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December 20th, 2012

Fracking Across The Pond

by Andrew Price, President & COO

In my last blog I wrote about New Brunswick’s Frederick Brook and Horton Bluff shale formations. These formations may hold enormous amounts of natural gas and, if developed, may bring low priced natural gas into northern New England for many years. Before development can proceed, the New Brunswick government needs to settle on regulations to govern hydraulic fracturing. A similar process is playing out across the pond in Britain. Late last week, Britain’s Department of Energy & Climate Change lifted a moratorium on “fracking”. Shale gas development in Britain bears watching; higher natural gas prices in Britain and continental Europe attract scarce cargos of liquefied natural gas (LNG) away from the US. This is of no consequence today to most of the US, where prices are so low that owners of terminals designed to import LNG are rushing to reverse flow and start exporting domestically produced natural gas instead. Isolated load pockets, however, like northern New England, have suffered this year from a lack of LNG imports.

Cuadrilla Resources, is one of the companies that has invested heavily to explore Britain’s shale gas resource. Cuadrilla is backed by Riverstone Holdings, a US private equity firm whose European operations are led by John Browne, a name that will always be linked with the BP oil spill in the Gulf of Mexico. Cuardrilla received a considerable amount of press in 2011 when its fracking operations set off a series of small earthquakes in Britain. While the earthquakes were under investigation, a countrywide moratorium was imposed on fracking. The investigation found that seismic risks could be managed and that fracking should be allowed to move forward, albeit at a measured pace.

While much of Western Europe has banned or imposed moratoriums on hydraulic fracturing, Britain may be poised to join Poland, Ukraine and Lithuania, all countries that have encouraged shale gas development. The forces driving expansion of shale gas development are clear. Europe is the world’s second largest market for natural gas after the US. European prices are more than double US prices – thanks in large part to the surge in shale gas production in the US. The security of Europe’s gas supply is also an issue; much of the natural gas used in Europe is imported from Gazprom, a company controlled by the Russian government.

A surge in shale gas production in Europe is not expected in the near term. However, development of this resource could eventually reshuffle the deck – again - for producers and end users alike who are trying to understand the rapidly evolving global distribution of natural gas.

(Tags: Britain, Natural Gas, Shale Gas, Fracking, Hydraulic Fracturing, New England, Frederick Brook, Horton Bluff)

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