UK Looking To Be Net Energy Exporter By 2040, Problems Ahead
The UK has announced plans to become a net energy exporter by 2040. This includes lifting the 2019 ban on fracking and offering 100 new North Sea exploration licenses.
After lifting the fracking ban, the UK government suggested shale gas production could start within six months if local communities support development.
The announcements came as part of a broader response to the UK’s energy crisis, which included price caps and a reaffirmation of the UK’s adherence to the Paris Agreement. The government remains committed to the 2050 net-zero target – but the plan for how to achieve it will be reviewed.
According to WoodMackenzie, shale faces too many headwinds to make an immediate impact. While there are very few details on the UK’s net export plan, Woodmac believes shale gas faces too many political, technical, economic, and funding headwinds to make a material impact this decade.
Removing the fracking ban is a step forward for shale proponents, but for a new supply to materialize, E&Ps would need to commit to exploration and appraisal work, and a shale oilfield service sector would need to emerge.
Even if drilling were to start straight away, 2023 volumes would be negligible relative to immediate energy issues. With only a handful of wells drilled to date, the exploration and appraisal process could easily run into the latter half of the decade.
As with all shale basins, the UK’s gas initially in-place volumes appear vast. But economically recoverable gas is the key indicator. Purely for indicative reference, the UK’s highest-profile Bowland-Hodder upper formation’s gas initially in place is similar in scale to the Fayetteville, a mature shale play in the US Lower 48.
Fayetteville is nearly fully developed with over 6,500 wells to date, and 10 tcf of cumulative production. Replicating this in the UK, from a standing start, even assuming similar or better well performance – which is unproven – is a gargantuan challenge.
“Despite the ongoing energy crisis, shale developments will face even higher levels of public scrutiny than offshore. Incentives will need to be sufficient to align all stakeholders. But hydraulic fracturing has proven to be a highly contentious issue in the UK and even the ongoing energy crisis will not be enough to galvanize positive public opinion,” Woodmac said.
This poses the question if offshore could be part of the solution. Namely, in the last license round held in 2019, 113 licenses were granted, though no wells were committed by the 65 companies which participated. New licensing was paused in 2020 as part of a review into the compatibility with the UK’s 2050 net-zero goals set out in 2019.
A climate compatibility checkpoint test must pass before the round can take place, which may limit the viability of some prospects on offer. Exploration still has a role to play in the UKCS, but drilling activity is at historic lows. The addition of new acreage is unlikely to reverse that trend significantly.
If the UK is to reach self-sufficiency, a significant drop in oil demand must occur. It is plausible for that to happen, but only if the demand is driven down rapidly by the electrification of transport and other measures and supply reaches Woodmac’s high-case scenario.
Achieving self-sufficiency in gas is not achievable Woodmac claims, even by 2040. Even with demand falling and production reaching the high case scenario, the UK will most likely remain a net importer of gas.
Renewables, hydrogen, carbon capture usage and storage (CCUS), electrification, and efficiency are the most critical components in net-zero and self-sufficiency ambitions. As the plan is fleshed out over the next two months, there needs to be clarity from the government on incentivizing and accelerating capital allocation into these vital areas. Doing so would take the UK closer to its ambition of becoming a net energy exporter.
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