Centrica plans £160m shale gas exploration

The group has paid £40 million in cash for a 25 per cent stake in the Bowland shale licence in Lancashire, thought to contain as much as 200 trillion cubic feet of gas – enough to meet the UK’s gas demand for 70 years if it could all be extracted.

Centrica will also pay up to £60m in exploration and appraisal costs, followed by another £60m payment if it decides to press ahead with the development of the prospect.

Mark Hanafin, managing director of the group’s international upstream business, said: “This transaction presents an attractive opportunity for Centrica to explore the potential and commercial viability of natural gas from shale in the UK.”

The Bowland site is operated by Staffordshire-based Cuadrilla Resources, while Australian drilling services firm AJ Lucas also has a stake in the licence.

Extracting shale gas has proved contentious because the process involves fracturing rocks by pumping in chemicals under high pressure, leading to concerns over earthquakes and water contamination.

A moratorium on shale gas fracking, imposed by the UK government after drilling by Cuadrilla led to minor earthquakes in the Blackpool area in 2011, was lifted last year.

According to a recent report from the Institute of Directors, exploitation of the UK’s shale gas reserves could more than halve the proportion of gas the country has to import by 2030. It predicted that nationwide investment could peak at £3.7 billion a year, potentially supporting 74,000 jobs.

Although initial data suggests that there could be 200 trillion cubic feet of gas in place within Cuadrilla’s Bowland shale licence in Lancashire, Centrica said further drilling would be needed to establish whether the discovery is commercial.

Hanafin said: “With North Sea gas reserves declining and the UK becoming more dependent on imported gas supplies, it is important that we look for opportunities to develop domestic gas resources, to provide affordable sources of gas to our customers, and to deliver broader economic benefits to the UK.”

“The government’s clear commitment to developing the UK’s shale gas industry is creating the right environment for companies to invest.”

Energy Secretary Ed Davey recently admitted that shale gas produced in the UK is “unlikely to move global prices significantly” but said it does have the potential to attract inward investment in certain areas.

Cuadrilla chief executive Francis Egan said: “Natural gas from UK shale can create thousands of jobs, generate significant tax revenues, reduce our ever-increasing reliance on imported coal and gas and make a positive contribution to the country’s balance of payments.”