UK Cannot Exploit Its Shale Gas Reserves Political opposition and bad laws prevent exploitation of vast resources

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WASHINGTON – The US is enjoying the immense economic benefits of the hydraulic fracturing (“fracking”) revolution that made it possible to exploit previously untapped vast shale gas and shale oil reserves. The energy extracted from these enormous “unconventional” shale deposits has transformed the American, and indeed the world energy outlook.

Hemispheric Energy Security

From the standpoint of “Hemispheric Energy Security” North America is almost totally energy independent. If you add imports from Canada and Mexico to the increased US supply, we are almost there. While the US still buys some oil from OPEC countries and other producers, most of its supplies now come from within North America. This transformation has and will have significant geopolitical implications.

More shale across the globe

That said, it is important to note that there are immense shale reserves across the globe. Plenty of shale gas in China, Argentina and elsewhere. Therefore, is it reasonable to expect that the fracking revolution that began in the US will continue in other countries, following the American example?

In principle, yes. But it is unlikely that shale development will move at the same pace. In part this has to do with geography and geology. For instance, it seems that many Chinese shale deposits are located in hard to reach, less developed North Western regions. Getting there is complicated. Extracting shale gas will be difficult, because these arid regions lack the large amounts of water necessary for fracking operations. Finally, moving natural gas from there to the densely populated Eastern regions will require the construction of expensive new pipelines.

Bad politics, bad rules 

That said, geography is not the only obstacle. Take Great Britain, for example. It appears that there is plenty of shale gas in the UK. But almost nothing has been done to exploit it. And this is essentially for two reasons.

Reason one is that the country is a prisoner of an environmentalist culture that fabricated and disseminated lies and distortions about the “dangers of fracking”. Untrue stories (created by US environmentalists) of fracking disasters, plus alleged clear threats to water and soil, are used in the UK to make the case that Britain must avoid this environmental calamity by banning fracking.

Ideological prejudice 

Well, guess what, none of this is true. If energy companies follow, as they should, proper protocols and procedures, fracking is safe. This is the evidence gathered over many years of fracking in Texas, Pennsylvania, Louisiana, Oklahoma, Ohio, West Virginia, Colorado and other states . Thousands of wells have been safely drilled in the US. A major report just released by the US Environmental Protection Agency, EPA, (no friend of the US fossil fuels industry), indicates this much. But this reassuring evidence does not matter.

Environmentalism is now akin to a religion. It is based on beliefs, not facts. The UK anti-fracking crowd will continue to oppose drilling no matter what the evidence gathered after more than a decade of shale oil and gas exploitation in the US says. Needless to say, this vocal and well-organized political opposition is a huge impediment. They will vote for local officials opposed to fracking. They will disrupt operations of energy companies.

Bad rules 

Reason two. In the US the fracking industry advanced rather fast because the legal and regulatory framework (state and federal) allows speedy action. Needless to say, in the US energy companies have to obtain permits, comply with state safety and environmental rules, and more. However, in general these are sensible regulations that have been created to establish and uphold reasonable safety and environmental standards, and not with the intent to block the energy industry in general, or fracking in particular.

But the real incentive is that shale gas exploitation is a true economic win-win proposition in America. And this is because in the US land ownership includes ownership of the mineral rights. In other words, a Pennsylvania farmer owns the shale gas deposits that exist under the surface of his or her land. And this means that by leasing his or her land to an energy company he or she will get rich, possibly very rich.

No such economic incentive exists in the UK. In Great Britain, the state, and not the land owner, has the mineral rights. This being the case, beyond the energy companies that see a profit opportunity, there is no natural constituency favoring fracking, while there are large environmentalist groups that loudly oppose it, (see above).

The UK Government is aware of this. It has created new incentives by mandating that the counties and localities that will allow fracking on their land will get some of the proceeds. This may be a good attempt to create pro-shale development constituencies. We shall see.

In the US land owners benefit

But nothing beats the obvious direct interest of the individual American land owner who welcomes the energy companies interested in drilling on his or her land because he or she stands to gain from fracking.

Pro-business laws make a huge difference

What’s the point of all this? The point is that mastery of the new technology and favorable geology are only half the story. Whether we are talking about fracking or some other industry, a key variable is having a pro-business legal and regulatory environment.

Look at the UK. This is a modern, capitalistic country that really needs more domestic energy. Well, luck has it that there is plenty of shale gas under its soil.

And yet it cannot be extracted because of a nasty combination of ideological prejudice and bad laws that do not help the development of the domestic energy industry.

 

 

 

 

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