Britain Plans for Future of Shale Oil and Gas Industry

By Stanley Reed

The British government said on Saturday that it would establish a sovereign wealth fund with the proceeds from extracting natural gas from shale.

The announcement, which may be seen as premature because no shale gas production is likely to occur in the near future, is another step by the government of Prime Minister David Cameron to encourage development of a shale gas industry and overcome public opposition to hydraulic fracturing, or fracking.

Edward Davey, the energy minister, said in a statement that the sovereign wealth fund “was part of this government’s broader strategy to strengthen our security of supply in a cost-effective way for generations.”

Oil-producing countries like Norway and Kuwait, as well as the emirate of Abu Dhabi, have built up large sovereign wealth funds intended to save and invest the proceeds from the extraction of fossil fuels for future generations. Studies have shown that Britain has shale gas potential, but whether the gas is commercially exploitable will not be known until more wells are drilled and tested.

With North Sea oil and gas production in decline, the government hopes that tapping into shale formations will attract new investment and provide new sources of energy.

The government is in the midst of opening up large chunks of additional land to oil and gas exploration. Bids for the new tracts were due on Oct. 28 and are being evaluated. So far only a handful of shale gas wells have been drilled in Britain, and the fledgling industry consists mostly of small operators.

Recent efforts to drill onshore in places like Balcombe, a village in southern England, have drawn protests from environmentalists and local activists worried that drilling and hydraulic fracturing will pollute water supplies and increase noise and truck traffic.

Oil and gas from shale have greatly increased energy supplies in the United States, sharply lowering domestic gas prices and helping bring down global oil prices. But the shale oil and gas industry has been much slower to take root in Europe.

There is strong resistance in much of Europe to fracking, the practice of forcing liquid and sand into wells to release trapped oil and gas. France has a ban on fracking, Germany has imposed a moratorium, and opposition has cropped up and sometimes delayed shale exploration in Eastern European countries like Romania and Poland.

In Britain, there is also concern about a growing dependence on imported fuels for industry and power generation. The country’s coal-fired and nuclear power plants are aging, leading to worries about whether the country will have adequate generating capacity in the coming years. The government has already announced payment plans to local communities by shale gas operators to compensate for nearby operations. And it is trying to clear away some of the legal and regulatory hurdles to shale gas drilling.

In an interview this week, Andrew Austin, the chief executive of IGas Energy, a British oil company with extensive shale exploration acreage, said that the government had made progress in developing a clearer regulatory framework to govern drilling.

Mr. Austin said that having tough regulations was an important part of reassuring the public that the activity “can be carried out in a way that would have minimal environmental and social impact on the communities in which we operate.”

He estimated that it would be three to five years before shale gas made a significant contribution to British gas supplies.

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