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If Centrica is prepared to risk earthquakes in Blackpool, big oil will want a share of shale

Expect to see more big names from the oil industry, such as Shell, ExxonMobil and Statoil, moving into the British shale sector now that one of their competitors – Centrica – has taken the plunge. The international companies have always taken a keen interest in the UK fracking scene…

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Whether the UK can get shale gas flowing as fast as the US has remains in doubt, but Centrica seems ready to give it a try

The Observer,

Expect to see more big names from the oil industry, such as Shell, ExxonMobil and Statoil, moving into the British shale sector now that one of their competitors – Centrica – has taken the plunge. The international companies have always taken a keen interest in the UK fracking scene, despite endless statements from their chief executives that there are better prospects in China and elsewhere.

There is some speculation this weekend that the reason Centrica paid a fairly toppy price for the stake in the Bowland Shale licence from Cuadrilla Resources was because it faced competition from Shell and others.

It is not so much the geological uncertainty that made big oil hesitate in the past, but the fear of reputational damage. And as one of the industry players told the Observer: “That all changes now because Centrica has elected to become the lightning rod for the industry.”

Indeed it will. Green groups opposed to fracking because of the chemicals used and because they believe more gas use means more carbon emissions have already condemned Centrica. A couple of small earthquakes in the Blackpool region that helped to trigger an 18-month drilling moratorium have heightened public concerns. Fracking remains banned in France, Bulgaria and some other countries.

In fact it was always likely that the British Gas parent group would be first out of the blocks, not least because it has the largest retail supply business in this country.

Equally, if anyone is going to have the inside track on what government is thinking about the future taxation structure planned for a shale gas regime, it is going to be homegrown Sam Laidlaw, chief executive of Centrica, rather than say Peter Voser, the boss of Shell, who spends much more time in The Hague than London.

Laidlaw is constantly in and out of Whitehall. Until recently he was part of David Cameron’s Business Advisory Group, while Centrica, as one of the UK’s few, and by far the biggest, British-owned power suppliers, stands most to gain from changes in UK energy policy.

Was British Gas pushed by ministers to front UK shale? Certainly Centrica had privately expressed reservations about the flack it might take if it got involved at an early stage. Ministers were keen to give credibility to a sector populated by small firms, even if some have big backers behind the scenes, such as IGas’s connections with the partly state-owned China National Offshore Oil Corporation.

But it seems more likely that Laidlaw, who as recently as January had expressed the view that UK shale was no “game changer”, just changed his mind and decided it was worth having first-mover advantage.

He had no doubt spent much time talking to John Browne, whose chief executiveship at BP was characterised by being first off the blocks (into Russia, mega-mergers with Amoco etc) and just happens to be a director of Cuadrilla and the UK government’s lead non-executive board member.

So Centrica is to spend £100m helping Cuadrilla with an exploration programme which restarts in earnest next year with a new, fourth, well. A further £60m is promised if the exploration turns into production.

But the size and scale of the shale sector in Britain remains unclear. The British Geological Survey is shortly expected to come up with some encouraging new reserve estimates. Equally, the Treasury will confirm the level of tax breaks available before the parliamentary recess next month.

But the issue that will decide whether Britain can replicate the enormous success of the shale frackers in America, where prices have dropped like a stone, is whether the gas can be made to flow from the rocks easily and in large quantities. That will only be known once more wells are drilled, but Centrica is clearly optimistic.

SOURCE

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