Finally some cracking good news for fracking industry

THE fracking revolution has taken an important leap forward, with Britain declaring its ambition to be a central player in the global shale boom.

THE fracking revolution has taken an important leap forward, with Britain declaring its ambition to be a central player in the global shale boom.

In a development with big ramifications for Australian drilling contractor A. J. Lucas, Britain this week removed its ban on fracking, with Prime Minister David Cameron insisting the nation must seek to replicate the cheap-energy bonanza that shale has delivered to the US.

A British subsidiary of A. J. Lucas - Cuadrilla Resources - was largely responsible for the ban being enforced last year after wells it drilled near Blackpool in 2011 were found to be the likely cause of more than 50 tremors.

As a result of that saga, the debate around fracking in Britain has tended to focus on seismic activity rather than the potential for groundwater contamination, which has tended to dominate the fracking debate in Australia.

But reports lodged by leading scientific agencies in Britain led Energy Secretary Ed Davey to say he was comfortable that fracking - it releases gas and oil trapped inside hard underground bedrock - could be conducted safely, so long as monitoring conditions around tremors were strictly observed.

The impact was felt on the Australian Securities Exchange on Friday, when shares in A. J. Lucas rose by just under 20 per cent, closing the week 15¢ higher at 91¢.

One of Australia's earliest movers on shale was Beach Energy and managing director Reg Nelson said endorsement from the British government was a major credibility boost for an industry that has an army of dedicated opponents.

"Having the UK come out and now sensibly say this is important, this is vital to the nation's economy, it's the vital revolution in energy for the world, is hugely important," he said. "It brings a dimension of objectivity, clarity and transparency into something that is not that well understood."

But despite the green light there is no guarantee that a booming shale industry will emerge.

BHP's petroleum boss, Mike Yeager, spoke at length recently about the unique set of factors in the US that allowed the new shale drilling techniques to develop into a major economic boom.

Aside from having a massive energy market on their doorstep, the right geology and workable landowner rules, the US drillers were aided by an existing network of gas pipelines that stretched to almost every corner of the nation.

Mr Yeager stressed that the absence of any one of these factors could prevent the shale boom being replicated in other countries.

"This is the difference between what has happened in the US and what may or may not happen in the rest of the world," he said.

At first glance Britain has several factors in its favour: an extensive gas transmission network that connects to 22 million people (and other nations such as Belgium), a large energy market and increasingly supportive regulators.

The suitability of Britain's geology remains to be seen: Cuadrilla believes it has found a massive shale belt across Lancashire, while the British Geological Survey has previously suggested the Pennines and the areas around Nottingham could have potential.

But most experts agree that more work needs to be done to prove the resources.

While A. J. Lucas is already benefiting from the new rules, Mr Nelson was unconvinced that there would be a rush of Australian expertise to Britain after this week's news.

"There is potential in Europe but one of the problems in Europe is you have a very high population density, and inevitably that will bring concerns because it's hard to communicate the right message to people at all levels," he said.

"Australia can be the place we can build these skills but, for the Asia-Pacific area in particular, there will be opportunities there and that's really the vital market," he said.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles