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UK government rejects calls for shale gas moratorium

London (Platts)--17Jan2011/843 am EST/1343 GMT

The UK gov ernment Monday ef f ectiv ely rejected calls f or a moratorium on shale gas dev elopment. The Department of Energy and Climate Change said in a
statement that it backed properly carried-out shale gas work.

"We support industry 's endeav ors in pursuing such energy sources, prov ided that tapping of such resources prov es to be economically , commercially and
env ironmentally v iable," a DECC spokeswoman said.

"All onshore oil and gas projects, including shale gas exploration and dev elopment, are subject to a series of checks, including local planning permission bef ore
they are able to mov e ahead with drilling activ ities," the spokeswoman said.

The Ty ndall Centre f or Climate Change Research, based at the Univ ersity of Manchester and the Univ ersity of East Anglia, earlier Monday called f or a
moratorium lasting at least two y ears.

In a new report the center warns of possible contamination of water supplies f rom the chemical-containing liquids used to f racture shale rocks and stimulate gas
f lows.

It argued that shale gas exploitation should be delay ed until the US Env ironmental Protection Agency produces the initial results of a research program on this
f racking work, expected "towards the end of 2012."

The US has led the global gas industry in shale gas production.

"Ev idence f rom the US suggests shale gas extraction brings a signif icant risk of ground and surf ace water contamination and until the ev idence base is
dev eloped a precautionary approach to dev elopment in the UK and Europe is the only responsible action," the report said.

The UK gov ernment, howev er, said that while it was "aware that there hav e been reports f rom the US of issues linked to some shale gas projects," it did not
think this was suf f icient reason to suspend all work in the UK.

DECC said: "We understand that these are only in a f ew cases and that, when carried out correctly , shale gas exploration and dev elopment does not pose a
threat to aquif ers or local communities." QUESTIONS OVER CARBON IMPACT OF SHALE GAS

The report's authors are also unconv inced by claims that shale gas could help in the transition to a low carbon f uture by replacing the use of coal.

The Ty ndall Centre thinks shale gas would only encourage greater absolute consumption of energy .

"Projections suggest it will continue to be used in addition to coal in order to satisf y increasing energy demand," it said.

"In an energy -hungry world, where GDP growth continues to dominate political agendas and no ef f ectiv e and stringent constraint on total global carbon emissions
is in place, the exploitation of an additional f ossil f uel resource will likely increase energy use and associated emissions," it said.

The report also warns that the "substantial" inv estment required to dev elop shale gas could limit inv estment in low carbon technologies such as renewables.

Regarding the UK in particular, the Ty ndall Centre warns that f racking work "could put considerable pressure on water supplies at the local lev el in the UK...giv en
that water resources in many parts of the UK are already under pressure."

And it raised other impacts f rom onshore drilling, including noise pollution and truck mov ements to well-sites.

The report was commissioned by The Co-Operativ e Group, the UK's largest mutual retailer, owned by its 5.5 million members, and among other things the UK's
f if th largest f ood retailer and an ethical inv estment operator.

The Co-Op backed the report's call f or a moratorium. Nev ille Richardson, CEO of The Co-operativ e Financial Serv ices, said: "We are calling f or a moratorium on
any f urther exploitation of shale gas, which will allow the wider env ironmental concerns to be f ully exposed and addressed."

The group has prev iously highlighted concerns ov er US tar sands oil production.

"As a responsible institutional inv estor we will continue to engage with energy companies in order to ensure they act responsibly and work to support the
dev elopment of sustainable energy sources," The Co-Op said.

The report's launch Monday coincides with the release in the UK of Oscar-nominated anti-shale gas documentary "Gasland."

Director Josh Fox is due in the UK to promote the f ilm. CUADRILLA ACTIVE IN UK SHALE EXPLORATION

The f irst company activ e in shale gas dev elopment in the UK is Cuadrilla Resources. The company completed a shale gas exploration well near Blackpool in
Lancashire in late 2010 and is expected to undertake f racking work to test gas production rates in early 2011.

The company has said it can learn f rom US experience to carry out its work saf ely . Speaking on BBC Radio 4's Today program Monday morning a senior
Cuadrilla executiv e gav e assurances the company would design its well in such a way that water supplies were not af f ected.

He also raised questions ov er one of the key scenes in the Gasland f ilm, which shows methane-contaminated tapwater being set on f ire in a US shale gas
production area. The Cuadrilla executiv e said the gas in the Colorado tapwater was "biogenic" -- the result of natural processes, not shale gas production.

Inv estors in Cuadrilla include Australian engineering and drilling group AJ Lucas and priv ate equity company Riv erstone Holdings, whose managing directors
include ex-BP CEO John Browne. The company --still at the early stages of its work--has been keeping a f airly low prof ile, and does not y et hav e its own website.

A gov ernment spokeswoman said Monday that Cuadrilla "has made it clear that there is no likelihood of env ironmental damage resulting f rom its shale gas
project, and that it is apply ing technical expertise and exercising the utmost care as it takes drilling and testing f orward."

Supporters of shale gas production in the UK say that it could boost the security of the UK's energy supplies and prov ide extra tax rev enues.

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And globally , if greater gas production did lead to widespread substitution of coal-f ired generation by gas-f ired generation, gas could make a huge contribution to
reducing greenhouse gas emissions.

Gas only produces about half the carbon per unit of power than coal.

--Alex Froley , alex_f roley @platts.com

Similar stories appear in European Gas Daily . See more inf ormation at http://bit.ly /EuropeanGasDaily

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