future promotion of other, greener forms of energy here and for the part an independent Scotland’s North Sea oil bounty might eventually play in next year’s referendum.

If there are significant, exploitable reserves of gas across central England waiting to be fracked, the political momentum behind promoting greener forms of energy could wane. There is polling evidence suggesting nearly four out of five of us are hostile to continued reliance on fossil fuels. But two out five of the people in that same sample think keeping energy prices low their biggest priority. The possiblity of plentiful and cheaper fracked gas could cause an already-confused public to think again.

Here in Scotland the SNP’s approach to energy policy is to try and ride green and black horses simultaneously. It stresses how Scotland could become the Saudi Arabia of renewables, meeting our own needs in full, while exporting surplus green electricity to England. At the same time, whatever the Office for Budget Responsibility has to say about dwindling oil revenues, the SNP continues to talk up the economic impact of Scotland’s remaining offshore hydrocarbon resources.

Vast amounts of fracked oil flowing in America is changing that economy’s energy relationship with the rest of the world. It’s also putting the green agenda there on the back foot. So how might significant quantities of fracked English gas, if the lightly-taxed price were right, change the terms of the energy debate across these islands?